There are both leasehold and freehold properties in the UK. But what do these terms mean, and what is the difference between them? This article answers some of the most frequently asked questions about leasehold vs freehold properties.
What is a freehold property?
If your property is freehold, you own the house and the land it sits on (including the garden and other outdoor areas).
What is a leasehold property?
If your property is leasehold, you own the property for a set amount of time, but not the land it’s built on. The land is owned by a freeholder. They sell the use of the property on their land for a set amount of time (typically hundreds of years at the start of the lease).
Leasehold vs freehold: What’s the difference?
There are several key differences between leasehold and freehold, including:
- With freehold, you own the property and the land it’s on. With leasehold, you own the property for a set time period, but not the land.
- Most houses are freehold, and most flats are leasehold – but leasehold houses do exist.
- With freehold, you own the gardens included with the property. It’s also your responsibility to keep them maintained. With leasehold, shared gardens belong to the freeholder. You typically pay a service charge for them to be maintained.
- With leasehold, you typically agree to pay ground rent and a service charge to the freeholder. In return, you get long term use of the land and maintenance of communal areas. With freehold, there are no additional charges, and you are responsible for all maintenance.
- Remortgaging or selling a freehold property is typically easier. It may be more difficult to remortgage or sell a leasehold property, depending on the length of the lease – typically 80 years or fewer can cause issues.
What is a share of freehold?
A share of freehold means that each property owner on the land (for example, in a block of flats), owns a share of the freehold alongside other leaseholders. This is an alternative to effectively renting the land from a sole freeholder.
Owning a share of freehold can be beneficial in a few ways. It gives you more control over the maintenance of the property and land, and makes it easier to extend the lease. However, it can be expensive to buy the freehold. You’ll have to account for your share of a surveyor to determine the value, the purchase price, legal fees, and even stamp duty if the price is over £125,000.
Can you buy the freehold of a leasehold property?
If you live in a leasehold property, as long as at least half of leaseholders agree to buy a share of the freehold, you can apply to the freeholder at any time.
If you live in a leasehold house with no other freeholders on the land, you may be able to buy the freehold.
Contact a solicitor for more advice.
How long do leases last for?
Leases on leasehold properties vary in length. They are usually between 125 and 999 years in length. The longer the lease is, the more the property will be worth. It is possible to pay to extend the lease in most cases. This can increase the property value, especially if there is a low number of years left on the lease.
Leasehold pros and cons
There are pros and cons to purchasing leasehold properties, such as:
Pros:
- Buying a leasehold property is typically cheaper than a freehold property. This can be an advantage for first time buyers or those with a smaller budget.
- The freeholder is typically responsible for maintenance to the building and grounds, as well as providing building insurance.
- Many leaseholds are in buildings with shared amenities, such as gardens, common areas, or even gym and leisure facilities.
- You may be able to purchase the freehold or a share of the freehold in the future, which can increase the property’s value.
Cons:
- You’ll pay ground rent and service charges to the freeholder. These charges often increase year-on-year.
- You may not be allowed to keep pets, or there could be other restrictions on the lease that impact your enjoyment of the property.
- Conveyancing fees can be higher due to extra work involved in leasehold transactions.
- The fewer the years left on the lease, the harder it can be to sell or remortgage.
Freehold pros and cons
There are various pros and cons to purchasing a freehold property, including:
Pros:
- You have complete ownership and control over your property, including the building and garden.
- You don’t have to pay any service charges or ground rent.
- You have freedom to make any changes to the property that you like, have pets, and enjoy none of the other restrictions that may come with a leasehold property.
- It’s often easier to sell and get a mortgage on freehold properties.
Cons:
- Freehold properties are typically more expensive than leasehold properties.
- You are solely responsible for the maintenance of the property and grounds.
- In some areas, like densely populated city centres, freehold properties can be harder to find.
Is it better to buy leasehold or freehold?
Whether a leasehold or freehold property is better for you is a personal choice. It can depend on several factors including your budget, the availability of properties in the area, and your lifestyle.
Can you extend a leasehold?
If your lease is getting short, you can apply to the freeholder to extend the lease at any time. You can typically extend the lease by 90 years on a flat, or by 50 years on a house. It’s done either through a formal route or by approaching the freeholder on an informal basis and negotiating a lease extension.
Extending the lease can increase the property’s value and make it easier to sell. But, it can be costly to do so.
What happens at the end of leasehold?
When a leasehold ends, ownership of the property passes to the freeholder. So, they own both the property and the land it’s built on. However, this very rarely happens, as the vast majority of leaseholds are extended long before they end.
Are there any charges on leasehold properties?
Yes, you can expect to pay a few charges on a leasehold property:
- Ground rent to the freeholder, who doesn’t need to provide anything in return.
- Service charges, which normally pay for the upkeep of the building and communal areas and building insurance.
In most cases, the lease will make provisions for these charges to increase. Your conveyancer will be able to explain the different charges to you.
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