What is the difference between freehold and leasehold?
When it comes to property purchases or sales, you may come across the terms “freehold” and “leasehold” during the process. These terms can be confusing, but they are often used by solicitors to explain the two main types of property ownership we have here in England and Wales.
Freehold property explained
With freehold property, you will own both the building and the land that it’s sat on.
Most traditional houses in the UK are freehold properties. Owning a property in this way means you won’t have a landlord (to pay rents to) and you won’t have any time limit for which you can use the property for. Generally speaking, you wouldn’t expect to see too many other restrictions on your use or enjoyment of the property (although that’s not to say things like restrictive covenants and rights of way aren’t commonplace too).
Leasehold property explained
Leasehold property is typically used to describe your ownership of part of a building or block, but not the actual land or building itself.
In the most common context, flats are generally leasehold property. This means that you’ll have a lease from your landlord which will give you the right to use that flat for a set period of time (99, 125, or even 999 years). You’ll generally pay market rate for the flat – almost the same price as buying a house.
However, each year you’ll also have to pay a certain rent (usually only £1 or £100 a year) and comply with various obligations (like repair the inside of the flat and not undertake alterations to the flat without the landlord’s permission). The landlord typically owns the land that the building is built upon, and the internal and external communal areas of the block. The landlord will be responsible for the maintenance and repair of the communal areas (like car parks and corridors) and in return you may be asked to pay a “service charge” to cover your share of those costs. Once the lease comes to an end, ownership may revert back to the landlord, although applying to extend your lease (paying some money to the landlord for doing so) is often possible.
Which is better: freehold or leasehold?
Properly drafted, and making sure that you take specialist advice, there is no reason why owning a leasehold property should be deemed inferior to owning a freehold property. Banks view leases as good security for mortgages but its really important to have them checked over so that you fully understand your rights and obligations under them.
If you want more information about choosing a freehold or leasehold property, contact our residential property team who’ll be more than happy to help you.