Leasehold vs freehold: what’s the difference?
What are freehold and leasehold…?
Do you know your freehold from your leasehold? Unless you’ve bought a home before, it’s understandable if this terminology is new to you. But knowing the difference between the two legal terms is essential for any first-time buyer.
Here’s an introduction to the two most common types of property ownership in England or Wales and what each could entail for you as a homebuyer.
- What’s a freehold property?
- What’s a leasehold property?
- Owning a share of freehold
- Should I buy freehold or leasehold?
This is the more simple of the two terms, and what you’d probably normally associate with home ownership. If you own the freehold to your home, then both the building and the land on which the house sits belongs to you, and will do until you decide to sell up.
This means that you have all of the responsibilities of full home ownership, including making any repairs and making sure you’re on top of the maintenance of your home.
There are also fees involved with buying a leasehold property. The most common charges are:
- Ground rent: a fee for renting the land the property sits on
- Services charges: to cover the costs of providing services to a building, and sometimes amenities and areas around the building.
- Administration charges: including permission fees for example to sublet or make alterations to the property
If you buy a leasehold, ask the estate agent or the developer for a breakdown of these charges, whether they will increase per year and by how much.
With a leasehold, you only own the property for a fixed period of time, and you don’t own the land it’s built on.
In England and Wales, most flats are leasehold, although houses can be leasehold too (generally new-builds tend to be leasehold properties).
You’ll have a legal agreement, or lease, with the landlord, also known as the freeholder, telling you how many years you’ll own the property. After that time, ownership of the property returns to the landlord, unless you can extend the lease. Leases normally start out with a term of either 99 or 999 years.
If you are considering buying a leasehold property, then check how many years are currently left on the lease. In general, the shorter the remaining lease, the less a property is worth and the harder it can be to sell. In particular, it can be difficult to get a mortgage or sell a property with less than 70-80 years left on the lease.
If you are a leaseholder and you want to take more control of your home, then you can buy the freehold from the landlord along with other leaseholders. At least half of the leaseholders must agree to buy a share.
This will enable you to extend your lease fairly easily for up to 999 years.
What's the difference?
Freehold is generally deemed to be almost always the best option for home buyers.
With freehold you don’t have to worry about the lease running out, nor pay charges such as ground rent, and you have full control over the property.
With a leasehold, there is no standard set of rules for who is responsible for communal areas or who manages what. For example, if you buy a leasehold flat, the landlord who owns the freehold may be responsible for the structure of the building and communal areas, but they might not, so it’s important to check and decide what is right for you. Also, if you own a leasehold flat, the building should be insured by the landlord who owns the freehold.
The HomeOwners Alliance, a property advice website, warns that estate agents may gloss over a property’s ownership type. So, it’s important to know what you’re getting into.
An investigation published in February 2020 by the Competition and Markets Authority (CMA) found that some leasehold buyers are being treated unfairly and charged unreasonable fees.
When searching for or visiting a leasehold property for the first time, the CMA suggests requesting advice from the estate agent, developer or freeholder on:
- The number of years remaining on the lease term
- The annual ground rent, whether it increases, the frequency of the increase and the method of the increase
- The current service charge, what this covers and at least the previous two years’ charges so you can see how costs change year-on-year
- Whether any major works have been recently completed or are anticipated for which you may be asked to pay towards
- Whether there are any restrictions on how you use the property or charges for certain activities – owning a pet or changing your boiler for example
- Whether there are requirements for gaining permission, for example to sublet or alter the property, and whether fees will be charged for doing so
- Whether ground rent payments are up to date and who collects them
- Who the freeholder is and, if there is one, which managing agent they use for the property
- Which insurance company will insure the building and what the annual insurance amount is. This may be addressed in the service charges information
- Whether the freeholder has agreed to, or intends to, sell the freehold (especially for new build properties). This is possibly the most important. In some cases you can subsequently buy the freehold yourself, in some cases that won’t be possible.
How to find out if a property is leasehold or freehold
It’s really simple to find out if a property is freehold or leasehold. Go to the Land Registry website and type in the postcode or address of the property. The information provided will include the property’s ‘tenure’ which will be either freehold or leasehold.
Click on the sections below to explore what you need to know at each stage of your home buying journey: