Freeholds and Ground Rent Advice: Sales and Purchases

If you are looking for specialist legal advice relating to the sale or purchase of freehold interest, or advice relating to ground rents, the experts at Clough & Willis Solicitors are here for you.   

Our dedicated property law team have many years of experience acting on behalf of clients in the sale or purchase of freehold interest, and will be able to guide you through the process efficiently and quickly. 

To speak to our team, based in Bury and Bolton, about how we can help you, call 0800 083 0815 or complete the online enquiry form on the side of this page and we will get back to you.

What are leaseholds, freeholds and ground rents?

Freehold and leasehold are the two types of property ownership in the UK. Freehold means owning the property and the land it is built on outright, which gives the owner full responsibility for maintenance and the freedom to modify it as they wish. There are no annual fees associated with freehold properties.

Conversely, a leasehold grants ownership of the property for a specified period, typically 99 to 125 years, but not the land. Leaseholders must pay an annual ground rent to the freeholder and may need permission for significant alterations. Ground rent is typically used by the freeholder to cover administrative costs and the management of the leasehold property.

Purchasing the freehold can eliminate the obligation to pay ground rent and provides more control for the property owner. It can also simplify the sale process, especially because the short lease terms sometimes associated with leasehold properties can deter mortgage lenders.

Benefits of purchasing freehold interest

Following several years of scrutiny of unfair ground rent terms, the leasehold system has been subject to a number of reforms. The Leasehold Reform (Ground Rent) Act 2022 introduced peppercorn ground rent for most new long residential leases. Further reforms have also been proposed, including plans to cap ground rents on existing leases and restrict the creation of new leasehold flats.

As a result, many buyers now examine leasehold titles more closely, particularly on new build properties, even where the initial annual ground rent is low.

There are many reasons you may wish to purchase your freehold. For example, it will mean you will no longer have to pay the annual ground rent referred to above. If you want to extend your property or make structural alterations for which your lease requires the landlord’s consent, buying the freehold means you will no longer need to obtain this.

Once your freehold purchase is finalised, the terms of the lease will still apply, but, as the freeholder, you will effectively be granting any consent required of the freeholder noted under the lease to yourself.

In addition, where the initial lease was granted for a short term (for example, 99 years rather than 125), some mortgage companies can be reluctant to grant mortgages. This is especially true if there is only a short time left on the lease, and this can create problems for prospective purchasers during the buying process. Freehold ownership eliminates this problem.

How to buy the freehold of a leasehold property

Buying the freehold of a leasehold property involves a formal legal process and strict statutory requirements. The residential property solicitors at Clough and Willis will manage negotiations with the freeholder, and deal with the legal documentation involved and make sure you fully understand your position. The process generally follows these steps:

1. Check if you meet the criteria for buying the freehold, especially for flats requiring collective enfranchisement. If applicable, work with fellow leaseholders to form a collective enfranchisement group.
2. Initiate negotiations with the freeholder to agree on a purchase price, considering factors like the remaining lease term and ground rent.
3. Serve a formal notice to the freeholder once a price is agreed.
4. Engage in a valuation process if necessary.
5. Obtain legal advice from a solicitor experienced in freehold acquisitions to manage legal complexities.
6. Agree on the terms, exchange contracts, and complete the transfer.

How we can help

If you have been approached by your freeholder or have contacted them and agreed a price to purchase the freehold, we can act on your behalf in the purchase. The team at Clough & Willis has a wealth of experience in property conveyancing, negotiating property transactions and managing freehold purchases.

If you are considering your options as either the current freeholder or someone who wants to purchase the freehold interest, we can offer you all the advice you need to come to an informed decision, with your best interests secure.

Our leasehold and freehold purchase solicitors

With Clough & Willis, you can be assured that the expertise of our specialist professionals will be leveraged to secure the best possible outcome. With a high level of service, strong communication and continuity of service (meaning you will deal with the same person throughout), you can trust us to handle the legal requirements of your property transaction. Our support makes the process as simple, straightforward and stress-free as possible.

At Clough & Willis, our investment in understanding your specific needs ensures we deliver consistent and personalised service to every client. We can provide legal advice and guidance in the following areas:

• Property sales and purchase
• Remortgaging
• Sale and purchase of freehold/ground rents
• Selling a property
• Buying a new build home
• Land transactions and rights of way
• Residential tenancy agreements
• Equity release

We strive to minimise the stress involved in buying or selling a property. We are always available by phone if needed, and you will deal with the same person throughout your case. Whether you are a first time buyer or own an entire property portfolio, every client is important to us, and we aim to provide a personal service with competitive pricing.

Whether you want a free, no-obligation conveyancing quote or an initial consultation about another property law issue, our team of expert freehold purchase solicitors is always on hand to help.

FAQs

Why is there a rent charge on a freehold property?

A rent charge (sometimes called a “chief rent”) is a separate annual fee paid by the freehold owner to the person or company that owns the land. It is different from ground rent, which applies to a leasehold property. Rent charges are most commonly found on older freehold properties and were historically used to provide an income stream to a third party, even though the property owner holds the freehold title and occupies the land.

