Land Law: A comparative overview of freehold, leasehold and common hold

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Written by Elaine Obika

September 2024

INTRODUCTION

The doctrine of estates originated from the doctrine of tenure. The word estate in land law implies the type of tenancy that a person who lives on the land possesses. Smith states that, ‘the doctrine of estates tells you what ‘slices of time’ the law allows or has allowed a landowner to deal in’ because all land ultimately belongs to the Crown.

Proprietary rights can be divided into two groups, namely estates in land (which is a right to use and own land and is equivalent to ownership) and interests in land (they attach to the land itself and not the owner). However, it has been submitted that some estates need not be proprietary in nature.

Ownership of land can be in two forms, legal  or equitable  and can occur simultaneously or in succession. However, equitable rights can limit legal rights.

 The two types of legal estate are freehold (also called fee simple absolute in possession) and leasehold (also called the term of years absolute). To be regarded as legal, they must meet the requirements of their statutory definition, nevertheless case law propounds that evidence in the form of a deed is not always a prerequisite.

Each type of estate has its own benefits and drawbacks. The estates are further affected by proprietary interests which can securely attach to the estate where they bind third parties.

Suggestions to reform the difficulties surrounding ownership of the different types of estates have been raised. However, it appears that not everybody will be carried along.

 

FREEHOLD

 

A freehold is a legal right to the possession and income of real estate during the life of the

 owner. There is freehold ownership where the owner owns their house and is free from commitment to the estate and freehold ownership where the property is located on an estate, so the owner must contribute to the land by way of an estate charge.

 

One major advantage of freehold estate ownership is that there are few limits on what one can do with their land [i] Also, the owner is entitled to hold the legal estate for the duration of his life. However, developers may find freehold estates less lucrative because there is restricted purview for revenue and there may be substandard economic viability from the appurtenant land.

 

 

LEASEHOLD

 

Leasehold estates provide an entitlement to use an estate for a specified period   without ownership. Leaseholds tend to favour the landlord due to their profitability. Also, the landlord can maintain autonomy and control over the property and the land on which it is situated.

 

Leasehold estates provide an entitlement to use an estate for a specified period  but not ownership.  The freehold is kept by the owner (also called landlord or lessor) who grants the lease to the tenant or lessee. There can be strings of leases granted in a single estate. Where such a contract is created, a tenant will have a proprietary right. But there are exceptions where a tenant will have a contractual relationship without the benefit of rights in the land. Dixon questions whether there is a difference between a non-proprietary lease and a license.

A lease must give the tenant exclusive possession of the land. The duration of a lease must be definite. The third characteristic of a lease is that exclusive possession is for fixed term at rent (although statute states that this is not compulsory), except where the actions of the parties are to the contrary. In such cases, the agreement may be construed as a licence  or some other agreement.

 

COMMONHOLD

 

 

Commonholds, although not a type of estate, are a type of freehold ownership.

Invented to give the security of a freehold title but the flexibility of a lease, it is a multi-occupancy development where the owners own the freehold of their units and the common areas are owned by a commonhold association. [ii]  [iii]

 

Commonholds have been viewed as unpopular.  One reason for this is that commonholds as a legal structure does not include a process for settling disputes without the need for court action, i.e., no ombudsman.   Contrast this with Germany where a unit holder who breaks the rules can be forced to sell their unit following a vote of the majority of unit holders.  They only divert control and not costs away from the landlord to the lessees.  The biggest perceived hindrance was obtaining complete consensus between all tenants and the landlord before converting to commonhold.  Also, it was viewed by developers to favour the client only.  Under a leasehold, a developer can develop a block of flats, possess the land, levy the tenants in the form of administration costs, insurance and ground rent yearly and, there are additional profits upon the renewal of a lease. 

 

  

REFORM 

 

Most of the previous reforms and the calls for changes have been in relation to leaseholds and this has been ongoing for over 100 years. Proposals for enfranchisement were instituted as far back as 1884  and another in 1955.  Eventually, in 1967, the Leasehold Reform Act was introduced after a minority of the members of a committee  argued that ground leases of dwelling houses were inherently unfair to the ground lessee. Calls for reform have continued ever since.

