There are two ways of owning a property in Ireland: freehold and leasehold. With a leasehold, you own the building, but you own the land only for a certain number of years, whereas with a freehold you own both the building and the land upon which it is built.
What does freehold mean?
When you buy a freehold title, you become the legal owner of the land and the buildings (if any). You have complete control of the property and do not have to pay any ground rent or similar fees to any landlord or third party. In most cases, as freehold owner, you are also not bothered with any conditions or restrictive clauses that are typically seen in most residential leases.
Most houses in Ireland are freehold and since 1978 all new houses built in the country must be freehold and the old ground rents were, effectively, abolished. Obviously, although you own your own property, you must observe all planning laws and building regulations if you are developing it in any way.
What does leasehold mean?
When you buy a leasehold title or premises, you become the legal owner of the building, but you only have a tenancy perhaps for 99 years or more of the land under which the house is built. The land is owned by a landlord to whom rent must be paid. This might be a local authority, a private company or an individual and as he owns the freehold in the ground, he is known as your ground landlord to whom ground rent is paid.
The ground landlord leases you the right to use the land for a certain number of years and in most instances, gives you permission to build your house. Many years ago, ground rents were set at a certain rate say at IR £15 per year, but this amount was never changed, and inflation has turned it in to an almost trivial amount which most ground rent landlords then never bothered to collect.
The apartment schemes which are becoming more common in Ireland, are treated differently to most housing schemes.
Most apartments in Ireland are leasehold but the rent reserved, if any, is not a ground rent. The purchaser will be given a very long lease as this binds him and the other apartment owners to comply with various covenants leading to good neighbourly relations. So, each apartment in a block will have an owner. This person is the leaseholder. The land upon which the apartment block sits is owned by the “landlord” of the complex which is the Management Company made up of all the residents themselves. Owners are not entitled to buy out their freehold in apartment blocks as they are multi ownership complexes.
Leasehold considerations
Some people are wary of buying a leasehold property as they appear to be in some way less attractive than opting for freehold. However, this is a myth as long leases are perfectly acceptable and nowadays, most people who own a leasehold premises can, in any event, exercise their statutory right to buy the freehold from their landlord at minimal expense.
One of the most important considerations is the length left on the lease. Remember, leaseholds are given for a fixed number of years. After this, they must be renewed, often at the expense of the leaseholder unless he/she has taken steps to buy out the freehold. This means that a leasehold with less than 70 years or less left to run, may be an unattractive proposition. In fact, lenders may refuse a mortgage in these situations and usually insist that the applicant confirms he is entitled to purchase the freehold.
Another area any buyer or his solicitor should investigate is whether there are any other restrictions on the property contained in the lease. For example, lots of leaseholds state that you cannot extend the premises or change its use without the ground landlord’s consent. These kinds of terms and conditions are a nuisance to potential buyers and induce many owners to buy out the landlord’s interest by purchasing the freehold.
Buying out your ground rent
If you do decide to buy a leasehold, it is usually possible to buy out your ground rent. This would change the title from a leasehold to a freehold. You can do this via direct negotiations with the ground landlord, or, preferably, through the Ground Rents Purchase Scheme in the Land Registry whether you purchased your property before or after 1978.
Once the process is complete, you receive a ‘Vesting Certificate’. This should be registered with the Land Registry or Registry of Deeds. This is a dedicated unit in the Land Registry, and you do not need a solicitor to approach them although your solicitor is best placed to prepare the necessary forms required and to handle any queries raised on your behalf.
A.C. FORDE & CO. LLP
SOLICITORS