Leasehold, Lease & Land Ownership Information
In English Law (which governs England and Wales) there are two types of legal land ownership (or estates in land). These are leasehold and freehold. In legal terms an estate is not an area of land but rather, a bundle of rights, obligations and interests that affect a particular parcel of land. This means that a piece of land be subject to more than one legal estate.
All land is subject to a freehold estate and there can only be one freehold estate in respect of any given piece of land. It may however also be subject to one or more leasehold estates.
What is Leasehold Property or Land?
Leasehold, or term of years absolute to give it its Sunday name, is the term used to describe an exclusive right to use and occupy a piece of land to the exclusion of others, including the freeholder, for a fixed term. This interest is created by a document called a lease, which will also contain a number of other rights and obligations applicable throughout the term.
A lease is granted by the freeholder in exchange for a sum of money (the premium). At the end of the term, the lease comes to an end and the property reverts to the freeholder.
What is the Difference Between a Lease and a Tenancy?
A lease is actually just a special type of tenancy. Unlike, say, an assured shorthold tenancy which typically lasts for six months however, a lease is a legal interest in land and can be sold, bequeathed, gifted or mortgaged by the tenant (the leaseholder). An assured shorthold tenancy is merely a personal right and cannot bind or benefit third parties.
In a practical sense, a lease is generally much longer than a tenancy, typically lasting for 99 years though many leases are for 999 years. Instead of paying several hundred pounds per month in rent, a premium is paid on the grant of the lease which is comparable to what would be paid for a freehold property. A ground rent is usually still payable but this will usually be no more than £250 per year.
What is the Benefit of Leasehold Title?
Obviously granting a lease rather than simply selling the freehold has advantages for the freeholder as he can collect rent, he (or more likely his successors) will recover the property at the end of the term and he can influence the way the property is used.
Where the property is a flat, there are also advantages to the leaseholder. If all the flats are leasehold, with the leases being granted in similar terms and with a common landlord, the landlord can exercise control over all of the tenants and ensure that for example, they make maintenance charge payments toward the upkeep of the common parts of the building and they do not do anything which might cause a nuisance. Although it is possible there could be a block of freehold flats where each tenant covenants with all of the others to maintain and repair etc, these covenants would not be enforceable against subsequent buyers of any of the flats.