Freehold investments can be a rather arcane, yet lucrative, asset class. However, this corner of the market was shaken up at the beginning of this year as a new law was passed, making it illegal for developers to charge ground rent on new build homes. In addition, a few other reforms are being proposed to the laws governing the relationship between freeholders and leaseholders.
So, what does this shaking of the foundations mean for freehold ground rent investors – attracted to the steady, long-term returns, opportunities for capital appreciation and the relatively low risk this asset type has traditionally provided?

Freeholds: income and capital streams
Firstly, for those who may be less familiar with this often-overlooked sector of the market: some background into freeholds.

Freeholds, meaning free of obligation, grant ultimate ownership of land and the properties built on it in perpetuity to their owner and heirs. They provide a plethora of rights to the owner, including the granting and sale of leases for the use of a property, for example a flat and communal areas, for a limited duration (in the terms of the lease).

Freeholders, in compensation for leaseholders using their land and property, can charge them a ground rent. Then there are service charges for the maintenance and repair of buildings, landscaped grounds and facilities used by leaseholders, as well as the provision of insurance. The freeholder can also benefit from any development, for example, an additional floor on a block of flats, and receive compensation for deferring their rights on reversion of a lease when extending it.

All this can mean a multitude of income streams – covering ground rents, management fees and commissions, as well as capital payments from lease extensions and the sale of spaces – which can make freeholds a strong investment opportunity indeed.