 

Some suggestions for reform are that the government provide incentives for commonhold acquisition or make commonholds mandatory in some cases, make provisions for converting leaseholds into commonholds where there is no unanimity between tenants and the prohibition of the sale of houses on a leasehold basis. xi xii 

Commonhold differs radically from leasehold in that the freehold is owned by the commonholders.   Other advantages are regularized documents, self-governance with no requirement to seek approval from a landlord  or the enforcement of positive covenants. 

 Commonhold has been seen as opening the way for group action in urban neighbourhoods thereby changing the way in which ownership is viewed. It is predicted that the commonhold form of tenure may bring with it a spread of residential clubs as an urban living solution if developers can find a way of converting co-ownership into suburban housing schemes. 

Aldridge describes commonhold as a radical innovation. However, further legislation is needed to make commonhold more attractive to buyers. 

 

In considering the broader landscape of property ownership, it is important to recognise that commonhold—although not an estate in land—was introduced as a form of freehold ownership designed to offer the security of a freehold title while retaining the flexibility traditionally associated with leasehold arrangements.

 

Freeholders on managed estates also face estate charges, and much like leaseholders, many only become aware of the management structure and associated obligations upon completion of their purchase. The Leasehold and Freehold Reform Act (hereinafter LFRA) proposes to extend to such freeholders many of the protections currently afforded to leaseholders, including restrictions on unreasonable charges and enhanced avenues for redress.

 

Whether these reforms will achieve a meaningful balance remains uncertain, particularly given that both leasehold and freehold models—along with their various sub‑types—carry distinct advantages and disadvantages that cater to different social and economic groups. Nonetheless, if enacted as outlined in the explanatory notes, the reforms would strengthen the rights of both leaseholders and estate‑based freeholders, potentially moving the system closer to the equilibrium policymakers seek. In this context, the commonhold system—despite its mixed reception—may offer a more balanced and sustainable model of ownership if it were to be properly implemented and if leasehold were ultimately phased out.

 

However, such a shift could generate new challenges, including questions around public rights of assignment, withdrawal from public authority oversight, political and social fragmentation, and the emergence of increasingly homogeneous communities. While it may be argued that neighbourhoods are already relatively homogeneous, Webster raises the question of whether homogenisation would be more pronounced within privately governed commonhold communities than within conventional ones.

 

 An alternative proposition—converting all properties to freehold (fee simple absolute in possession)—also warrants consideration, though its practical feasibility remains doubtful.

MY SUGGESTIONS FOR REFORM

 The prevention of the future sale of all property on leasehold basis and the reduction of ground rent on current leaseholds and estate charges to a percentage of the price of the property with no room for increases (although this may be affected by inflation). 

Parliament to enact law for the bifurcation of property ownership into freehold and commonhold only. Commonhold would overcome the problem of enforcing covenants and forfeiture.  However, the market and investors may be negatively impacted. Also, there is no guarantee that the unit holders of a commonhold will be able to work together and so the companies formed may become insolvent.  

We may need to glean from countries like the USA, Australia or our neighbours in Scotland and then adapt what we learn to our own situation. Our perception of individual rights and collective rights would have to change for the commonhold system to be effectively assimilated. Also, commonhold, would have to be effectively marketed  and incentives offered for takeup. 

Finally, Parliament to set up a system that allows lessees to recoup the costs for certain repairs or renovations that they have carried out during their stay in a property if they decide to move or are forced to move. 

 

 

CONCLUSION

 

Politically, there is broad agreement that leasehold is no longer an adequate mechanism for long‑term property ownership, even though it continues to play a crucial role in delivering more affordable housing in urban areas. Nevertheless, the antiquated nature of the system necessitates reform.

 

In response to unfair practices and onerous lease conditions, the government introduced the Leasehold and Freehold Reform Act (LAFRA), although several of its provisions have yet to be implemented by the current administration. The proposed changes have been largely welcomed, but the omission of ground rent abolition and concerns about potential negative impacts on certain freeholders—such as local authorities that rely on income from property investments—have attracted criticism.

 

Furthermore, the LAFRA²⁷ does not address several significant issues, including the absence of a ban on future leasehold tenure for flats and certain houses, which may allow landlords to continue granting leasehold interests in specific categories of property. Other gaps include the lack of regulation of property agents and unresolved questions surrounding remediation costs when forming a commonhold or resident management company.