In most cases, the rent charge is a fixed sum paid on an annual basis. The terms outlined in the title documents usually set out the payment frequency and the amount due at fixed intervals. If the rent charge is not paid, the rent charge owner may have legal rights that can be enforced against the property, which can create issues for the sale process and sometimes affects mortgage lenders’ requirements.

If the paperwork contains unclear terms or you are unsure who to pay, a residential property solicitor can review the title, confirm the correct party to pay and explain the options available to deal with it, including redemption where applicable.

What is ground rent on a leasehold property?

Ground rent is a fee paid by the leaseholder to the freeholder under the lease agreement for the right to occupy the land for the lease term. It is separate from service charges and is usually payable on an annual basis, sometimes split into fixed intervals depending on the terms outlined in the lease.

Ground rent terms vary. Some leases set a low annual ground rent (including “peppercorn ground rent”, which is effectively nil), while others contain higher ground rents or ground rent increases over time. Some leases link increases to the retail price index, and some include escalating ground rent clauses. Where the ground rent is high or rises sharply, ground rent affects property affordability and can influence property value and mortgage lenders’ lending decisions.

For residential leasehold properties, the lease should explain how ground rent is calculated, when ground rent payments fall due, and how a demand notice must be served. If a demand notice is not valid, payment may not be due until it is corrected, depending on the circumstances.

What is a freehold property?

A freehold property means the owner holds the legal title to the property and the land it is built on. The freeholder generally has responsibility for maintenance and can usually make changes to the property, subject to planning rules, building regulations and any restrictions recorded in the title.

Freehold ownership does not usually involve paying ground rent, because ground rent relates to leasehold. However, some freehold properties have other ongoing property costs, such as a rent charge, estate charges or contributions towards shared areas. The title documents and any transfer deed usually set out those terms.

If you are buying or selling, residential property solicitors can confirm what the freehold includes, identify any rights of way or restrictions, and check for any fees paid under the title.

What is “ground rent” in the UK?

In the UK, ground rent is the fee a leaseholder pays to the freeholder under the lease for the right to occupy the land for a set lease term. It is distinct from service charges and managing agents’ fees. Ground rent payments are set out in the lease agreement, including the annual ground rent amount, the payment frequency and any ground rent increases.

Concerns tend to arise where there are unfair ground rent practices, unfair ground rent terms or escalating ground rent that results in higher ground rents over time. In extreme cases, late fees can be added if payment is missed, and unpaid sums can lead to enforcement steps. Ground rent also interacts with the property market because it can affect affordability, market value, and mortgage lenders’ willingness to lend, particularly for leasehold flats and new leasehold flats.

Leasehold reform proposals and legislation have focused on limiting or removing ground rent in certain contexts, including moves towards nil or peppercorn rent for most new leases, and wider leasehold reform and commonhold reform discussions. The position for existing leaseholders and existing leases can differ from new arrangements.

Who pays ground rent?

Ground rent is paid by the leaseholder to the freeholder in line with the lease agreement. If a property is sublet, the leaseholder usually still remains responsible for ground rent payments to the freeholder, even if the occupier pays rent to the leaseholder under a tenancy.

Ground rent is only payable if it is demanded correctly and in line with the terms outlined in the lease. A demand notice should state the amount due, the period it covers and when payment must be made. If ground rent remains unpaid, the lease may allow late fees or recovery costs, and in some cases, the freeholder may take legal action to recover the debt. This is one reason mortgage lenders sometimes ask for confirmation that the ground rent and service charges are up to date during a sale.

Shared ownership properties can still involve ground rent if the underlying title is leasehold, depending on the structure of the scheme and the lease terms.

What are the different options for leasehold enfranchisement?

Leasehold enfranchisement gives leaseholders options to gain ownership of the freehold of their property. The most common route is collective enfranchisement, where leaseholders of flats band together to purchase the freehold of the building. This requires the participation of at least half of the leaseholders and is governed by specific legal criteria.

Another option is lease extension, which allows individual leaseholders to extend their leases by up to 90 years beyond the remaining term, and reduce ground rent to a nominal amount. This process involves valuation and negotiation with the freeholder, and professional legal advice is highly recommended to ensure a fair and smooth transaction.

Each method has its own legal and financial implications, making it important to consult with the experienced property law solicitors at Clough & Willis to navigate the complexities and achieve the best outcome.

What are my options for collective enfranchisement?

There are two main options for purchasing the freehold to your property under collective enfranchisement:

1. Statutory Collective Enfranchisement: This is the most common route, and is governed by the Leasehold Reform, Housing and Urban Development Act 1993. Leaseholders serve an initial notice to the freeholder, negotiate a price, and proceed through a formal legal process. Professional legal and valuation advice is important to meet the legal requirements of collective enfranchisement and navigate its complexities, to ensure a fair outcome.
2. Voluntary Agreement: In some cases, leaseholders can negotiate directly with the freeholder without following the statutory process. This can be quicker and less formal but requires mutual agreement on terms and price.

The team at Clough & Willis can advise on the best route available to you.