Freehold v Leasehold Property - What is the difference?

Today we want to cover the difference between Freehold and Leasehold property.

#freehold #leasehold #property #propertybuyingtips #buyingahome

This can be a confusing and complicated subject but one that is essential you understand if you are buying a property

Freehold is when you own the building and the land beneath it the legal jargon for this at the land registry is ‘title absolute’ this is the safest and most secure form of title and means you have complete control of your land and the property that sits on it.

You are free to do what you like in the confines of the law including planning regulations.

Leasehold is where the confusion starts to enter this subject as there are now other parties involved in an element of your home.

What you purchase as a leaseholder is the right to lease the property for defined period of time under the terms stipulated in your lease. These are more common in apartment buildings as this allows for a structure to be put in place to fairly maintain and operate the building for all parties.

Freeholder owns the land responsible for appointing managing agent and often insuring the building.
Leaseholders have a right to lease the confines of their apartment and any titled parking or garage. You do not own the apartment.

The remaining communal areas that allow the building to function such as corridors, stairwells,, entrance lobbys and lifts all require lighting, cleaning, maintaining and insuring and this is where you hear the term Service Charge come in.

The key areas and questions you need to ask with leasehold properties are:

1. How long is the lease length.
Typical lengths are 90-125 years right up to 999 (virtual freehold) be cautious of short leases as the shorter they get the less value they hold as to renew the lease involves paying the freeholder for a lease renewal. The shorter the existing lease gets the more expensive the renewal can be.

If a lease ever runs down to zero years then the title reverts back to the freeholder who is entitled to grant a new long lease and sell the property on.

2. Ground Rent. This is a rent payment to the freeholder who owns the land beneath the property hence the term ground rent. This is usually paid yearly but be careful and understand the terms of this rent and how often and by how much it can be increased by the freeholder during the term of your lease.

3. Service Charges
This is the amount you pay as leaseholder to contribute towards the insurance, maintenance and upkeep of the building itself and communal areas. This also covers any facilities and services that the property benefits from such as onsite gyms, swimming pools and concierge or caretaker services.
This amount is very much dictated by the buildings annual budget but influenced by the company chosen to manage the building. This company is often chosen by the freeholder but in many cases the leaseholders have taken over appointing the managing agent through a RTM Right to Manage or even by collectively purchasing the freehold.

It is important you research and understand the structure, how it all works and the current annual budget for the building. Your solicitor should guide you through this part of the purchase and help to highlight any potential risks such as expensive future costs or bad management.

4. Lease Restrictions – No subletting or permission required. No pets, No BBQs there can be a variety of restrictions written into the lease which can either be prohibited by the leaseholder or require permission (often a charge) so make sure that you full understand everything in the lease so that you’re happy that the property truly meets your requirements without restrictions.

Another point to be aware of in recent years was the new build scam of selling new build homes leasehold and not the traditional freehold you would expect.
This was being done by some house builders to create ground rent investments which they would then sell on as profit and in some cases leaving new home owners confused or unaware that the house they thought they owned entirely they in fact didn’t and only had a lease to occupy and therefore came with an annual ground rent payable that increased overtime.

This thank fully caused the government to intervene and investigate this and they are now looking to ban the sale of houses on a leasehold title. Just be aware of this and be diligent if you are buying a new home directly from a developer.

Thank you for watching!

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