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Freehold or Leasehold – Understanding the differences and what to look out for

What’s the difference between freehold and leasehold?

residential

Houses are usually freehold. Subject to any mortgage, you own everything outright – the building and surrounding land. Flats are usually leasehold. You own the right to live in it for the remainder of the lease (it’s a long lease, often 99 or 125 years), and to access any communal areas. The freeholder owns the building and surrounding land. When the term of the lease comes to an end, and if it is not extended, the flat reverts to the freeholder.

So if I buy freehold, I can do what I like with the property and the land it’s on?
Broadly speaking, yes. Subject to planning laws, restrictions if it’s a listed building, and consent from the lender if it’s subject to a mortgage, you can make alterations e.g. put in a new kitchen or bathroom or convert the garage into a gym. The downside is that you are solely responsible for maintenance and repairs to the whole property. If roof tiles blow off in a storm, or minor subsidence causes cracks to the walls, you have to sort it out yourself.

And if I buy leasehold?
You have less freedom to alter the property and usually need the freeholder’s consent. Certain things may be prohibited, like knocking down internal walls. If you intend to refurbish, check if the freeholder will grant permission. You also have a positive obligation to maintain the property’s interior e.g. by redecorating every 5 years. With a freehold property, it is up to you if and when you redecorate. On the plus side, the freeholder is responsible for the building’s structure and communal areas, so you don’t have to carry out repairs to them, though you have to contribute to the cost.

I have to pay for the upkeep of a property I don’t even own outright?
Yes, there are charges payable by a leaseholder: ground rent as technically you rent the property (it may be a nominal sum, say £10 per year), service charges for day to day maintenance (e.g. cleaning of communal areas, gardening), and major works charges for large scale maintenance (e.g. redecorating the outside of the building). Before you buy, ask to look at the management accounts and check you can afford these charges.

So is it OK to buy leasehold, or should I hold out for a freehold property?
Leasehold is the norm if you’re buying a flat. Check the remaining term of the lease: as it gets shorter, the property’s value falls and it can be hard to sell on. Mortgage companies are also reluctant to lend funds for a property with a short lease. You may be entitled to extend the lease, and there will be a charge for doing so. Make sure you can afford it.

Also check who owns the freehold: a private landlord or a group of leaseholders who have bought the freehold and manage the property. If the latter, you can buy a share of the freehold, giving you a say in how it is run. If the leaseholders in your block have not yet bought it and you want to, there are rules entitling a group of you to do so in certain circumstances, so take legal advice.

If you’re buying a house, freehold is the norm. Be careful though, as property developers now sell leasehold houses as a way of making more money. Ground rent starts off at a modest rate, then increases significantly. You have the right to buy the freehold for a sum which is reasonable at the outset, but increases disproportionately. Buyers have ended up unable to pay ground rent or buy the freehold. If you want to buy a house that’s advertised as leasehold, ask lots of questions and take legal advice before committing to the purchase.

These materials and content have been prepared for the benefit of their viewers/readers. They are intended for marketing purposes only and are of a general nature and do not constitute legal advice applicable to any particular facts or circumstances. Kidd Rapinet LLP and/or the author(s) accept no duty of care, responsibility or liability for any loss or damage which you or any third party may suffer as a result of any reliance or use by you or they of these marketing materials and content, except to the extent it is not legally possible to exclude such liability. If you require legal advice on your own situation, please contact us so we can discuss how we may assist.