When looking to buy a home, it’s likely you will come across some unfamiliar terms. Some of our most frequently asked questions focus on ground rent, what it is and what it means for the homeowner, so we’ve broken it down to help ensure your search for a property is well informed.
Freehold versus leasehold
You will usually notice that when a property is up for sale, it is listed as freehold or leasehold. If a property is listed as freehold, it means that you will have outright ownership of the property and land in which it stands until you decide to sell the property on.
If you own a home leasehold, you will own the property itself but not the building and surrounding grounds. There will usually be a landlord that owns the building and land, known as the freeholder, who manages the length of a lease. Whilst leaseholds are most common in flats and apartments, houses can also be sold as leasehold. Before making any offers, it is important to consider how many years are left on the lease, as you may otherwise need to pay to renew it after only a few years of ownership. Furthermore, a short lease can cause the value of a property to drop significantly.
What is a share of freehold?
A share of freehold is more common amongst homeowners living in apartments or shared buildings. Usually, a share of freehold means that the flat owners have bought the freehold from the freeholder and are collectively responsible for the building’s upkeep, although many properties are advertised with a share of freehold. As collective freeholders, flat owners are able to find their own insurance and negotiate service fees, generally at a much better value than if the freehold was owned by a landlord.
What is ground rent?
Ground rent is a fee that leaseholders are required to pay the freeholder, but only if the landlord has sent a formal, written demand for it. Ground rent fees are in place to essentially protect the property owner from any damage or anti-social behaviour, and the agreement may place restrictions on your control of other aspects, such as external decoration.
You may be required to pay this annually or in instalments, but it is important that you examine any clauses within the agreement as you may find the fee increases after so many years.
Ground rent versus maintenance fees
Not to be confused with ground rent, you may also come across terms such as service or maintenance fees and ground maintenance. These are fees that the leaseholder is required to pay the landlord to manage the upkeep of any shared areas, such as stairwells and hallways, maintain the property itself, surrounding grounds and insure the building. For any work your landlord may need to carry out on the property costing over a certain amount, you have the right to be consulted ahead of this taking place.
You might find that the freeholder requests that you pay into a reserve fund to cover any unexpected maintenance, which can in fact be useful to avoid charging a leaseholder a large, unexpected payment.
It’s also important to note that freeholders are able to amend the charges you pay, however this can only be carried out in line with what is considered reasonable. Your solicitor will be able to advise you on details around leasehold contracts, and can request information from the seller in writing.