Probably stupid question about freehold

[Pipbin]

I was watching Homes Under the Hammer earlier and there was a chap on there who bought a flat and there was much talk about having to contact the freeholder to be able to knock down walls etc.

I've only ever owned houses - what is a freeholder? Am I right in thinking that they own the actual building? If so how does that happen and why would they do that? Why would you own the expensive to maintain bits of a building without actually being able to live in it or sell it.

You are right, the freeholder owns the building and the leaseholder has the right to live there (usually in part of it, ie a flat) but has no rights over the fabric of the building.

The advantages to the freeholder is that ground rent is paid (often not very much) and s/he may be able to manage the building charging inflated prices and "management fees" for any repairs that need doing etc. As the term of the lease ticks down, there may be the opportunity to get the leaseholder to pay to extend it. All the money spent on the building is, theoretically, chargeable to the leaseholders anyway so, if the freeholder decides to repaint a building that has four flats in it, each flatowner should pay a proportion of that bill and it should add up to 100%. If the freeholder asks a friend to do it officially for £2000 but only pays him £1000, he can pocket the difference and if the lease allows him to charge a 10% management fee that's another £200 (there are mechanisms that are meant to prevent these situations but they still happen).

Freeholders are also able to receive compensation for breaches of the lease such as alterations without permission. Ultimately, you would hope that a leaseholder breaches the lease so badly that you can forfeit the lease and take possession of the flat but that is pretty rare. So, if you are persistent enough, you can turn it into an earner but, I agree, it seems a bit of a hassle.

Thank you for the answer.

It seems a lot of work for very little reward. I guess you can sell it on for a profit.

Just to add that alot of houses are also leasehold too (depending where you live). Where we are, probably at least half of properties are "long leasehold" so the original builder / land company retained the freehold in the 1930s when the properties were built, but granted long leases (of 999 years) to the purchasers of the houses.

It makes no little (real) difference in a house - we are obliged to pay £4 ground rent per year, obliged to seek permission for an extension etc (usually a tick in the box exercise with a nominal fee) and there are sometimes other obligations in the lease saying you're only allowed to use the property as a residential property etc. In theory, the house and land reverts back to the land company in 900 or so years, but not something that affects us or the value at the moment !

But its not something that is only relevant to flats.