[alextingle]

Technically, a leasehold is a very, very long fixed-term rental tenancy, with a single up-front payment. The tenancy is freely transferable, so there is a market for leaseholds that resembles the property market for freeholds. (A freehold is where the property is owned outright.)

In practice, leaseholds are mainly used to apportion "ownership" within buildings such as apartment blocks, where simple ownership of the land does not sufficiently capture the complexity of the situation.

Problems arise in a number of areas:

First and foremost, leaseholds resemble property ownership, and so many people naively treat them as such. But the value of a lease decreases as time goes by. When only a few years remain, the value drops very quickly. People who are unprepared for this can get a nasty shock, and feel hard done by.

Secondly, and more subtly, the leasehold creates a complex relationship between the landlord and the tenant - just like any rental agreement. The terms are set out in a contract which is specific to that particular leasehold - so they may vary greatly one from another. There are a myriad ways that they can contain unfair clauses, or unexpected terms.

One recent scam is for landlords to create leases that have a small, annual "service charge" (payable to the landlord) whose cost doubles every few years. After a while, the payments become extortionate!

In this case, the landlord is allowed to charge tenants for the cost of some kinds of works to the building. In the lease, that probably looks like a small item, but a clever landlord can specify the works in such a way that the tenants shoulder most, or all of the cost.

[tialaramex]

Also, the leasehold comes with two inherent rights which make it even more like "owning" a place rather than merely renting it.

First the leaseholder has a presumed right to renew this long lease when they want to. There's even a tribunal (ie a court) specifically to resolve any situations where a leaseholder believes they've been asked to pay an unreasonable amount for such a renewal, although of course going to court isn't free.

Second the leaseholders together can demand to just buy the freehold (ownership of the actual land) in most cases, under a specific formula. This is not cheap, but if your freeholder becomes a problem for all the leaseholders the freeholder cannot stop them just buying the building.

Some years ago a government tried to institute a more modern structure, Commonhold. Commonhold takes the mechanism often used to "defeat" leasehold by groups opposed to it, and turns it into a built-in feature of English law. With Commonhold the people who own individual dwellings have a lease still, but they also each own a share of a legal entity which exists only to own the freehold and they can't sell the one separate from the other. The legal entity plays the role of freeholder, but since it is owned entirely by these leaseholders it has no reason to try to charge them ground rent or mess them about in any way - it is them, jointly.

Unfortunately to the average person Commonhold just seems like you're buying the same thing for slightly more money, because Leasehold "purchases" look cheaper. So Commonhold did not take off and few exist today.

One of my pet projects (on hold because I decided not to look for a job during the pandemic so although I have plenty to survive I can't go around funding speculative legal work) is to buy the building where I live and convert it into Commonhold, partly to prove it can be done.

[Danieru]

What sort of residual value would be left for the freehold portion? How long are these leaseholds?

It sounds interesting, but also horrible. Having people be perpetual renters is the exact opposite of every government housing initiative for the past 6+ decades.

[tialaramex]

A typical long lease is longer than a lifetime, maybe 99 or 120 years, but you could in principle write a shorter one of just a few decades, or a much longer one of hundreds of years.

As I understand it the main residual value is from payment to renew leases (mortgage lenders don't want to lend against a home you may not have in a few decades, so it's often not possible to sell a lease to a "normal" buyer who wants a mortgage if it has say 50 years left on it, you'd pay to renew it), and from any "ground rent" owed by the leaseholders each year indefinitely. Historically ground rent was often set at a token amount, but of course there was an opportunity for greedy people to jack that up when creating a new leasehold property and so e.g. mine is £250 per annum.

It doesn't feel like renting at all, it's just that historically English law provided no way to outright own 3D space, only 2D parcels of land can have freehold, and arguably in practice it wouldn't mean anything anyway. If I "owned" this space, but the building it is in burned down, how do I live here without re-building it?

The freeholder is responsible for insuring the building (the certificate of insurance is posted on a notice board on the main entrance floor of my building near the weird art that presumably the owners or builders liked, and the elevator) and collecting a fair share of insurance premiums from all leaseholders, likewise they hire a maintenance company to sort the gardens, do elevator safety checks, resurface the parking, clear junk illegally left by ex-tenants (could they try to sue instead of billing the remaining tenants? Sure, but if a lawsuit costs £1000 and hiring a clearance firm costs £180 guess which gets done) and so on.

Leaseholders can (are legally always entitled to) buy the freehold, but now you've got the headache you were paying somebody else to deal with. You (collectively) need to buy insurance, hire a maintenance firm, and so on or else pay to hire somebody to do that on behalf of everybody. For a shared building where I live (as opposed to standalone houses) this division of labour makes at least some sense and I'm not opposed to it continuing to exist. Creating more leasehold houses is crazy nonsense, but alas the present governing party really like rich people, and thus has not exactly prioritised banning such practices.

[caf]

Commonhold sounds a lot like the Strata Title system that is typically used in Australia for such arrangements.