Freehold and Leasehold Property

Freehold and leasehold are terms that are used so commonly by conveyancers and it can often be taken for granted that you, as a prospective buyer or seller, will understand what they mean.

The essential difference between freehold and leasehold is that when owning a freehold property, you own both the property and the land it is built on and you can own the property for as long as you want. Every piece of land has someone that owns the freehold and that person is referred to as the freeholder. If the freeholder decides to grant a lease of the property to another person (leaseholder) then the freeholder becomes a landlord, and the leaseholder becomes the tenant. 

When owning leasehold property, you will own the building or more commonly the flat, but not the land it is on. You will have exclusive possession of the building / flat but the land will be owned by the freeholder and your ownership of the building / flat will only be for a period of time (up to 999 years) as defined in the lease (called the term). Unless you can extend the lease, when the term comes to an end the property will revert back to the landlord.

Typically, the majority of people who own and occupy their own home, own the freehold to the property. If the freeholder has not granted any leases to the property, then they will usually have sole responsibility for maintaining, repairing, and insuring the property and the buildings that lie within. They will not have to obtain the consent of a freeholder/landlord to extend of develop the property in any way and will not have to pay ground rent or service charges to a freeholder/landlord. Freehold is often considered more desirable as there are less disadvantages and more freedom to deal with the property as you wish. It can however also be more costly as a result of the liabilities that come with the freedom.

Traditionally whole houses are freehold, and flats and maisonettes are usually leasehold. In recent years however,  large residential developments have sparked an increasing trend towards leasehold houses. When owning leasehold property you will pay an annual ground rent to the landlord, as well as a service charge for any maintenance and repairs that are carried out to the property/common areas. Generally, you will also have to seek permission to undertake any structural or major works to the property and, depending on the contents of the lease, it can also be subject to restrictions on matters such as pets, musical instruments, parking, and subletting. If you breach the terms of the lease or there is a failure to fulfil the terms of the lease in any way, then the landlord will have certain rights of enforcement. This could result in a court ordering you to remedy the breach (such as repair/return to previous state or pay the outstanding service charge). The court could prohibit actions (such as stop causing a nuisance). In the worst-case scenario, the court may even order that the landlord can bring your lease and occupation of the property to an end. This can obviously be a very costly consequence of owning a leasehold property.

Another important consideration when owning or buying leasehold property is the length of the lease. Naturally, the longer the length of the time left on the lease, the more secure the value of the property will be. As the length of the lease remaining gets shorter, the property will reduce in value. This reduction will initially be minor, but when the remaining term of the lease is anything less than 80 years you may start to see significant effects on the value. This may also affect your ability to get a mortgage on the property and/or the saleability of the property. When buying leasehold property, you should always check that you are happy with the length of time left on the lease.

As a leaseholder you may have a right to extend your lease or even buy the freehold, however there are specific requirements that you must fulfil and a specific process to follow to obtain either.

It is important that you fully understand the difference between purchasing a freehold and a leasehold property and the liabilities and costs of doing so. The more you understand, the easier it will be for you to identify which type of property you would or would not like to buy.

If you would like to discuss the above or have any queries, please contact our Property Department who would be happy to help.