The difference between Freehold property and Leasehold property

 

Leasehold

 

With leasehold you own your individual property (an apartment within a larger building, for example) but not the land the physical building sits on. In this sense you lease, or in other words rent, it from the landholder for an agreed length of time. This is most common with flats and apartments. Owning a leasehold property usually means you incur service charges and ground rent, payable to the landlord (who owns the freehold for the land and building), to cover the maintenance and upkeep of the communal areas and grounds within which your property sits.

New build leasehold properties usually have leases of at least 125 years, this is very commonplace and something many British people wouldn’t think twice about. However, leaseholds on new builds can vary from 99 years up to 999 years in length. Something to keep in mind when buying any leasehold property in the UK is ensuring that the remaining length of your lease is long enough. For example, having a lease under 70 years can prove problematic when trying to sell, as it’s hard for buyers to get a mortgage for a property with a short lease.

 

Freehold property

 

If you own a freehold property, then you own both the building and land indefinitely (until you sell them on of course). Whilst, naturally, you don’t have to pay any service charges or ground rent, this does mean the costs of upkeep are wholly your responsibility. And if you own a share of the freehold with other tenants in an apartment block, you’ll have to agree on how issues such as insurance and maintenance of the building are managed. This will usually be organised through a company set up by those who own a share of the freehold, although you may choose to simply employ a management company to oversee things.

Generally, only houses are sold freehold in England because you’ll own the house and the land the house sits on. In Scotland, however, most property is sold as freehold, regardless of whether it is a house or an apartment.

Things to keep in mind:

  • Leaseholds are very commonplace in the UK and buyers of property don’t really see it as a negative.
  • Make sure when buying an off-plan or new-build property that the leasehold in the contract is at least 125 years. 99 years is also common, but we recommend anything up from 125 years.
  • Effectively, when a lease comes to an end the Tenant (Lessee) no longer has a right to occupy the property and has to give back possession to the Landlord (Lessor). The landlord then owns the property and can resell the lease.
  • You have a legal right to extend your leasehold after owning the property for more than 2 years. So make sure you top-up your lease before it dips below 80 years.
  • A flat with a 50-year lease, for example, will only be worth about 70% of what an identical flat with a 99-year lease would be worth.