Leasehold and Freehold - What is the Difference?

News at Robert Oulsnam and Company | 02/08/2019



Getting to Grips with the Terminology

Whenever you look at property details, you will either be told that the building is leasehold or freehold.  But, what does that actually mean?!  Well, freehold and leasehold are the two main forms of home ownership.  So, it’s probably a good idea to understand the difference between them before you put down a deposit!

What’s the Basic Difference?

We will go through the more in-depth differences of each term but, let’s start with the basics.

FREEHOLD – This means that you own the building outright.  You own both the building, and the land that it sits on.  You will be registered in the Land Registry as the freeholder.  This is the simplest form of home ownership.

LEASEHOLD – This is more commonly seen in the purchase of flats.  You, the homebuyer, purchase a lease for the property from the freeholder. The freeholder will be the landlord who owns both the physical building and the land it sits on. 

Freehold in More Detail

As we said, freehold is the simplest form of home ownership.  However, even though leasehold is more common in flats, some new-build homes are being sold as leasehold.  It’s super important that you check this out thoroughly if you’re looking at a newbuild property!

  • Freehold is the normal, most typical way of selling houses;
  • The maintenance of the building and land lies solely with you, the freeholder;
  • There is no additional (annual) ground rent to pay;
  • Typically, lower conveyancing costs involved;

Leasehold in More Detail

Buying a home that’s leasehold is more complicated than a freehold property.  There are several key pointers to bear in mind, one of which is the length of the leasehold.  These will vary in length – most commonly around 90-125 years but in some circumstances a lease can be in the hundreds of years!  The shorter the length of the lease, the more adverse a mortgage lender can be to approve your mortgage application.  So, it’s important you factor this in, when you are negotiating on the sale, and getting your mortgage approved.

  • The freeholder is (usually) responsible for the maintenance of the building and land;
  • The leaseholder will pay the following annual fees:
    • Ground rent;
    • Maintenance fees;
    • Share of buildings insurance;
    • Service charges.
  • No major works can be undertaken without the say so and agreement of all involved leaseholders;
  • Some living restrictions may apply to the property, such as pet ownership;
  • Typically, higher conveyancing costs involved;
  • The freeholder and the leaseholder have a contract that details their respective rights and responsibilities.

What Else do I Need to Know?

Image by Sophie Janotta from Pixabay 

Fees can increase.  This is something that will be detailed against each applicable fee in the lease itself.  So, make sure you’ve read this carefully!

The ground rent is usually a nominal fee that is paid as a kind of token ‘rent’ for the actual land the property is on.  It can vary from £50 - £100 for older properties, but newer ones can be higher.  The lease will tell you how much, and how often those increases will happen.

Service charges will vary depending on the services available.  For example, if you are buying a property that comes with a pool and a concierge service, this will be significantly higher than one without. 

What are the Common Difficulties with a Leasehold Property?

Well, when there are multiple people involved, it is inevitable that not everyone will agree with everyone, about everything, all the time!  The most common sources of issues can be:

  • Complaints about level of fees.  This often occurs when the property maintenance is not being kept on top of.  Make sure that the leaseholder is not breaching the terms of their contract!
  • Untidiness in communal areas;
  • Decisions needed on larger scale maintenance, repair, or development works.

Length of Lease

Once a lease has run out the ownership of a property reverts back to the freeholder.  So, unless you particularly want that to happen, it is important to renew.  However, bear in mind that the costs to renew a lease can be significant. 

Often, a property with a short lease will have a lower sale price.  Always check how much it is going to cost to renew the lease, as it may help with further sale price negotiations.  As a rule of thumb, the shorter the lease, the more costly it is to renew. 

When Shouldn’t I Extend My Lease?

There are some valid reasons why, once you are happily settled in a leasehold property, you might not want or need to extend the lease.

  • You intend to move out of the property in the next 12 – 18 months;
  • You intend to live in the property for the rest of your life, and the lease is long enough to allow for this;
  • You don’t have the money!

Top Tips for Buying a Leasehold Property

Yes, buying a leasehold property is more complex than buying a freehold property.  There are some very clear top tips to follow when you’re going through this process. 

  • Read everything carefully, then read it again!
  • How much are the monthly or annual fees?  When will they increase, and how much by?  This will help with future planning;
  • Check the communal areas for evidence of good maintenance and signs the freeholder is keeping up with their contractual responsibilities;
  • Be very clear on the length of the lease you are purchasing;
  • Get the contact details of everyone involved.

Of course, there are more in depth and detailed variances on both freehold and leasehold properties depending on what you are looking to purchase.  Thankfully, your estate agent will be able to guide you through each step of the purchase!