Freehold vs leasehold – what’s the difference?

Freehold vs Leasehold

Freehold vs leasehold can be a contentious issue when purchasing a property, and is something that your solicitor is likely to bring up very early on in the purchasing process.  So, what is the difference between freehold and leasehold, and how will it affect you when buying a property?

Freehold vs leasehold properties – what’s the difference?

When people mention freehold and leasehold when talking about a property, they are referring to who owns the land the property sits on.  Who owns the land will have an impact on the cost of living in the property and several other factors.

What does freehold mean?

If your new home is a freehold property, it means you are purchasing the land the property sits on, along with the property itself.

What does leasehold mean?

If your new home is a leasehold property, it means you are purchasing a temporary licence to occupy the land the property sits on, but someone else retains legal ownership of the land.  A detailed and lengthy lease document will outline your contractual obligations upon purchasing the the property.  Information outlined in the lease document may include details of ground rent payable, any services charges (this will be particularly applicable to those purchasing a flat), and any other areas of responsibility.  Lease documents will usually feature complex legal language, so if you struggle to understand the requirements set out in the document it is important to seek legal advice from a good solicitor who can clarify any aspects you are unsure of.

What is share of freehold?

Share of freehold is a term that can cause confusion amongst property buyers as it, in effect, combines both freehold and leasehold.

In short, share of freehold means the property is still a leasehold property, but that you own a share of the freehold for the property as well.  This is a common set up with flats, especially in London.

So, who owns the rest of the freehold? Usually it will be the owners of the other flats within the building.  There are two different options for how this can be done.  Either you will co-own the freehold along with the owners of the other flats in your personal names, or a company will own the freehold and you, along with the other flat owners will hold a share in that company.  Your solicitor should be able to explain to you which of these is the case in the purchase of your new property.  If you co-own the freehold in your name, your name will be noted on the title deeds.

If you own share of the freehold through a company, you will be issued with a document evidencing your share in the company upon completion of the purchase of the property.  Owning a share of freehold gives you many of the benefits of a freehold property, but also offers the benefits of leasehold obligations for you and the other flat owners, eg. flat owners will be obligated to maintain their properties and pay service charges to pay for the upkeep of communal areas.

Is my house freehold or leasehold?

When you first view a property, the estate agent (or owner, if they are selling directly) should be able to tell you whether the property is freehold or leasehold.  If the property is leasehold, you will want to gather as much information as possible before making an offer on the property.  Aspects such as annual ground rent and any other financial obligations will need to be worked into your budget when calculating the cost of moving, and the length of time left on the leasehold will play a role in assessing the property’s value.  If you discover that the property you want to buy is a leasehold property, do not panic, as long as you do your research, and enter into the purchase of the property knowledgeably, it can still be a great move.  Leases can be difficult to change after you have purchased the property though, so it is important to make sure you are happy with the conditions of the lease before you complete the purchase.

How much can I expect to pay in ground rent on a leasehold property?

If you choose to purchase a leasehold property, you will need to consider whether the ground rent and any service charges will have an impact on the affordability of the property.  Ground rent for a long lease property tends to be fairly modest, usually around £50-£250 per year.  Service charges, however, can vary hugely, so it is important to get as much information up front as possible.

How do I know who to pay my ground rent to?

If you are required to pay ground rent, your solicitor should be able to provide information at the point of purchasing the property.  You will only be required to pay ground rent if the owner of the freehold formally asks you to.  If the ground rent is particularly low, it is not unusual for the freehold owner to neglect to ask for the ground rent.  Any request to pay ground rent should be made in writing and contain the following information:

  • Your name
  • The period the bill covers
  • The total payable
  • The name and address of the freeholder
  • The date when the ground rent is due

What happens when a leasehold expires?

Traditionally, leases were set for 99 years, however these days it is not unusual to find properties with leases of 125 years, 250 years, or even a 999 year lease.  Before the lease on a property is due to expire, you will need to apply to extend it.  This should be fairly simple and straightforward to do.  To get an idea of the cost involved in doing this you can use a lease extension calculator like this one from www.lease-advice.org.

Can I buy the freehold for my property?

Another option, to eliminate the hassle and cost of a leasehold property, is to consider the option of buying the freehold for your property.  If you wish to do this, you will need to approach the landlord and ask whether they would be willing to consider selling the freehold.  If you own a flat you will only be able to buy a share of the freehold, but if you own a house you will want to buy the freehold outright.  The cost of buying the freehold for your property is likely to be similar to the price of extending the lease, but purchasing the freehold brings the added advantages of potentially adding value to your property, eliminating ground rent and giving you more control over your property.

How to find out who owns lease on property?

If you want to explore the option of buying the freehold for your property, you will need to know who your landlord is.  If you currently own the property, you should have details of who you pay the ground rent and any service charges to.  If you are struggling to find this information, you should also be able to find the details of the owner of the freehold through the land registry.

Problems with short leases

Be cautious before you consider purchasing a property with a short lease.  Not only will many mortgage providers refuse to lend on a property with less than 70 years left on a lease, if you are left having to extend the lease, it is likely to cost you £10,000s to do so.

 What impact will leasehold have when I come to sell the property?

The fewer years left on the lease, the less your property is worth.  It is therefore important that you renew the lease on your property, or buy the freehold, if the lease has less than 85 years left on it and you want to sell the property.  When you are selling a property, you want to remove as many question marks for the buyer as possible.  A leasehold property can make potential buyers feel nervous if not handle correctly, so it is important to ensure you make it as straightforward for the buyer as possible.  Ensure you have information readily to hand regarding the number of years left on the lease, the cost of ground rent, and any other obligations outlined in the lease.

Freehold vs leasehold ‘land’ when buying a new build property

If you are considering buying a new build property, it is worth asking the developer early on whether the property will be freehold or leasehold.  Recent reports have indicated an increase in the number of new build properties being sold as leasehold.  This means owners are faced with additional financial responsibilities, and also need to request permission before carrying out work on their homes.  Whilst most people will readily accept that a flat for sale is likely to be a leasehold property, few will realise that at last count there were 670,000 leasehold houses in Britain, and thanks to new build developers that number looks set to rise.

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