Leasehold v Freehold – what’s the difference?

Leasehold v Freehold – what’s the difference?

Are you wondering what the difference is between leasehold and freehold? If you’ve been looking at properties and have seen these terms appearing, it’s worth understanding the difference so you’re not limited further down the line.

The difference between leasehold and freehold relate to the different forms of legal ownership.

Leasehold ownership

If you buy a leasehold property, it means that you own the building for a fixed period of time but not the land that it is built on.

This is common for flats and apartment buildings.

When you purchase a leasehold property, you will also be required to pay an annual ‘ground rent’ which is a minimal amount payable to the freeholder (landlord). If you are buying a newer property, there may not be ground rent charges but whichever way, these charges should not cause concern to a potential buyer. There will also be a service charge due annually, usually through a management agent too.

When the term of a lease expires, the ownership of the property will revert back to the freeholder.

Sometimes it is possible to extend the period time of the lease when it is due to expire.

Leaseholders will need to get permission from the freeholder to make certain alterations to the property.

Freehold ownership

When you purchase a freehold property, you own it outright, including the land that it’s built on.

Different from leasehold annual ground rent and maintenance fees, you will be responsible for maintaining your property and all costs involved.

The majority of houses are sold as freehold properties.

There is no time limit on ownership with freehold properties.

Leasehold considerations

When you purchase a leasehold property, it is important you check the length of term left on the lease, if there is less than 70 years remaining, you may struggle with obtaining a mortgage.

A mortgage lender will usually expect there to be 25-30 years left on the leasehold after a mortgage is completed, which is on average 25 years.

You have the right to ask for an extension on the lease to the landlord after you have owned the property for more than 2 years, as long as you are a qualifying tenant, according to regulations set out in the Leasehold Reform Housing & Urban Development Act (1993). Be aware that there will be a charge for extending the lease. This is a common practice and your solicitor should be able to help and guide you with this.

Owning a leasehold property means that you are not responsible for maintaining or running the building or land. However, you will pay into an annual management charge that will be allocated for these costs. All tenants of the same building will contribute to the maintenance (service) costs, which are managed by an agency.

Common expenses the service charges are used for are:

  • Repair of external walls
  • Electricity for communal areas
  • Communal garden maintenance

The maintenance to the interior of your leasehold property are your responsibility as you own the building.

Bear in mind that in the future you may have the opportunity to purchase the freehold of a leasehold property. This is called ‘‘enfranchisement’.

While there are complicated legal procedures and legal costs involved this process of enfranchisement can be invaluable. Ensure that you get professional advice and assistance if looking into this option.

The benefits of freehold ownership

Buying a freehold property will give you more control over what you can do in and outside the property and allows you to protect the value of your property. Everything inside and out belongs to the freeholder.

Although freehold usually relates to houses, there are opportunities to purchase a freehold flat, however bear in mind that if all flats in the block are freehold, you’ll all have a ‘share’ of the freehold.

The main benefits of owning a freehold property are:

  • You don’t have a freeholder (landlord) to deal with
  • You don’t have to pay ground rent or service charges
  • You don’t need to worry about the lease running out, you own the property outright

Whether freehold or leasehold option you decide to consider, here at Clarkes we are here to help and advise you along your journey. We are experts in property buying, selling, letting or renting along with management services and have years of experience to be assist you in making the right decision. Get in touch today for a friendly, confidential chat.

 

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