Leasehold and freehold: what’s the difference?

Are you confused about the difference between leasehold and freehold? You’re not alone. In this article, we explain the meaning of these common property terms and outline why they’re important for you as a homeowner.

In a nutshell, the terms leasehold and freehold relate to the two ways in which you can own a property. So what are the key differences?

What is ‘freehold’?

  • Most houses in the UK tend to be freehold, although some may be leasehold
  • If you own a property on a ‘freehold’ basis, it means that you own it, and the land it’s built on, outright
  • As such, you won’t have to pay any ground rent or service charges to a landlord
  • However, as a freeholder, it’s important to note that you’re responsible for maintaining all aspects of the property and land

What is ‘leasehold’?

  • If you own your property on a leasehold basis, it means that you own the property for the duration of the lease agreement that you have in place with the freeholder
  • At the end of the lease period, ownership of the property returns to the freeholder, unless you extend it or buy the freehold from the landlord
  • As a leaseholder, you don’t own the land your property sits on
  • You’re probably not responsible for maintaining the grounds or any communal areas
  • However, you are responsible for the upkeep of your own property and you may have to ask permission before carrying out any major changes to it
  • You will usually have to pay ground rent to the freeholder. And if you live in a flat, there are likely to be service/maintenance charges to pay too. These charges contribute to the upkeep of communal areas/grounds and other services such as window cleaning

Buying a leasehold property

Before you make an offer on a leasehold property, check how many years are left on the lease. Most mortgage providers will want to see at least 70 years left to run on a lease, and as a rule of thumb, it will need to run for around 25 years after the end of your mortgage term. Any less than this and you might struggle to get a mortgage.

If you bought your leasehold property a long time ago and you’re now looking to sell, bear in mind that a shorter lease length could affect the resale value of your home, so it’s worth looking at whether it can be extended.

When putting in an offer on a leasehold property, you should also consider the additional costs of ground rent and service charges. Have you budgeted for them as part of your monthly outgoings?

Extending your lease

You can ask the landlord/freeholder to extend your lease at any time. If you’ve owned your home for at least two years, you have the right to extend your lease by 90 years, as long as your original lease was for more than 21 years.

However, you need to be aware that the freeholder will charge you for extending the lease, and the costs vary depending on the property.

Buying a share of a freehold

If you live in a block of flats or complex, it is possible for you to buy a share of the freehold from the landlord, as long as at least 50% of the other leaseholders agree to do the same.

This has the benefit of allowing you to extend your lease more easily – for up to 999 years. It also gives you more control over your property and the ongoing maintenance costs.

The costs for buying a share of the freehold will vary according to the property and the landlord. Taking this route will also require you and the other leaseholders to set up a company to manage the property, although it is possible to pay a managing agent to do this on your behalf.

You can find out more about this process, and your rights as a leaseholder by visiting the Leasehold Advisory Service.

For help and advice on the legal aspects of buying either a freehold or a leasehold property, just get in touch.

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