The difference between freehold and leasehold
November 21, 2022
Simply speaking the difference between freehold and leasehold is that when you buy a freehold property you own the property and the land it sits on. When you buy a leasehold property, you own the property but not the land. Let’s look at this in more detail.
What does freehold mean?
Freehold is the outright ownership of a property, including the land the property is situated on and any permanent structures on it. For property or land to be freehold, there are two criteria it must meet:
- The property must be land or connected to land;
- The time that the property can be owned for must be indeterminate.
Ultimately, freehold is the complete ownership of property and the land on which it is situated, the difference between freehold and leasehold being that you own the land, rather than buying a limited lease on a property.
When you own freehold property, you are the sole responsible owner of the building and the land. Repairs, general upkeep, and the eventual sale of the property are all entirely up to you. When it comes to selling a freehold, you have complete control of the sale.
The advantages and disadvantages of freehold
Advantages - Freehold properties are usually houses that the owner has full control over, as such they come with a multitude of benefits.
- Once owned, you won’t have to pay any more money such as ground rent, service charges, or admin fees;
- There is no relationship with another owner, the property belongs to you and you won’t have to take anybody else into consideration;
- You are free to set your own rules – no restrictions on pets or smoking – and make any amendments to the building you like (as long as you acquire appropriate planning permission);
- There is no time limit to worry about, you own the property and will be able to keep it in the family for generations if your descendants choose to do so.
Disadvantages - Despite the clear advantages of owning freehold property, it may not be the appropriate choice for every prospective homebuyer.
- Freehold property is almost always more expensive than leasehold;
- Flats/apartments are rarely freeholds, if that is the kind of property you’re looking for, freehold may not be for you;
- If you enjoy communal living, freehold property would likely not suit you
Some additional terminology
Sharehold - Some flats offer a ‘share of freehold’. This sharehold allows you to own part of the wider building without being restricted by the terms of a leasehold. However, the upkeep of the building will fall to all of the people who make up the wider sharehold, including you.
Flying and creeping - Flying freehold and creeping freehold refers to aspects of a freehold property that encroach onto the land of another freehold property. Flying freehold refers to aspects of a property that reach over another such as overhanging roofs or balconies while creeping freehold is in reference to aspects that reach under another property like cellars and basements. As your property is making its way onto the land of another, this can cause contention.
What does leasehold mean?
Leasehold is the ownership of a property and its land for a limited amount of time. This is known as its tenure, which is agreed with the property’s freeholder. Leaseholds are usually flats or apartments in a larger building and are usually very long-term lets of decades or even centuries. So, what is a leasehold property?
- A leaseholder has a contract with a freeholder;
- The freeholder will be responsible for the general upkeep of the wider property, covering issues affecting the entrance and roof of the property;
- The leaseholder will likely have to pay maintenance fees, service charges and annual ground rent.
As a leaseholder, you will own the rights to a portion of a property, but it won’t be wholly yours. There are many restrictions to owning property in this fashion and, along with the additional fees you’ll have to pay, you’ll have to be aware of how the landlord will allow you to act in the property.
The advantages and disadvantages of leasehold
Advantages - While most people view owning freehold property as more advantageous than owning leasehold, it doesn’t mean that leasehold is not without its merits.
- First and foremost, leasehold properties often have a much lower buying cost than freehold;
- As the owner of a leasehold property, much of the external maintenance will be taken care of by the landlord. You will have to pay maintenance fees, but these often pale in comparison to some of the costs that can be faced by freeholders.
- If you are interested in communal living and want a property with a concierge service, gym, pool, and large common areas, you’re almost certain to be looking for a leasehold property.
Disadvantages - Despite the cheaper costs of many leaseholds, it is important to remember that these are only initial and that leasehold properties can come with a multitude of disadvantages.
- You may be restricted with what you are able to do to your property. From structural changes to restrictions on pets or smoking, your landlord is within their rights to place restrictions on you as a tenant;
- Lease lengths are something to take into consideration too. While your lease may well be centuries long, it may be much shorter, making your flat hard to sell if you have a lease of under 80 years;
- The quality of your property will be decided by the quality of your landlord, if they are particularly lackluster, that will affect the quality of the upkeep of your property.
Leasehold rights and responsibilities
While you own a leasehold property you are subject to the rules put in place by the landlord. However, you do still effectively own your property. As such you are entitled to a number of rights as a leaseholder, but for these rights to be upheld, there are a number of responsibilities you have to undertake yourself.
- The right to get information about any service charges or insurance;
- The right to know the freeholder’s name and address;
- The right to be consulted about certain maintenance and running costs;
- The right to challenge certain charges under some circumstances.
The lease that you sign when purchasing a leasehold property will outline your responsibilities as a leaseholder. If you do not maintain these responsibilities, you could be taken to court. These conditions vary but can include:
- Needing permission to make alterations to the property;
- The amount you will have to pay towards maintenance costs;
- Whether you or your landlord has the responsibility to deal with interior repairs and disputes with neighbours.