Difference between Freehold and Leasehold Explained
If you’re looking to buy a house or flat, it’s important to know exactly what it is you’re signing up for. Many people aren’t aware of the difference between a freehold and a leasehold, and can end up getting caught out by extra costs and restrictions they weren’t aware of.
When looking at your options, it’s best to speak to a Conveyancing Solicitor who can advise you on any problems you could come across in the future.
Unfortunately, many people can be let down by negligent Solicitors who fail to explain these potential issues, and it can end up costing home buyers a hefty sum of money later down the line.
So it’s good to know what the terms ‘Freehold’ and ‘Leasehold’ mean so you can make your own informed decisions when buying a property.
What is a Freehold Property?
If you buy freehold property, you will own your property and land indefinitely. This means you’re responsible for looking after the property and land, rather than relying on a freeholder (otherwise known as a landlord).
It also means you don’t have to pay any ground rent or worry about extending your lease term. You would only need to pay for the upkeep of your property, so you won’t have to pay for any separate maintenance charges to third parties.
What is a Leasehold Property?
If you buy a leasehold property, this means you are a tenant of the property and you’ll own the lease for a term of years. This is known as the Lease Term. You have the right to occupy the property for as long as the lease is valid but you will not own the land it sits on. When this Lease Term runs out, ownership will return to the freeholder (known as the landlord).
It’s important to be aware of how long is left on your lease, as you might find it hard to sell your home in the future if the lease term falls below 80 years.
If you own a leasehold flat, you’ll usually be responsible for interior maintenance and your freeholder will be responsible for any required repairs to the building. If you own a leasehold house, you will usually be responsible for both the maintenance of the building and the interior.
For those living in flats, the freeholder is also likely to be responsible for looking after any communal areas of the building such as staircases and hallways.
Unlike a freehold property, a leasehold property does come with some extra costs including annual service charges and ground rent. You may also face restrictions such as not being allowed to own a pet.
Disadvantages of Buying a Leasehold Property
A leasehold property can be a good option for some people but there are risks you should be aware of:
- Increasing ground rent clauses - Some leasehold properties come with an annual ground rent that needs to be paid to the freeholder. Usually this is a fixed amount, but sometimes leasehold properties can come with a ground rent clause written into the contract, which causes the ground rent to double or increase by a percentage every 10 years. If this isn’t picked up on and explained to you by your Conveyancing Solicitor before you buy, it can end up costing you thousands of pounds in the long run. If you’re in this situation see Leasehold Ground Rent Claims for Compensation.
- A short lease term - Another thing you need to be aware of is how many years are left on the property’s lease term. Because if the lease term falls below 80 years, this can decrease the value of your property and affect your ability to sell in the future. Once you’ve lived in your property for 2 years, in England and Wales, you have the legal right to extend the lease yourself. Otherwise you need to ask the freeholder to extend it. But it’s important to note that extending a lease can be costly, and can affect your ability to secure a mortgage.
- Property maintenance - As you can be limited with how much renovation work you can do on a leasehold property, it can get frustrating if a freeholder fails to keep the property maintained to a high standard. It’s worth checking the contract and terms and conditions to see what the freeholder is responsible for
Can I Buy the Freehold on a Leasehold Property?
Yes you can. You’ll need to ask the freeholder (landlord) first, and different rules will apply depending on whether you live in a flat or house.
If you live in a leasehold flat, you can only apply to buy a share of the freehold. If it’s a house, then you can apply to buy the freehold outright.
Buying a freehold can get complicated and there can be legal costs involved if you’re doing it formally. You can negotiate buying the freehold informally with the freeholder, but going down the formal route gives you more protection if you can’t reach an agreement.
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