Freehold vs leasehold – the key differences

What is a freehold?

If you own the freehold of a property, it means you own it outright, including the land it’s built on. If you buy a freehold, you’re responsible for maintaining your property and land.

If your new property is freehold, you don’t have to worry about the lease running out, deal with any landlords or pay ground rent or any service charges.

What is a leasehold?

With a leasehold, you own the property (subject to the terms of the leasehold) for the length of your lease agreement with the freeholder. When the lease ends, ownership returns to the freeholder, unless you can extend the lease.

Most flats and maisonettes are owned leasehold so while you own your property in the building, you have no stake in the building it is in.

Although less common, some houses are sold as leaseholds, which means that you own the property but not the land it sits on.

Buying a leasehold property

When you buy a leasehold property, you’ll take over the lease from the previous owner so you’ll need to consider:

• How many years are left on the lease
• How much you’ll need to budget for service charges and related costs
• How the length of the lease might affect getting a mortgage and the property resale value
• Whether there are any restrictions on the lease, for example, you may not be allowed pets and may need to ask for the landlord’s permission to change the property.

Newly created leases can be anything from 99 or 125 years to 999 years. A 999 year lease is effectively as good as freehold, apart from the charges you’ll have to pay, but shorter leases can be more problematic.

Remember that if the lease is for less than 50 years, you might struggle to get a mortgage. Banks and building societies generally refuse to offer mortgages to buyers who want to buy a leasehold property that has less than this remaining on the lease. So if you want to sell a leasehold property in this situation, it is unlikely that anyone looking to buy it will be able to, unless they are paying in cash. The value of the property will therefore be seriously diminished unless you can buy the freehold from the person who owns it.

Extending the lease

If you live in a property but don’t own the freehold, you may want to get it extended, as this serves to protect your investment and add to its resale value. You can ask the landlord to extend the lease at any time, and once you’ve owned your home for two years, you have the right to extend your lease by 90 years, providing you are a qualified tenant.

Another option is lease enfranchisement. Depending on the circumstances, if you and a number of other leaseholders hold long-term leases on a property or linked properties, it is possible to purchase the freehold as a group. This is known as leasehold enfranchisement or collective enfranchisement.

The process of dealing with lease extensions and enfranchisements is something that always requires professional legal assistance as mishandling the process can prove costly so whether you live in a freehold property or are its landlord, it’s advisable to seek legal support.

Freehold Reversions

If your property was sold to you with a leasehold tenure, then ownership of your property will go back to the freeholder (usually the person or company that built the property), once this leasehold tenure expires.

With this in mind, you should consider purchasing the freehold from the freeholder if you are able to.

We are highly experienced in dealing with the freehold reversion process quickly and efficiently and we know that when clients have a buyer lined up, speed is essential.

At Harding Evans, we deal with all aspects of leasehold property and freehold property ownership. Our team has the necessary experience and expertise to deal with your leasehold and freehold issues and make sure that your investment is properly protected. Get in touch by clicking here.