Difference Between Freehold and Leasehold

When purchasing a property, apart from many other factors that you need to look out for, you also need to check what type of property you are buying. Is it a leasehold or a freehold property? Then get a bit of knowledge about what these are, so you would have an idea on what you are getting. 

Knowing the difference between the two types of properties would also guide you in weighing the pros and cons for each and eventually will help you decide which one works for you better.

What Does Leasehold Mean?

A leasehold property means that you do not own the land where the structure is on, but you are the owner of that structure. And though you are the owner of the building, it is only yours for a certain period of time and so when it expires, it becomes the property of the landowner except if you decide to extend the lease.

A typical term of lease is from 99 years to around 125 years but can also be as short as 40 years. If you get a term for 999 years then it would be as good as a freehold. Leasehold properties are mostly flats, but there are also some houses that are as such. Properties in this category who have no more than 80 years left in the term may find it difficult to either remortgage or sell the property so if yours is about like this one, you may have to consider extending your term if you still wish to go on.

With flats, communal areas such as the halls, the building itself, or the stairs would not be part of your ownership. Another thing about leasehold properties is that conveyancing costs are usually more expensive, and it would come with some restrictions such as not being able to run a business from your own home, or you would not be allowed to sublet the property.

What is a Freehold Property?

A freehold property is something that you totally own 100%, meaning both the land and the structure are yours. Since you are the full owner of the property, you would be the one responsible for everything that involves it as well such as insurance, repairs, maintenance, etc. 

If your property are flats, you would be in charge of the communal areas in the building such as the roof, the exterior walls, the entrance hall, and the staircase. And maintaining the structure itself would also be under your care as well.

 Having a freehold property come with a lot of benefits including not having to worry about the term of lease expiring and not having a landlord to deal with. Another advantage of having this type of property is that you do not have to pay for charges such as service costs, landlord fees, ground rent and the like.

Because the property is yours 100%, you have full control of what you can do with it, and you do not have to ask permission from anyone before doing anything with it. Most houses in the UK are freehold.

Pros and Cons of a Leasehold Property

Leasehold properties can have both advantages and disadvantages. Learn some of them to find out if this can work for you. Among the disadvantages of having a leasehold property is that no matter how much you pay for it, once the term expires, you would lose your ownership. Another is that you will have to pay the freeholder for other costs such as ground rent, service, etc.

If you own this kind of property, except that there will be some restrictions that may include not being allowed to have pets or needing to ask permission if you plan to make some changes to it. Failing to fulfill any of the conditions would risk your ownership on the lease which then makes it feel like not having any security about your property.

Having a leasehold property also comes with a lot of risks and the biggest of which is that you may be used as a cash cow by the freeholder. This can happen when the ground rent is doubled every certain period of time and the property becomes unsellable. If this becomes the situation, the homeowners tend to be trapped in them.

Another risk is that the property may be sold by the freeholder to a third party who could be more unscrupulous. Though leasehold properties can have so many disadvantages, it also comes with some advantages like the property being less expensive than a freehold, and you would not be the one responsible for the maintenance of the building.

Although leasehold properties are mostly flats and houses are more freehold properties, do not assume that the case is always as such. Do check if the property you wish to purchase is a leasehold or a freehold, so you know what you are getting in to. 

If the property you are getting is a leasehold, be sure to check the number of years left on the lease because if it is less than 80 years, you may want to extend the term. As an owner of the property, you are allowed to extend the lease for as long as you have owned it for a minimum of two years.

It is always best to extend the lease sooner than later than it can be more expensive to extend when the time left on the lease is shorter. Lease extension means adding 90 more years to your term and the cost for this is about 50% of the marriage value. 

Remember to always review the lease contract and own a copy. If you do not have one, you may ask either your mortgage lender or your solicitor as they may have a copy of it. If not, you can always request from the Land Registry.

If you are leaseholder, you will have a contract with the freeholder which states both your responsibilities and your rights.