Confused by Tenure?

It is so extremely easy for those of us 'in the game' to simply assume that our clients and potential clients know exactly what we are talking about when we use industry terminology, no more so, when it comes to tenure!

This was highlighted in a recent conversation with a potential buyer from the other side of the pond who struggled to understand the various ways we can own a property in England.

It is easy to understand why this is a challenge, especially when you start to research it yourself, there is such a minefield of information available, more so when things are different again in Scotland!!

We thought it would be nice to try and summarise the more common tenures in this medium read, in simple terms.

In England there are essentially two main types of tenure - Freehold and Leasehold. There is also a third type of tenure called Commonhold however this is extremely rare at present with less than 200 commonhold properties in the whole of England.

So, firstly, you have Freehold, this, rather simply, is where you own the entire property in perpetuity (Forever) including the land and any buildings on it. The freehold may be subject to rights and restrictions in favour of others such as a right of access over part of it.

Leasehold differs from freehold in that with leasehold you only hold the property for a period of years and at some point in the future, the lease will come to an end and the property will revert to the freeholder. The lease might be as short as a few years or could be for an exceptionally long time… even as long as 999 years.

With leasehold, there is a freeholder who owns the land and usually the structure of the buildings and you as leaseholder simply rent the property (usually a flat but it can be a house) for a period of years at a low rent known as a ground rent. The freeholder will usually be responsible for managing, maintaining and insuring the development with the leaseholders having to pay a service charge to cover these costs.

The service charge is normally payable to a managing agent appointed by the freeholder to manage the development. The lease of any leasehold property will detail what the leaseholder is responsible for and what the freeholder is responsible for and there are often variations between different leases, so it is always important as a leaseholder to know what your responsibilities are. Importantly with a leasehold situation, the lease will provide mechanisms for the freeholder and the leaseholder to force the other party to carry out their obligations.

The length of a lease can cause problems in itself. Locally, many flats were originally sold on 99-year leases, and many are now running quite short. It is worth remembering that a lease below 80 years can cause problems with obtaining mortgages.

There is legislation which gives leaseholders the legal right to extend a lease however this is a complex subject which we will cover another day!!

If you are looking to buy a property where the lease is less than about 85/90 years unexpired, you should always seek advice from your solicitor or a surveyor specialising in the valuation and negotiation of lease extensions. You will also need to check that the existing lease length is acceptable to your mortgage lender.

There are some important terms to understand which are not tenures in their own right, but often crop up and are sometimes confusing or misunderstood.

You may come across the term 'Flying Freehold', this is as it sounds, you own the freehold of the property, but not down to the ground and up to the sky but, instead, just a slice!!!

With a flying freehold someone else will own a different slice of the same land area either above or below what you own. This is often found in old cottages where the first floor of one cottage may be above the ground floor accommodation of the other. Both of these cottages would then have a flying freehold as the flying freehold doesn't need to be in the air, it can be at ground or even below ground level such as a cellar under another property. Another example might be where the first floor of a house extends over a road or alley way which is in a different persons ownership.

Flying freeholds can cause problems with maintenance responsibilities and some mortgage lenders do not lend if there are any sizeable flying freehold areas. When purchasing a flying freehold, you should always make sure that your lender or financial advisor is aware that there is a flying freehold in place.

In the Worthing area we have a bit of a national anomaly as there are numerous blocks of flats (Mainly 2 storey blocks) where they are held freehold. These flats are known locally as Freehold Flats however they are simply all flying freeholds.

You must not confuse these with flats which have a share of the freehold which is explained below, as freehold flats are flats where often the entire flat is a flying freehold and mortgageability is severely restricted with the majority of lenders not considering them as suitable security.

One of the main issues is the problem of not being able to compel other freeholders to maintain or insure their sections of a building. This is often dealt with by the freeholders in the building all signing up to mutually enforceable deeds of covenants which are legal agreements to repair and insure each freeholders section of a building.

Finally, and perhaps one of the fastest growing situations locally, is when a flat is being sold with a Share of the Freehold.

This is where a flat is being sold leasehold for a term of years, but the leaseholders of the block collectively own the freehold together. The situation is the same as a leasehold tenure described previously but instead of there being a third-party freeholder, the freehold is owned by the leaseholders.

You as a leaseholder still pay service charges and have a lease, but you have a lot more control over the management and expenditure. You may not have to pay a ground rent and would not normally have a cost for a lease extension, hence why it is argued that this is the best way to own a flat or apartment.

Please keep in mind, however, that the freehold of a block may be owned by some but not all the leaseholders if historically the freehold was purchased by some of the leaseholders and others did not join in.

There is also no legal right, at the moment, for a leaseholder who does not have a share of the freehold to be able to purchase one, although in reality this is usually available to purchase but the costs can be significant if your flat has a short lease!

So, that's it in a nutshell. As you will appreciate there is much more to each type of tenure, and we're always here to help and guide you further, as can a legal or financial representative, so don't hesitate to get in touch with us if you have any questions, we're happy to help!

Created by CS inc. with the help of Julian Wilkins & Co Chartered Surveyors.

CS inc. 07860 381249 cs@csinc.uk

Julian Wilkins & Co Chartered Surveyors 01903 872211 info@jwsurveyors.co.uk