When you are buying a property there is a lot to consider, usually this relates to costs, contracts and the results of searches and surveys, but you may also come across the terms freehold and leasehold. These are quite common terms in UK property and this article is designed to define the difference between the two and outline the important elements of each to consider.

What is freehold and what is leasehold?

These are both ways in which you can own a property in the UK and which will be defined in your property deeds, but there are significant differences between the two.

  • Freehold – You own the property outright, including the land and buildings. This means you own the physical building, the land it was built on and all outside areas such as gardens and driveways, within a defined boundary. You are therefore responsible for maintaining both the property and the land.
  • Leasehold – You own the property for the length of a defined lease period which has been agreed with the freeholder (the owner of the freehold). This means when this lease ends, ownership returns to the freeholder, unless both parties agree to extend it. Most flats and apartment complexes are sold as leasehold properties, but this can also apply to houses, so you own the property itself, but not the land it is built on, and in this case responsibility for maintaining the land remains with the freeholder, and the leaseholder will pay a fee known as ‘ground rent’.

Important things to know about freehold and leasehold

  • How long can a leasehold agreement be? – A leasehold agreement is usually between 125 and 999 years, so for a flat or house you own, it is unlikely the leasehold will ever run out while you live there, but of course you should know how much of the lease remains when you buy the property and manage it accordingly.
  • Can I buy a freehold? As a leasehold property owner you can buy the freehold from the freeholder for an agreed price. If this is a complex of flats, you can group together with the other flat owners and form a company to buy and manage the freehold. You will then own an individual share of the freehold, but along with the other freeholders will then take on the responsibility of managing the communal areas of the building. If the current leasehold refers to a single house, then the same applies, but obviously this is a much simpler transaction as an individual. In all circumstances, the freeholder is under no obligation to sell the freehold.
  • Does a leasehold property owner have rights? Yes, a leaseholder has rights, and as a leaseholder you can request that the freeholder shows you what ground rent and service charges are being spent on, so you are assured you are not being taken advantage of. The freeholder also cannot undertake building work without consulting you.
  • Are there extra costs involved in being a freeholder? Technically yes, because you are responsible for the upkeep of outside areas and the land a property is built on, and with a flats complex, this includes communal gardens and hallways. In other words, if you buy a leasehold property and subsequently purchase the leasehold from the freeholder, the ‘ground rent’ you were previously paying as a leaseholder, will now represent costs you will face in maintaining the land and buildings. If you bought a freehold property outright, you will face these costs anyway because you are already responsible for upkeep of the land and buildings.
  • How does freehold/leasehold impact on the value of a property? – Freehold properties are generally more appealing to a prospective property owner, because everyone likes to know they have complete ownership of their own home, including the land. It also removes any administrative burden and related costs of this. A leasehold property that is exactly the same as a freehold property might have less market value. This very much depends on the length of the lease that remains. Therefore, if the property has a lease with less than 100 years left on it, you might struggle to secure a mortgage, or the property resale value may reduce, because there could be anxiety over the future ownership prospects of the property. This is avoidable by agreeing a lease extension with the freeholder, or buying the freehold outright.
  • What are the benefits of owning a freehold property? – Essentially you own the land and buildings you live in and have no concerns about a lease running out. You don’t have to deal with a freeholder or landlord, and have no extra costs, such as ground rent or service charges.

Contact Ison Harrison to discuss the details of a freehold or leasehold property

At Ison Harrison our residential conveyancing team can assist with all aspects of the property buying process, and that includes the pros and cons of freehold and leasehold. If you have any concerns about the costs and complexities of freehold or leasehold, then contact our team at Ison Harrison today.

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