Although the government has had considerable time to address the longstanding problems associated with leasehold tenure, the LAFRA, while well‑intentioned, does not go far enough. The Leasehold and Commonhold Reform Bill, once enacted, may gradually reduce reliance on leasehold, encourage the adoption of commonhold, and provide lessees—who in some cases have become tradeable commodities in the hands of certain freeholders and foreign entities—with greater rights, protections, and powers.

 

 

SOURCES

 

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Law of Property Act 1925 Part 1 s1

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Leasehold Reform, Housing and Development Act 1993 – extended leasehold enfranchisement to flats. 

 

Commonhold and Leasehold Reform Act 2002 - extended leasehold enfranchisement to non-resident tenants including companies and disregard of marriage value in certain cases 

 

Leasehold Valuation Tribunals – introduced since 1980 

 

The Housing act 1969 

 

Leasehold Reform Act 1979 – prevented increase of enfranchisement price by the creation of a superior interest 

 

The Housing Planning Act 1986 – prevented first opting for a 50 year lease before enfranchisement to lower to acquire a lower enfranchisement price

 

RICS Practice Standards 2011 Appendix 1 

 

Equality and Human Rights Commission, ’Article 1 of the First Protocol: Protection of Property’ (June 2021) 

 <https://www.equalityhumanrights.com/human-rights/human-rights-act/article-1-first-protocol-protection-property#:~:text=Protocol%201%2C%20Article%201%3A%20Protection,general%20principles%20of%20international%20law. > Accessed 30th August 2024 

  

Leasehold and Reform Bill Explanatory Notes pages 24-32 <https://bills.parliament.uk/publications/54492/documents/4519 > Accessed 30th August 2024

 

Shabnam Ali K ‘Leasehold Reform: A Move Too Far’ (26 April 2024) Vol 174 New Law Journal 7 

Dr Mark Andrew, ‘Leasehold Reform: Why UK Government’s Plans Could Make Housing Less Affordable and Less Fair’ November 2023 CITY UNIVERSITY OF LONDON <https://www.city.ac.uk/news-and-events/news/2023/11/leasehold-reform-why-uk-governments-plans-could-make-housing-less-affordable-and-less-fair > Accessed 3rd September 2024 

 

Jonathan Este, ‘Leasehold Reform: Why UK Government’s Plans Could Make Housing Less Affordable and Less Fair’ 27th November 2023 THE CONVERSATION <https://theconversation.com/leasehold-reform-why-uk-governments-plans-could-make-housing-less-affordable-and-less-fair-217852 > Accessed 3rd September 2024 

 

RICS, ‘Leasehold Reform: What Next for the Sector?’ 29th May 2024 RICS <https://www.rics.org/news-insights/leasehold-reform-what-next-for-the-sector> Accessed 3rd September 2024 

 

Eleanor Bateman, ‘Industry News: The Leasehold Limbo Lingers On’ 2nd May 2024 National Residential Landlords Association  <https://www.nrla.org.uk/news/leasehold-limbo-lingers-on > Accessed 3rdSeptember 2024 

 

Shabnam Ali Khan, ‘Leasehold Reform: A Move Too Far’ (26 April 2024) Vol 174 New Law Journal 7 

 

Jeremy Dharmasena (Partner and Head of Leasehold Reform at Knight Frank) Dr Mark Andrew, ‘Governments Leasehold Reform Plans Could Increase Property prices: Findings of the Study Contradict the Governments Current Policies on Promoting Housing Affordability and Levelling Up’ November 2023 CITY UNIVERSITY OF LONDON  <https://www.city.ac.uk/news-and-events/news/2023/11/governments-leasehold-reform-plans-could-increase-property-prices-says-study > Accessed 3rd September 2024

 

 

Robyn Hall, ‘Leasehold Plan to Inflate Property Prices by 10%’ 21st November 2023 THE NEGOTIATOR  <https://thenegotiator.co.uk/news/leasehold-plan-to-inflate-property-prices-by-10-says-knight-frank/ > Accessed 3rd September 2024 

 

 

