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Freehold and Leasehold: What's the Difference?

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If you’re looking to buy a property, you will almost certainly have heard the terms ‘freehold’ and ‘leasehold’ being mentioned. They are important definitions to be aware of - essentially, freehold and leasehold are terms for two types of ‘property tenure,’ or the different legal arrangements by which you can own a property. But how significant is the difference between them? And what are the benefits and drawbacks of the two types of home ownership?

So what’s the difference?

In the simplest terms, if you own a freehold, you own the property outright. And if you own a leasehold, you have the right to use the property for a fixed number of years, but it is ultimately still owned by a landlord (the freeholder). It’s the difference between owning a property outright and having a landlord, and buyers who ignore this fact can end up regretting it.

The types of properties that are most commonly sold as leasehold are those that are part of a larger structure owned by a landlord, e.g. a flat that is part of a block. Whole houses are traditionally sold as freeholds, but in recent years it has become more common for freestanding houses to be sold on a lease.

Freehold: Pros and Cons

For most buyers, freehold is certainly the preferable property tenure. Being the freeholder and therefore owning the ‘title absolute’ allows you much greater freedom, and often less on-going cost, than if you were on a lease. If you own a freehold, the advantages include:

  • Not having to pay ground rent or management company fees
  • More freedom to make changes to the property
  • The property is yours indefinitely – i.e. you will not have to deal with the lease running out

The disadvantage of owning a freehold is that maintenance and repairs to any part of the property will be your responsibility to sort out and pay for, whereas in a leasehold certain responsibilities (e.g. repairs to the roof) sit with the landlord.

Leasehold: Pros and Cons

Though owning a leasehold property is a more complex legal arrangement than owning it outright, it still comes with some advantages:

  • The freeholder (also known as the landlord) is likely to be responsible for carrying out maintenance to the outer structure and land.
  • It may be possible to buy the property outright and become the freeholder.

There are also drawbacks to owning a leasehold that buyers must be well aware of before proceeding with a purchase. These include:

  • It is likely that you will have to pay ground rent to the freeholder, and management fees.
  • You may be subject to restrictions such as not owning pets or subletting.
  • You will usually have to obtain permission to carry out significant works on the property.
  • Having fewer than 80 years left on the lease can make your property harder to sell on due to mortgage providers being reluctant to lend.
  • Extending the lease can be costly depending on how many years are left.

If you own a property on a lease and are worried that the lease is getting short, don’t worry: it is nearly always possible to take action to extend the lease or become the freeholder. The best thing to do is get in touch with a solicitor to talk through your options.

In summary

For most buyers, freehold is certainly a preferable option. But that’s not to say that leasehold can’t be a safe investment – it’s just important to examine all the facts and ensure that you are comfortable with the legal and financial arrangements involved. To ensure your best interests are protected you should always check before you buy, and have a good conveyancing solicitor on your side.

At Bird & Co, our expert conveyancing solicitors have been assisting clients with all kinds of property transactions for many years.  We can help you determine the best course of action and ensure the process of buying and selling property is smooth and stress-free. Get a free conveyancing quote today: you can call our free hotline on 01636 600 656.