Whether you're searching for a new home, a commercial property or looking to sell it is important that you understanding the difference between freehold and leasehold property. This handy guide will tell you everything you need to know about freehold and leasehold properties – and the pros and cons of each.
What is the difference between Freehold and Leasehold in the UK?
Before buying a property it is important to confirm which type of title a property is being sold with, as the ownership rights you’ll gain will be very different, depending on whether you’re buying a freehold or a leasehold property.
If you are buying a freehold property you are purchasing not only the property but also the land that it sits on. In contrast if you are buying a leasehold property, you are just purchasing the property and not the land it sits on.
However, there is a bit more to it than just whether the land comes with the property or not. When you buy a freehold house, you will be its owner until you decide to sell it or pass the title on to someone else. If you purchase a house with a leasehold, you will own the property for a specific amount of time. Once the lease runs out, the ownership of the property reverts back to whoever owns the freehold.
Let's find out more about the differences between freehold and leasehold properties, and the things you need to be aware of if you buy your home leasehold.
What does freehold mean?
Most houses are freehold. If you buy a freehold property, it means you own the property and the land it sits on. This kind of ownership is known as ‘title absolute’ or ‘fee simple’. All costs relating to the property are your responsibility from repairs to insurance. There usually aren't any maintenance fees unless you share a facility with your neighbours such as a communal garden.
What does Leasehold mean?
Most flats are leasehold, although houses can be too, especially if they are bought through a shared ownership scheme. As opposed to freehold, when you buy a leasehold property you own it for a certain amount of time. Once the term of the lease runs out, ownership of the property transfers to the person that owns the land.
How long can a lease be?
Newly-created leases can be anything from 99 or 125 years to 999 years! A 999 year lease is effectively as good as freehold, and there can even be some advantages to owning some properties this way, rather than under freehold. If a lease has less than 80 years left to run, it may make the property hard to sell, and it may even be difficult to remortgage. In theory, the closer you are to the lease expiry date, the less valuable the lease becomes, meaning that if you are looking to sell on your lease to a new holder, you’ll find it more difficult to recoup your money if you are closer to the expiry date. It could be a good idea to extend your lease before looking to sell it to make sure you are getting the best possible price.
What else is different about Leasehold?
Normally, leaseholders pay fees to the freeholder. But government legislation coming into effect on the 30th June 2022 means that ground rent charges will be banned on most new residential leases, which will put an end to annual ground rent increases.
There also tend to be certain restrictions with leases; for example, permission may be required to decorate the property or make changes, or pets may not be allowed. If you break any conditions you risk losing your lease and could even be taken to court.
Buildings insurance is the responsibility of the freeholder not the leaseholder and any maintenance issues should be sorted by the freeholder following consultation with you on the issues and costs.
The Pros and Cons
Freehold property: Pros and Cons
- Ownership of the property and the land it sits on
- Complete control of the property
- You own the property until you decide to sell it or transfer the title
- Not liable to pay ground rent or service charges
- Property value will not diminish due to a lease running out
- Freehold properties are typically more expensive to buy
- You are liable for all aspects of the property, including maintenance
Leasehold property: Pros and Cons
- Leasehold properties are often cheaper to purchase
- The Leaseholder is not usually responsible for maintaining communal areas
- The Leaseholder is not usually responsible for maintaining the structure of the building
- The Leaseholder is not responsible for arranging the buildings insurance
- There may be restrictions on how you can use the property (e.g., keeping pets, smoking indoors, etc.)
- You need to obtain permission before making changes to the property and there may be fees involved
- You may not be able to sub-let
- The value of the property is likely to decrease as the lease gets shorter
- You may not be able to run a business from the property
- You pay service charges and ground rent to the freeholder, which can increase
- It may be more difficult to sell the property in the future, particularly if there is not long remaining on the lease
- Conveyancing fees tend to be higher when buying leasehold
It is easy to see why there is confusion when it comes to leasehold and freehold properties. While many people assume that purchasing a freehold property is ‘better’, there can also be benefits associated with leaseholds. To find the best option for you, it’s important to assess your personal and financial circumstances. Every lease is different so look closely at lease terms in detail before deciding whether to make an offer on a leasehold property.