When discussing property law, the concept of an ‘interest’ is significant. An interest in property refers to a legal stake or other right that an individual or entity holds in a particular piece of real estate.

This article explores the definition of property interests, common types, and the profound impact they can have on property owners and prospective buyers. Additionally, we distinguish between legal and equitable interests, shedding light on their distinctive characteristics. The information is general only, and we recommend seeking professional advice relevant to your circumstances.

Definition of an Interest in Property

At its core, an interest in property refers to a legally recognised claim or right associated with a specific piece of real estate. These interests can take various forms, each conferring a set of rights and obligations upon the party holding them. Understanding these nuances is crucial for both property owners and potential purchasers, as they directly influence the utilisation, transfer, and enjoyment of the property.

Common Types of Interests

The most common types of interest in property are freehold, leasehold, easements, covenants, and mortgages.

Freehold Interest

This is the most comprehensive and absolute form of property ownership. A freehold interest grants the holder full ownership rights, allowing them to use, sell, or lease the property without constraints (subject to planning, environmental and other relevant laws). The property can be passed on to heirs, providing perpetual ownership.

Leasehold Interest

In contrast to freehold, a leasehold interest grants the holder the right to use the property for a specified period, in exchange for complying with terms and conditions and payment to the property owner, often through a lease agreement. While those with a leasehold possess certain rights during the lease term, ultimate ownership reverts to the landlord after its expiration.

Easements

Easements confer specific rights to a third party, allowing them access or use of another person’s property or part of it. Common examples include utility easements, granting access for maintenance or installation of utility lines. Easements typically run with the land and can affect the land’s value, use and future development. They should be fully investigated during a property transaction.

Covenants

Property covenants are legally binding restrictions or agreements that dictate how a property may be used. They are often imposed by developers to maintain certain standards within a community and to protect the land’s value.

Mortgages

A mortgage is a financial interest in a property held by a lender until a loan is fully repaid. A mortgage document and/or associated loan agreement will set out the rights of each party to the mortgage. The property serves as collateral for the loan, and failure to repay the loan may result in foreclosure where the property is repossessed and sold to repay the mortgage.

Impact on Property Owners and Prospective Purchasers

Understanding the nature of property interests is paramount for both existing property owners and those contemplating a purchase.

For property owners, recognising existing interests is crucial to avoid disputes and ensure the lawful enjoyment of their property. Leasehold arrangements, easements, or covenants may impact how an owner uses and maintains their property.

Identifying property interests is perhaps more critical for those who are acquiring a property. Before buying a property, it is essential to conduct thorough due diligence to identify existing interests. This involves reviewing title deeds, survey reports, and any pertinent legal documents. Failing to do so may lead to unexpected limitations or disputes after the purchase.

Legal Interests vs. Equitable Interests

A critical distinction in the realm of property interests lies in their classification as either legal or equitable.

Legal interests are formally recognised and enforceable by law. They are typically registered with the relevant government authority, providing a clear and public record of the interest. Examples include freehold ownership and registered mortgages.

Equitable interests, while still legally valid, may not be immediately apparent from public records. These interests arise from agreements, trusts, or other equitable doctrines. An example is a beneficial interest in a property held by someone other than the legal owner.

It is crucial to understand the distinction between legal and equitable interests when assessing the true scope of property rights. While legal interests are readily identifiable through official records, equitable interests may require a more in-depth examination of the property’s history and associated agreements. Unfortunately, a buyer may acquire a property without discovering an equitable interest and may then need to go to court to try and protect their right to the property. However, this risk can be mitigated by engaging proper legal support and performing due diligence prior to a property purchase.

Conclusion

The various types of property interests, ranging from freehold ownership to easements and covenants, each carry distinct implications for the use and enjoyment of a property. Recognising the impact of these interests, conducting thorough due diligence, and distinguishing between legal and equitable interests are essential steps in navigating the complexities of property ownership and transactions. Seeking legal advice is often necessary to confirm property interests at each stage of real estate ownership.

If you or someone you know wants more information or needs help or advice, please contact us on (08) 8155 5322 or email [email protected].