Freehold VS Leasehold

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If you’re a first-time buyer, or if you simply don’t know much about the property industry, then terms like ‘freehold’ and ‘leasehold’ probably sound complicated and confusing. That’s why we’re here to help you.

In simple terms, if you buy a property that is freehold, this means that you own the property and the land. Purchasing a leasehold property means that you own the property for a fixed period of time, but not the land it’s built on. In shorter terms, you have different ownership rights when you buy a freehold property, compared to a leasehold property.

Here’s a bit more information on freehold and leasehold properties.

Freehold Properties
Buying a freehold property means that since you have full ownership, it is your responsibility to look after everything to do with the property. This ranges from your processions, to the walls and roof of the building’s exterior structure.

Therefore, if you desire to make any alterations in/to the property, then you are free to do so as long as you have the relevant and necessary planning permissions from your local council.

Not only this, but when you purchase a freehold home, you will become the sole owner until you make the decision to sell it or pass it onto someone else.

INTERESTING FACT: The Civil Aviation Act 1982 means you also ‘own’ and have rights to the ‘airspace’ above your property up to about 500ft.

Leasehold Properties
You’ll usually find that flats and apartments are sold with a leasehold.

It is usually a single individual or entity who owns the freehold and multiple people own the leaseholds on flats or apartments within the complex. In the majority of instances, the freeholder of a block of flats will also be responsible for maintaining communal areas, such as hallways and entrance halls.

You will own the property for as long as the lease has left to run. If your lease expires, then the ownership of the property will technically pass to the freeholder.

It is documented that a lease that has 83, or less years left, should be cause for concern. The reason for this is that in some instances, it can be difficult to secure a mortgage for leasehold properties when the remaining term is relatively low. The best length of a leasehold would be 999 years. This would mean that there is no risk of the ownership of the property returning to the freeholder within their lifetime.

Purchasing a leasehold property also means that you would pay ‘ground rent’ and service charges. These charges are usually written into the terms of your lease.  

Ground rent is ‘rent’ that is paid to the freeholder for essentially using the land that the property is on. Generally, the rent will be quite low, within the region of £50. Although in recent years, many leaseholders have complained about sold properties where the annual ground rent is in excess of £250.

As for the service charge, this is paid either to the freeholder or to the service management company who look after the communal areas of your building or estate. The payments go towards the maintenance costs of the building that you live in. It is usually paid monthly or annually. Part of your service charge can include what’s known as a sinking fund which is a pot of money set aside to cover the cost of any major works.

When buying a property, it’s important to consider what is best for you and your budget. If you struggle to know what’s best for you, then speak to your agent because they will be happy to help in your home buying journey.

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