What is the difference between Leasehold and Freehold?

Posted by Mark Lloyd, Property Mastery Academy on 19 March 2018 | Comments

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Leasehold and freehold are the two most common types of property ownership with most houses sold as freehold and most flats as leasehold.

They are two different forms of legal ownership, and it’s essential to know the main variances between the two before you invest in property.

leasehold vs freehold pma

Freehold properties

When you purchase the freehold, you are buying the building and the land it stands on outright. Your name will be on the land registry as the freeholder, and you’ll own the titles to the property.

Freehold is a straightforward option as you can pretty much do what you like with your property without having to pay ground rent or being monitored with regard to your maintenance of the building.

Most whole houses are sold as freehold – usually there’s no reason for an individual property to be leasehold. But this is something you should always verify when purchasing a property.

Leasehold properties

A leasehold property is when you’re leasing from the freeholder to use the home for a number of years. These are usually long-term leases stretching to 99 years or even as high as 999 years. This method covers ownership of the property for a fixed term but not the land on which it stands. When the lease expires, the ownership of the property reverts back to the freeholder.

Mortgage lenders will look at the number of years left on a lease (the longer, the better) when they look at your mortgage application.

The leaseholder’s contract with the freeholder will outline the legal rights and responsibilities of both parties. For instance, the freeholder is generally responsible for maintaining common parts of the building such as entrance halls and staircases, as well as roofs and exterior walls.

However, this isn’t always the case, and a leaseholder should check at the outset to see exactly what falls under their responsibilities.

Often, leaseholders pay maintenance fees and annual service charges as well as their share of the buildings insurance. As a leaseholder, you would need to obtain permission for any majors work to be done to the property. There could also be other restrictions imposed on the property by the freeholder such as not allowing subletting.

Shared ownership

Shared ownership is when the freehold is shared between the leaseholder and another freeholder. Shared ownership schemes have been used to encourage people to buy partial ownership in a property with a view to buying additional equity in the freehold, with the ultimate aim of buying the original freeholder out.

Similar to a leasehold, you should check your contract closely as often the same clauses such as ground rent and maintenance fees will apply to shared ownership.

Which is best?

Freehold properties are generally considered more desirable because of their simplicity and the fact the property is owned outright. However, they’re often impractical if you’re buying a flat, although you do occasionally come across freehold flats.

For the property investor, either freehold or leasehold can be appropriate depending on the type of deal you’re after. So don’t be put off by either – just do your homework and fully research the terms that apply to the property before you put in an offer.

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