Last Updated: January 9th, 2023
The fundamental difference between freehold and leasehold is that with a freehold property, you have outright ownership of the property and the land on which it stands. Whole houses are usually sold freehold whereas flats are often leasehold. Leasehold is a bit more complicated. If you own a leasehold property, you have a lease to live there for a certain number of years (anywhere up to 999 years) but someone else (commonly referred to as the ‘landlord’) owns the freehold.
Typically, freehold is always preferred as there is very little downside. As the freeholder, you have sole responsibility for maintaining the fabric of the building (walls and roof). You also have the freedom of not having to gain permission from the freeholder (often referred to as the ‘landlord’) if you want to make alterations to the property (such as adding a conservatory or extension). You also have the added bonus of not having to pay service charges and/or annual ground rent to the freeholder.
With a leasehold property, you will pay an annual ground rent to the freeholder, you will normally have to get permission to undertake any major works or alterations to the property. Depending on the terms of the lease, there may also be other restrictions such as no pets or subletting. Failure to fulfil the terms of the lease could lead to it becoming forfeit.
There is more to consider when buying a leasehold property. First and foremost, it’s important to check the length of the lease as anything less than 80 years can significantly affect the value of your property.
If it’s a long lease the value of your property will be stable, but as the lease gets shorter, the leasehold property will reduce in value. The reduction will be minor at first but as the lease gets shorter the value will decrease at a greater rate.
Whilst whole houses are normally sold freehold, in recent years there has been an accelerating trend of leasehold houses (particularly new builds) with an estimated four million homeowners in England not owning the freehold rights to their property.
Freehold ownership is generally considered the most desirable form of property ownership, as it gives you outright ownership of both the property and the land on which it stands. As a freeholder, you have full control over the property and can make any changes you wish without seeking permission. However, you are also solely responsible for maintaining and repairing the property, which can be costly.
Leasehold ownership, on the other hand, gives you the right to live in a property for a set period of time (usually up to 999 years), but the land and building are owned by someone else (the freeholder). As a leaseholder, you will typically have to pay annual ground rent to the freeholder and may also need to seek permission before making any changes to the property. However, you may have fewer maintenance and repair responsibilities, as these are often the responsibility of the freeholder.
If you own a leasehold property and want to extend the length of your lease, you will need to follow a specific process. First, you will need to negotiate the terms of the extension with the freeholder. This may involve agreeing on a new ground rent and any other terms. Next, you will need to hire a solicitor to handle the legal aspects of the extension. Your solicitor will review the terms of the lease and negotiate on your behalf if necessary. You will also likely need to pay a fee for the extension. It is important to carefully review all legal documents and seek advice from your solicitor before signing anything.
With leasehold new-builds, it’s particularly important to check the terms of the lease for onerous ground rent clauses. There have been numerous controversial cases of escalating ground rent, where ground rent charges would double every decade eventually causing the amount to spiral to absurd levels, leaving the buyer with an unsellable property.
There have also been instances where buyers are told they have the option to purchase the freehold rights to their new-build property after a period of time for an agreed fee (typically £2000-£3000), only for the landlord to then sell the freehold rights to an Investment Company who then charge the leaseholder severely over the odds to purchase it, often amounting to £40,000 or more.
It’s important to make sure you fully understand what purchasing a freehold or leasehold property entails, from potential charges and fees to your rights and responsibilities. The more knowledge you have, the easier it will be to spot any potential problems. If you have any questions, speak to your conveyancing solicitor.
If you are buying and selling a house and are looking for an experienced, full-service conveyancing team to guide you through the process, give our team a call at 0161 930 5350, e-mail firstname.lastname@example.org or obtain a free quote using our conveyancing quote calculator.
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