Freehold vs leasehold, what’s the difference?
October 29, 2024
If you are in the market to purchase a property, finding out whether it is freehold or leasehold is important. It can save you from a surprise further down the line.
What is the difference between a freehold property and a leasehold property?
In short, the difference between freehold and leasehold is:
- Freehold – you own the property and the land it’s built on, but any repairs and maintenance costs are down to you. Common form of ownership for houses.
- Leasehold – you own a right to live in the property for a set number of years; the land is owned by a landlord. You may be required to pay a service charge and ground rent, in which case most repairs and maintenance costs come from the service charge pot. Common form of ownership for apartments.
- 999-year lease – similar to a freehold in terms of stability, but may still involve paying a ground rent and service charge.
What does ‘freehold’ mean for you?
When you own a freehold property, you are responsible for the property and the land. Both of which you retain a high degree of control over. This can include settling disagreements with neighbours over issues such as boundaries. It can also make things slightly easier if you want to make enhancements to your property, such as building an extension (although your freehold transfer may still contain certain restrictions).
Being a freeholder usually means you are free to make improvements to your home or garden. It also means you can sell your property at your own discretion.
Certain freehold houses may be situated on an estate with unadopted communal areas and facilities, in which case you may be required to pay a service charge or estate rent charge towards the cost of maintaining these communal areas or facilities.
There are examples of freehold apartments and flats, but they are extremely rare and typically a freehold property will be a house. When flats are described as freehold, it usually means you own a share of the freehold along with the other residents in the same building.
Freehold pros and cons
Pros
- You own the property in perpetuity, until you decide to sell, so you don’t have to worry about the lease running out.
- No service charges to pay towards the maintenance of the building (although you may still have to pay a service charge towards the cost of the maintenance of the wider estate on which your house is situated).
- You have more freedom to make home improvements.
Cons
- You are solely responsible for the costs of any repairs and maintenance to your own property and grounds.
- Buildings insurance is your responsibility.
- Freeholds can be more expensive to buy, which can put freehold properties out of range for some first-time buyers.
What does ‘leasehold’ mean for you?
When you are a leaseholder, you are a tenant on the land. Whoever owns the land becomes your landlord, to whom you will pay an annual rental fee for ground rent. If you want to make significant changes to your property, then you would need to seek permission from the landlord to do so before seeking planning permission from your local council.
Leaseholds are most common when you buy an apartment or flat. Typically, the block and surrounding outdoor communal spaces will also be owned by the landlord.
When you buy a leasehold, you are buying a lease that gives you the right to live in the property for a pre-determined number of years. This effectively means that at no stage do you own the house, apartment or flat outright.
Leasehold pros and cons
Pros
- Repairs and ongoing maintenance are not your direct responsibility. Your service charge contributes – along with other leaseholder’s service charges – to the upkeep and repairs, including upkeep of the grounds and potentially costly repairs such as roofing.
- The freeholder is responsible for arranging the buildings insurance. You will still pay for this via your service charge, but they will arrange for the cover.
- Leasehold properties can be cheaper to purchase than freehold ones.
Cons
- You must pay annual service charges and ground rent.
- Short leases can make it difficult to sell the property.
- Home improvements will require permission from the landlord.
Can the landlord/freeholder sell the freehold?
Yes they can, but the Landlord and Tenant Act 1987 makes it clear that the freeholder can sell the freehold, but they must offer the Right of Refusal to qualifying tenants. Qualifying tenants are typically those who hold long leases of 21 years or more.
If the tenants are not interested in buying the freehold, then the freeholder can sell it on the open market.
Where does a 999-year lease fit in?
With a 999-year lease there is no concern that the lease will run out, which could make it difficult to sell the property. However, that is where the similarity between freehold and the 999-year lease ends.
The 999-year lease is still a lease agreement in which the leaseholder must pay ground rent and service charges. The leaseholder is subject to limitations and permissions when it comes to property improvements.
Find out more in our FAQs
At Premier Estates we endeavour to answer our customers’ questions as succinctly as we can. You can find out more answers to common questions in our FAQs.
Premier Estates Ltd provide award-winning property management services across the UK. If you would like to speak to one of our team about managing your property portfolio, please call 0345 491 8899.
Sources:
https://www.legislation.gov.uk/ukpga/1987/31/contents
https://www.moneysupermarket.com/mortgages/freehold-vs-leasehold/