Dr Mark Andrew and Dr James Culley, ‘Leasehold Reform Proposals in England and Wales: The Unconsidered Financial Implications of Reducing the Premium in Lease Extensions’ 7th June 2023 UK Collaborative Centre for Housing Evidence <https://housingevidence.ac.uk/wp-content/uploads/2024/01/13091_CaCHE_Leasehold_Reform_Report-updated.pdf> Accessed 3rd September 2024

 

Tom Rodgers and Emma Munbodh ’Leasehold Costs explained: Including New Laws Banning Ground Rent’ 13th February 2023 THE TIMES MONEY MENTOR <https://www.thetimes.com/money-mentor/mortgage-property/mortgages/extend-lease-costs#Ground-rent-ban---all-you-need-to-know > Accessed 3rd September 2024 

 

  

Marc Da Silva, ‘Leasehold and Freehold Reform Act leaves More Uncertainty that Certainty’ ALEP (Association of Leasehold Enfranchisement Practitioners) 3rd July 2024. PROPERTY INDUSTRY EYE <https://propertyindustryeye.com/leasehold-and-freehold-reform-act-leaves-more-uncertainty-than-certainty-alep/> Accessed 30th August 2024 

 

Ian Cole, ’The Development of Housing Policy in the English Regions: Trends and Prospects’ (2003) Vol 18 Housing Studies 219, 220

 

Ryan Bembridge, ‘The Impact of the Leasehold and Freehold Act on Local Authorities’ 25th June 2024 THE PROPERTY WIRE <https://www.propertywire.com/analysis/the-impact-of-the-leasehold-and-freehold-act-on-local-authorities/#:~:text=The%20legislation%20would%20impact%20on,ability%20for%20leaseholders%20in%20mixed > Accessed 9th September 2024 

 

Hannah Cromarty, ‘Leasehold Reform in England and Wales: What’s Happening and When?’ 27th August 2024 <https://commonslibrary.parliament.uk/leasehold-reform-in-england-and-wales/ > Accessed 9thSeptember 2024

 

 

Royal Institute of Chartered Accountants (RICS), ‘Reforming Ground Rents in England and Wales’ 22nd January 2024 RICS <https://www.rics.org/news-insights/leasehold-reform-what-next-for-the-sector>Accessed 3rd September 2024

 

Chris Webster, ‘Property Rights and the Public Realm: Gates, Green Belts and Gemeinschaft’ (2002) Vol 29 Environment and Planning B: Planning and Design  

<https://journals-sagepub-com.uniessexlib.idm.oclc.org/doi/epdf/10.1068/b2755r> 

Accessed 4th September 2024.

 

Tom Dunstan, ‘Another ‘false start’ for Commonhold could be ‘fatal’ ‘ 25th January 2024 FT Adviser  <https://www.ftadviser.com/property/2024/01/25/another-false-start-for-commonhold-could-be-fatal/ > Accessed 30th August 2024

 

Augusta Riddy, ‘Just 20 commonhold properties have been built since 2002: Despite widespread concerns over leasehold system. UK Finance say commonhold is an academic exercise.’ (15th January 2019) THE NEW STATESMAN <https://www.newstatesman.com/spotlight/2019/01/just-20-commonhold-properties-have-been-created-2002> Accessed 20th August 2024 

 

Peter Foster and Joshua Oliver, ‘Michael Goves Ground Rent Reforms Risks Backlash From UK Investors’ 6th December 2023 FINANCIAL TIMES <https://www.ft.com/content/b2d4c358-fe23-4d5b-8b7b-16b539ab5ea4> Accessed 3rd September 2024 

 

Law News, ‘Pensioners for Ground Rent Association Sounds Alarm on Leasehol and Freehold Reform Bill’ 1st May 2024 Solicitors Journal <https://www.solicitorsjournal.com/sjarticle/pensioners-for-ground-rent-association-sounds-alarm-on-leasehold-and-freehold-reform-bill > 6th September 2024

S Blandy and B Goodchild, ‘From Tenure to Rights: Conceptualising the Changing Focus of Housing Law in England’ (1999) Vol 16 Housing, Theory and Society 384,408.

S Blandy and B Goodchild, ‘Reforming Leasehold: Discursive Events and Outcomes’ (2001) Vol 28 Journal of Law and Society 384, 408

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