Leaseholder vs Freeholder: Definitions & Responsibilities Explained
The terms “freeholder” and “leaseholder” refer to the owners of both freehold and leasehold properties respectively.
Quite commonly, a freeholder will be responsible for leaseholders, and will be in charge of organising things like ground rent, whilst a leaseholder will hold the owner of their freehold property responsible for a number of things relating to the building, such as ground rent costs.
But what do the differences mean in relation to the leases, and what are the responsibilities of a leaseholder vs those of a freeholder? Here’s the general overview so that you know who is who, and who does what.
A freehold can be defined as permanent and absolute tenure of land or property with freedom to dispose of it at will.
The definition of a freeholder refers to somebody who owns the freehold of a building including the surrounding land it stands on.
In a leasehold vs freehold scenario, the freeholder is often a private company or individual, sometimes the person that developed or converted the block, or a property investor that has bought the freehold at some point. The freeholder can also be a group of leaseholders that have bought the freehold together via the collective enfranchisement process.
The freeholders makes decisions about service charges, ground rents, rules for living in the building, and any major works that will be undertaken.
On the other hand, a leaseholder refers to someone who leases a specific property for a specific period, as detailed in the agreement – the ‘lease’. A leasehold also only refers to leasing a specific part of a building, such as an apartment or flat, and not the land the building is on. It’s not really owning property, but instead a very long term rental agreement.
Leases range from 20 to 999 years, and the lease is agreed with the freeholder of the property.
Where freeholders will set ground rent and service charges, leaseholders will need to pay these to not be in violation of their lease.
When the lease expires, the full ownership of the property reverts back to the freeholder. However a lease extension can be granted by approaching the freeholder formally or informally. How much a leasehold extension costs depends entirely on how much the property is worth, how long the lease has left to run, how much ground rent the leaseholder is currently paying, and any professional fees that are needed.
What are freeholder responsibilities?
Those who own freehold property typically have a wealth of responsibilities relating to all aspects of building maintenance and tenant welfare. Common responsibilities include:
Building maintenance and repair
Freeholders are typically in charge of maintaining and arranging repairs for the building’s structure. This includes the roof, as well as common areas such as stairwells and communal gardens. Freehold owners are solely responsible for organising the repairs, and any associated expenses are paid for by leaseholders through the service charge.
Freeholders must also arrange repairs for central heating and utilities because it’s a legal requirement that every leaseholder has a reliable central heating system in their apartment, as well as ample lighting during evening hours. In addition, it is recommended that all flat owners have access to a proper ventilation system in their kitchen areas. These are basic living necessities that must be included in a flat or apartment during the day of the contract’s signing.
Cleaning and maintenance of communal areas
If a freehold property is a block of flats, there will almost certainly be common spaces used by all of the leaseholders. This might include communal corridors, stairs, lifts, and doors. The responsibility for maintaining these areas rests with the freeholder. The costs for this maintenance are again paid for by leaseholders through the service charge.
Calculating ground rents and service charges
Ground rent charges are now under heavy criticism due to a rise in freeholders demanding exorbitant ground rents. The government has said that leaseholders should not be required to pay fees that are solely for the benefit of the freeholder.
Leaseholders usually have to pay ground rent, which is the fee charged by the freehold owner of a property for the use of the land. Ground rent is usually paid annually, although the contract may dictate something else; bi-annual or quarterly payments are other popular options. How much ground rent leaseholders pay is dictated by the lease, and whilst it should not be onerous, once a lease is signed it cannot be changed except by agreement with the freeholder.
On the other hand, with service charges freeholders must detail everything that a service charge covers, including what the money is used for. Service charges may be paid annually, biannually, or monthly and a payment schedule will be determined in your lease agreement. Service charges are estimated based on anticipated property operating expenses. Typically, service charge costs range from £1,000 to £2,000 per year. Buildings with newer features, such as indoor gyms, will most likely necessitate higher service fees.
There’s a lot to keep in mind when purchasing freehold property.
Arranging buildings insurance
The most significant responsibilities of a freeholder include preparing and renewing structures as well as other required insurance policies.
As the freeholder, you must hold comprehensive building coverage. If a calamity occurs and damages are made to the property or premises, your insurance provider will be able to correct this with ease if they are covered by a comprehensive Buildings Coverage policy that covers any damage caused by accidental events such as fire and storm-related incidents.
The freeholder must provide management reports to the leaseholder demonstrating how money collected from setting, collecting, and spending the ground rent and service charges has been spent.
What are leaseholder responsibilities?
In leasehold properties, leaseholders have a number of responsibilities that mostly allude to the upkeep and good maintenance of their leased property, as opposed to the maintenance and upkeep of the entire property. Responsibilities are typically outlined in the lease, but mostly include:
Maintenance of the property
The leaseholder is in charge of the property’s interior, including plumbing, aesthetics, and flooring. Leaseholders must ensure that the house is kept clean, well-maintained, and pleasant to live in, including making sure appliances and installations are in line with present laws (for example, yearly gas safety checks).
Paying ground rent and service charges
Leaseholders must pay ground rent and service charges on time, and in accordance with that which has been set out in the terms of the lease by the freeholder. If the leaseholder feels the amount is unjust, they and other leaseholders can challenge their maintenance costs with the freeholder through the First Tier Tribunal, which is a property court.
Obtaining permission for significant property changes
Significant property changes refer to things like signs, aerials or notices being erected on exterior walls, or opting to keep a dog, cat or other pet inside the property. Because the property is only leased, the freeholder has overall say on the appearance and protection of the property and some will not permit pets due to potential damage (this will often be written in a lease).
To be respectful to other leaseholders
Leaseholders in a communal property are required to be considerate of other neighbours by deadening sound coming from inside their property, and keeping communal areas clean, tidy and workmen accessible. They must also avoid creating a nuisance to other occupants or neighbouring buildings by not allowing waste spoil or damage in the demised premises or any activity that is disruptive.
The leaseholder is responsible for maintaining the interior of their property in good condition, paying things like ground rent and service charges on time and preventing other leaseholders from being disturbed.
The freeholder, on the other hand, is responsible for maintaining the land’s condition, the building structure and its common components, as well as any concerns affecting the local community such as appearance, noise, and nuisance. The service charge paid by each leaseholder covers the cost of fulfilling the freeholder’s responsibilities.
The lease specifies which expenditures the freeholder is responsible for, such as maintenance and repair, that are covered by service charges paid by the leaseholders. Although the lease appears to favour a freeholder, it also protects a building’s appearance and value.
Unhappy with how your freeholder is running things?
Should leaseholders disagree with the way the freeholder or management company is running their property, they can purchase the freehold of their building under the leasehold reform act – and that’s where we come in.
At the Freehold Collective we’ve helped countless leaseholders become freeholders with reduced service charges, no ground rents, and overall improved building maintenance and upkeep. Want to join them? Get in touch or try our new Freehold Calculator for an instant and accurate estimation of the value of your freehold.