Buying property is a big step, and in the UK, you’ll often hear the terms “freehold” and “leasehold” being thrown around. While these might sound like complicated legal jargon, understanding the difference is essential if you’re looking to make the right choice for your lifestyle and investment goals.
When looking at this area, there can be some confusing terms – demised premises? Leasehold Reform Act? Easement?
We will run through the legal terms but mostly this is going to be about shared freeholds (ie more than one flat in a block), and not, say, a freehold house or a leasehold house. We will talk about these to explain, but part two of this article is the focus will be more on shared freeholds, and of course making sure that you have the right building insurance.
Importantly, don’t panic!
Let’s break it down together in a way that’s easy to follow and approachable.
And if you have any further questions, you can always check our website HERE, or call us on 0330 113 7109.
Table of Contents
What Does It Mean to Be a Freeholder?
Imagine owning a single property where everything—from the building itself to the ground it stands on—is yours to control. That’s what being a freeholder is all about, although this is only for a single dwelling – see below on shared freehold!
Complete Ownership
As a freeholder as a term in law, you own the property and the land beneath it outright – you are the sole owner according to the land registry. There’s no ticking clock or expiration date on your ownership. It’s yours indefinitely, giving you the highest level of control over your asset. Of course property owners have some downsides – the need to insure, having to pay legal costs or costs of structural alterations etc.
For some, this is the ultimate ideal of home ownership – having the whole building and the land is the goal for some people
Freedom to Make Decisions
Want to paint your house bright pink? Go for it (as long as you follow local planning regulations, of course). Being a freeholder means you’re not beholden to another party when making decisions about your property.
No Extra Charges
Unlike leaseholders, freeholders don’t have to worry about paying ground rent or service charges to a landlord or management company. You’re responsible for maintaining your property, but you won’t have surprise bills from a freeholder.
Ideal for Houses
Freehold ownership is most common for houses. It’s often the default choice because it’s simpler and gives you full control.
Owning a freehold property is like having your little kingdom. You call the shots, but with that freedom comes the responsibility of upkeep and maintenance.
What Does It Mean to Be a Leaseholder?
Leasehold ownership is a bit different. While you still “own” the property, it’s more like having a long-term rental agreement.
A Fixed-Term Agreement
As a leaseholder, you own the property for a set period, which is defined in your lease agreement. This term could be anywhere from 99 years to 999 years. When the lease ends, the property ownership usually reverts to the freeholder.
Shared Responsibility
Leaseholders often live in flats (apartments), where the building and land are shared with other residents. The freeholder (or their management company) is responsible for maintaining the communal areas, such as hallways, staircases, or gardens.
- Paying for the Privilege: As a leaseholder, you’ll typically pay:
- Ground Rent: An annual fee to the freeholder for the land your property sits on.
- Service Charges: Contributions to building maintenance, repairs, and communal area upkeep.
- Major Works Costs: Sometimes, you’ll be asked to chip in for big projects like roof replacements or elevator repairs.
- Restrictions: Your lease will likely come with certain rules, such as restrictions on making structural changes, keeping pets, or subletting. Always read the lease carefully to understand your rights and obligations.
Leasehold properties are popular for flats and some new-build houses. They’re an accessible way to own a home, but they come with ongoing costs and less control.
The Key Differences Between Freehold and Leasehold
Now that we’ve covered the basics, let’s dive deeper into what sets these two types of ownership apart:
| Aspect | Freehold | Leasehold |
|---|---|---|
| Ownership | You own the property and the land outright. | You own the property for the length of the lease but not the land. |
| Duration | Ownership is indefinite. | Ownership lasts until the lease expires. |
| Costs | No ground rent or service charges. | Ground rent, service charges, and potential major works costs apply. |
| Control | Full control over the property. | Limited control; subject to lease terms. |
| Common Property Type | Houses. | Flats and some new-build houses. |
Each option has its pros and cons, so it’s essential to weigh them carefully based on your personal needs and future plans.
Challenges with Leasehold Ownership
While leasehold ownership works for many people, it’s not without its challenges. Here are a few things to watch out for:
Short Leases
If your lease has fewer than 80 years remaining, it can become difficult to sell, and the property’s value might drop. Extending the lease can be costly but often necessary.
Rising Costs
Ground rent and service charges can increase over time, sometimes unexpectedly. Some leaseholders have faced steep bills for major works, which can be a financial strain.
Restrictions
The lease terms might limit your ability to personalise your home or use it the way you’d like, for example, or there may be difficulties in you undertaking structural alterations and having to deal with other occupiers.
Working with others
You will also need to deal with the lessor as well as the other occupiers of the flats. To be fair that is the same as with a shared freehold.
Complicated Processes
If you want to extend your lease or buy the freehold, it can be a lengthy and complex process.
Being aware of these potential pitfalls can help you make a more informed decision when considering a leasehold property.
Lease Extensions and Buying the Freehold
If you already own a leasehold property and want more control, you’ve got options:
- Extend the Lease: Leaseholders have the right to extend their lease by 90 years for flats or 50 years for houses, provided they meet certain conditions. This comes with a cost, which depends on factors like the property’s value and the remaining lease term.
- Buy the Freehold: Known as enfranchisement, this process allows leaseholders to collectively purchase the freehold for their building. This is common in flats, where residents come together to gain more control and reduce ongoing costs.
Both options can enhance your property’s value and give you greater peace of mind, but they require careful planning and often legal assistance.
Shared Freehold: The Best of Both Worlds?
In some cases, leaseholders sit together to own the freehold for their building, creating what’s known as a “shared freehold” arrangement. So all the leaseholders are effectively acting as single freeholder, and the freeholder owns the freehold property and then within that each leaseholder owns a property.
This setup is offers several benefits:
- More Control: You jointly make decisions with the other leaseholders about the property, such as setting service charges and organising maintenance. You will also have control of the common parts if any, although that does mean taking on the work of the common parts.
- Cost Savings: By managing the property yourselves, you can avoid paying high fees to a management company. Some freeholders of bigger properties do have a management company, but that is not worth it for smaller properties, say with two flats.
- No Ground Rent: Once you own the freehold, you’re no longer obliged to pay ground rent.
However, shared freehold requires cooperation and good communication among residents. It’s not always straightforward, but for many, it’s worth the effort. Each of the flats in the building will need to cooperate on the management of the building and the external parts. In certain cases the mortgage company will also want to be included as an interested party.
Choosing What’s Right for You
When deciding between freehold and leasehold, think about your lifestyle, financial situation, and long-term plans:
- Do You Want Full Control? A freehold property gives you independence, making it ideal for those who value autonomy and are willing to take on maintenance responsibilities.
- Are You Open to Shared Spaces? Leasehold properties, particularly flats, can be a good choice if you’re comfortable with communal living and shared responsibilities.
- Consider the Costs: Freehold might have higher upfront costs, but leasehold comes with ongoing fees. Budget carefully to ensure you can manage either option comfortably.
- Think Long-Term: If you’re buying a leasehold property, pay attention to the lease length and be prepared to extend it if necessary.
Final Thoughts
Understanding the difference between freehold and leasehold can make all the difference when buying a property in the UK. Freehold offers freedom and simplicity, while leasehold provides an accessible way to own a home, albeit with some strings attached. By considering your priorities and weighing the pros and cons, you can make an informed choice that’s right for you.
Whether you’re dreaming of a freehold house with a garden or a leasehold flat in a bustling city, knowing what to expect will help you feel confident in your journey to homeownership. Happy house hunting!
