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Understanding the Legal Nuances of Property Buying

Know the difference between freehold, commonhold and leasehold

The owner of a freehold title of real estate enjoys the most superior form of private property ownership. A freeholder is considered to be the absolute owner of the land and buildings comprised in his title; he has the right to occupy, use and enjoy his property forever (“in perpetuity”) or until he transfers the title to a new owner, and his heirs are entitled to inherit his title upon his death. Nevertheless, a freeholder does not have total freedom to do what he wishes on his land.

The most obvious form of external curtailment are public controls, in other words a freeholder must comply with all applicable laws which combine to control the use of, and activities upon, his property. For example, the use to which land and buildings may be put, and the erection of new buildings on land, is invariably subject to governmental approval procedures (such as the necessity for planning permission and a building permit). Further control is imposed through environmental and “non-nuisance” laws, and so on.

The second form of external curtailment is of a more private nature and consists of restrictions placed upon the freehold title. For example, neighbours (and in some instances, the general public) may enjoy rights of way over pathways crossing the freeholder’s land. Neighbours may have a right of access onto the land to effect repairs to their own property or they may have a right to run sewers, electricity cables and other service infrastructure under, upon or over the freeholder’s land.

The rights that others enjoy over privately owned property are known as “easements”. Typically, easements are imposed by the original developer when he sells the property to the first purchaser and are designed to ensure that all owners in the community that he has built have the appropriate rights to fully enjoy their own property.

A further form of title restriction is the “covenant”. A covenant may be an obligation to do something (a “positive covenant”), such as an obligation to keep the buildings on the land in a good state of repair or an obligation to make a financial contribution to some shared facility such as a car park or private road.

Alternatively, a covenant may take the form of a prohibition (a “restrictive covenant”), such as a prohibition against using the land for commercial purposes or a prohibition against further building on the land. Again, covenants are often imposed by the original developer and are created to maintain a certain standard and character of a community.

Typically, freehold titles relate to land and buildings, and not to parts of buildings (“units”). As far as units are concerned, the closest analogy to freehold title that is most commonly adopted is the “commonhold” concept. This is because the nature of multiple-occupancy buildings requires the respective unit owners to co-operate together to manage and maintain communal property and facilities. The individualistic nature of the freehold title does not provide an appropriate mechanism for such collaboration between individual owners.

A leasehold title is created from a freehold title, in the sense that a freeholder “carves out” a leasehold interest from his freehold estate and transfers the leasehold interest to a third party by way of a lease, who becomes the leaseholder.

The main difference between a freehold title and a leasehold title is that the former is perpetual, whereas the latter is restricted to a term of years (for example, we speak of a “long term lease” or a “99 year lease”). The second major difference is that a leasehold title is subject to a superior title, namely the freehold title. The lease creates a contractual relationship of “landlord and tenant” and usually the leaseholder (tenant) is obliged by the provisions of the lease to pay a rent to the freeholder (landlord).

Source : Editor,
Posted : 01/06/2008

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