Getting to grips with property ownership

Do you know your leasehold from your flying freehold? What about the difference between shared ownership and co-ownership? Can anyone explain what commonhold is? This article explores the various ways to own residential property and attempts to decipher the associated mind-boggling array of terms.

Two peas in a pod: freehold and leasehold

In England, there are two different ways to own property: freehold and leasehold. All other types of ownership effectively stem from these two types of tenure. Freehold properties are the most common (in 2018-19, just 19% of English housing stock was leasehold). In a residential context, most houses are owned on a freehold basis while most flats are owned on a leasehold basis. In 2019, the government confirmed plans to abolish the selling of new houses as leasehold, which has curtailed the practice.

Freehold

Freehold is generally seen as better than leasehold, as a freehold owner is usually less restricted as to what they can do with the property. Typically, owning a home as freehold will mean that you have complete control over it and are not subject to any further payments, such as ground rents, service charges or admin fees, which can be the case with leasehold properties.

A subspecies of freehold is the flying freehold. An example of where this may arise is a room situated above a shared passageway in a semi-detached house or row of terraced houses – the passageway would have its own freehold title and the room would be a flying freehold.

Leasehold

Leasehold is a type of tenure stemming out of freehold – in essence there remains a separate freehold, but the freehold owner provides another with rights of possession and use of the land but not ownership by granting them a lease.

The position can become more technically complex when there are strings of leases granted so, for example, the freeholder may grant a lease (head lease/superior lease) to a tenant (head/superior tenant), who in turn may grant a lease (underlease/sublease) to an undertenant/subtenant, who in turn may grant a sub-underlease to sub-undertenant, and so on.

Leasehold as a type of tenure has received a bad press of late, with the phrase “leasehold scandal” encapsulating various practices including residential leases being granted reserving beyond nominal ground rents (being pure profit for the landlord, as opposed to the service charge rent which covers communal maintenance costs) and leases being granted for shorter terms (think 125 years rather than 999 years), meaning that before too long the lease will require extending, which can have significant costs. Barratt Developments, Countryside Properties, Persimmon Homes and Taylor Wimpey faced investigations from the Competition and Markets Authority (CMA) in 2020 over suspicions they may have misled buyers over leaseholds.

There are other problems with leasehold generally – the value of a long lease reduces as the term runs down, and the cost of extending the lease can be prohibitively expensive. The quality of management of a leasehold property is to a large extent dependent on the landlord and any managing agents appointed by it. The Leasehold Reform (Ground Rent) Bill is currently before parliament, which, if passed, will largely end the practice of charging ground rent (other than a peppercorn) for new leasehold properties.

Shared ownership

Shared ownership is a subspecies of leasehold, designed to help first-time buyers to get on the property ladder by dramatically reducing the amount of money required for a deposit. The buyer is granted a lease of a property and the property is 100% occupied by the buyer, but in practice they own only a share of the property (for example, 25%) and pay rent based on the value of the remaining share.

They can typically purchase more shares (staircasing) up to 100%, at which point in practical terms it will cease being a shared-ownership property and become simply leasehold. Shared ownership is not to be confused with co-ownership, which is where a property is owned by two or more people.

Commonhold – the way forward?

Commonhold properties are relatively rare; however, the government has signalled its desire to increase uptake and establish it as a viable alternative to leasehold. The government has launched a Commonhold Council of leading industry figures who will inform the government on the future of this type of homeownership.

At its heart, it is a type of freehold and the essence of its creation is a further registration at the Land Registry. The commonhold is managed by a company limited by guarantee (which must be registered at Companies House and is governed by its articles of association) that owns and manages the common parts of the development, known as the commonhold association. Membership of the commonhold association is confined to the unit-holders within the commonhold. Each unit-holder owns the freehold of a unit (typically one flat).

The commonhold association is required to manage in accordance with the commonhold community statement, which defines the extent of the property within the commonhold, sets out the rights affecting the property in the commonhold and sets out the rights and duties of the commonhold association, the unit-holders and their tenants.

The benefits of this model are that a number of the limitations associated with leasehold ownership do not apply: unit-holders are themselves in control of the development, without a landlord or other party able to make decisions about how the development is run, there will be no restrictions on selling or transferring the units, and forfeiture will not apply. The lack of lease with commonhold also eliminates the issue of the flat losing value each year.

	Advantages	Disadvantages
Commonhold	Avoids some of the problems associated with leasehold tenure	Relatively rare at present – concerns with novelty and less tested ownership model for some
Freehold	No third party either failing to maintain the building or charging huge amounts for maintenance	You have responsibility for maintaining the fabric of the building – the roof and the outside walls The benefits of freehold can be circumvented, ie rent charges and title covenants on a property can make it as restrictive as a leasehold
Flying freehold	Some situations where there are few other options (for example, a balcony which extends over a neighbouring property)	Some lenders are reluctant to accept a flying freehold as security for a mortgage A flying freeholder is subject to the risk that the subjacent owner may fail to maintain and repair its property, which may damage or prejudice the structure on which the flying freehold physically rests
Leasehold	Responsibility for certain matters (upkeep and repairs of any communal areas in and around the property) lies with the landlord Usually provides a good system for recourse (for example, with noisy neighbours) via the landlord, which is not possible for freehold neighbourly disputes	A lease is a depreciating asset Costs are involved in obtaining landlord consent (for example when selling) There are often restrictions with regard to pets, subletting and alterations
Shared Ownership	Helps first-time buyers get onto the property ladder	Some concerns about fairness – for example, where shared leaseholders own just a small percentage of the building but are liable for 100% of large repair bills (this has been not uncommon with the cladding issues of recent years)

Cheat sheet: glossary of land ownership terms

Co-ownership – Where property is owned by two or more people, they each have a simultaneous interest in the land and are known as “co‑owners”
Commonhold – A form of freehold property ownership created by the Land Registration Act 2002. It enables individual properties within a building or larger development to be owned on a freehold basis. It provides a structure to manage the relationship between these separate freehold properties (such as flats within a block or houses on an estate) and to manage any common parts shared between them
Commonhold association – A private company limited by guarantee which owns the common parts and manages the commonhold
Commonhold community statement – The CCS is a document which sets out the rights and obligations of unit owners and the commonhold association. The CCS is also the document which defines the physical boundaries of the commonhold units (and therefore the common parts)
Freehold – The legal right to own and use property for an unlimited time
Flying freehold – A freehold property which in part or in whole does not touch the ground, and consequently is situated above another freehold or leasehold
Shared ownership – An arrangement under which a leaseholder invests in a “share” of a house or flat (usually between 25% and 75%) and pays rent to the landlord on the remaining “unpurchased share”
Unit-holder – The freehold owner of a particular commonhold unit