The closest that anyone can get to owning property outright in English common law is that of owning freehold. So, in blocks of flats it is the freeholders who own the structure, the roof, the land the building stands on, foundations, load bearing walls, gardens, landings, paths, gates, fences, drives, stairways, and any other outbuildings. Inside they own things such as the plant rooms, lift motor rooms, and meter cupboards and any other areas that are not owned by each leaseholder. All of these areas are known collectively as the common areas.
Freeholders can take many forms so can be people, finance companies, mixed use companies (owning both commercial and residential properties in the same development) ground rent investors, or leasehold resident management companies. A block of flats can also have more than one freeholder if the freeholder who owns the ‘superior’ lease sells what is known as an ‘intermediate’ lease to another party. That party becomes the ‘head lessor’ who can then grant ‘under leases’ to the leaseholders of each flat, making the head lessor their landlord.
This then results in 3 different levels of ownership in the building:
- The freeholder who has the highest level of overall ownership;
- The head lessor (also called the head lessee) who is directly responsible to the leaseholders;
- The leaseholder.
Some freeholders self-manage their blocks but most use the services of a managing agent.
Note: Freeholders are also known as landlords in common law but this is not to be confused by a landlord subletting a property.
The relationship between freeholders and leaseholders are governed by the lease. Both parties have rights and
obligations to each other and these are laid out in the covenants (promises). There are two types: positive (to do something) and restrictive (to not to do something).
The main positive covenant entered into by the freeholder is carry out the repairs and maintenance of the building structure and common areas which is paid for by the leaseholders through the service charges.
If leaseholders breach their leasehold covenants then the freeholder has the right to enact forfeiture (taking back the lease before its natural expiry) but leaseholders also have a number of rights when the breaches are committed by the freeholder from buying the freehold (collective enfranchisement) to viewing the insurance policy and challenging the cost.