Freehold vs Leasehold: The Key Differences

When buying a new home, you’ll most like be purchasing the property either on a freehold or leasehold basis. So, before you go ahead it’s important to understand what these terms means and what the key differences between them are, as the terms you buy on could affect what you can and can’t do while you’re living in the property.

What does freehold mean?

If you own the freehold to a property, it means you own everything - the bricks, mortar and the land – meaning that as long as it complies with Government legislation, you’re pretty much free to do whatever you want with the property and garden. However, it also means that you are solely responsible for the maintenance of the building and the grounds.

Most houses on the market will be sold as a freehold, and the benefit of the tenure includes being able to sell the property whenever you want, and not having to ask permission to make minor changes or pay for the privilege to do so. 

What does leasehold mean?

Buying a leasehold means you’re purchasing is a lease from the freeholder, giving you the right to live in the property for a set number of years. You will not actually own the property outright, while you live in the property the freeholder (or landlord) will continue to own the property and the ground it sits on.

Leaseholds tend to be more common when buying flats and apartments, but the number of leasehold houses has grown in recent years, especially with new builds that have been sold directly through the developer.

Lease lengths can vary but typically a new lease will start off at around 99 years, but some leases do run for as long as 999 years.

You must find out how long is on the lease you are buying especially if you’re not buying an existing lease that has started to run down. As a buyer a short lease (under 80 years) could affect your ability to get a mortgage, depending on your lender’s criteria.

The main features of a leasehold are:

• Ground rent
  This is a sum of money that is paid every year to the freeholder, which can be either a fixed or escalating rate. Fixed rates remain static for the duration of a lease, whilst escalating rates can see fees double after a fixed period, sometimes as often as every five years.  A ‘peppercorn’ rate means you’ll only have to pay a nominal amount (usually around £10 a year) to validate the lease. Your lease agreement will usually specify how much you need to pay and when it is due, so make sure to check your paperwork carefully.

• Maintenance and service charges
  This helps to pay for the upkeep and maintenance of communal areas. Using a block of flats or apartments as an example, these fees would pay for the internal and external maintenance, decoration, garden areas, hallway and building insurance.

• Restrictions on what leaseholders can and can’t do
  Check the terms on your lease for any restrictions about what you can do in the property - for example, if you’re in a flat you may not be allowed to have pets or hang you washing out over the balcony. There may also be things that you need to ask the freeholders permission for, such as building projects like an extension or loft conversion. When asking for consent a freeholder should not unreasonably reject the request, but you may have to pay them a fee before work can be undertaken. 

What does commonhold mean?

The less well known ‘commonhold’ was introduced as an alternative to leasehold under the Commonhold and Leasehold Reform Act 2002. It is a system which allows a person to own the freehold to a unit – like a flat within a building – whilst at the same time being a member of the company which manages the shared responsibility for common areas, like staircases and hallways, and joint responsibility for buildings maintenance. There are no landlords, there are no leases and all residents having an equal share of accountability.

For more information on leasehold properties, our guide to buying a leasehold tells you everything you need to know about the tenure. Or if you’re a leasehold flat owner and want to know if you can buy a share of the freehold, we have a guide for that too.

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