By Admin Sep 25, 2018 CONVEYANCING SERVICES
Leasehold vs freehold: What’s the difference?
Wondering what the difference is between a leasehold and a freehold? This guide breaks down the ways you can own a property: freehold, leasehold, or leasehold with a share of the freehold. It also examines the costs and responsibilities of each, and how they affect what a property will cost to buy, sell, and maintain.
What is a freehold?
The freeholder of a property owns it outright, including the land it is built on.
If you buy a freehold, you’re responsible for maintaining your property and land, so you’ll need to budget for these costs.
Most houses are freehold but some might be leasehold – usually through shared-ownership schemes.
Benefits of having a freehold
You don’t have to:
- Worry about the lease running out, as you own the property outright.
- Deal with the freeholder (often known as the landlord).
- Pay ground rent, services charges or any other landlord charges.
Owning a share of freehold
You can buy the freehold from the landlord along with other leaseholders - for example, other people living in a block of flats.
You can do this as long as at least half of the leaseholders agree to buy a share.
Doing this gives you more control over your home and the costs you pay out.
It also means you can extend your lease fairly easily for up to 999 years.
Common hold is an alternative to long-term leasehold. Owners of the properties can form a commonhold association, which owns the land, building and common areas and is responsible for the management, maintenance, repair and servicing of these areas.
Like a leasehold, owners are responsible for their individual flats or houses. But, unlike leaseholds, there is no time limit for how long you own the property.
Anyone who owns a freehold in the building or estate is entitled to participate in the running of the commonhold association.
What is a leasehold?
With a leasehold, you own the property (subject to the terms of the lease) for the length of your lease agreement with the freeholder.
When the lease ends, ownership returns to the freeholder, unless you can extend the lease.
Most flats and maisonettes are leasehold, so while you own your property in the building, you have no stake in the building it is in.
Some houses are sold as leaseholds. If this is the case, you own the property, but not the land it sits on.
Buying a leasehold
- How many years are left to run on the lease.
- How you’ll budget for service charges and related costs.
- How the length of the lease might affect getting a mortgage and the resale value
How important is the length of a lease?
If the lease is for less than 70 years, you will probably struggle to get a mortgage.
As a result, it can also be difficult to sell a property if the lease is for less than 80 years.
If you eventually want to sell a leasehold property you’re buying, think about how many years will be left on the lease.
Extending the lease
You can ask the landlord to extend the lease at any time.
And once you’ve owned your home for two years, you have the right to extend your lease by 90 years, provided you are a qualifying tenant.
Usually, you will be a qualifying tenant if your original lease was for more than 21 years.
The freeholder will charge for extending the lease.
The cost will depend on the property.
If you and the freeholder can’t agree on the cost of extending the lease, you can appeal to the Leasehold Valuation Tribunal.
If you own a leasehold property, you don’t own the land.
This means you won’t be responsible for maintaining and running the building.
The landlord will do this or appoint a managing agent to do so for them.
However, the leaseholders share the costs of this by paying a service charge to the landlord.
You might also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.
Leasehold service charges
Service charges vary from property to property and are to pay for things such as:
- Maintaining communal gardens,
- Electricity bills for communal areas, or
- Repair and maintenance of exterior walls
Make sure you’re aware of the service charges before you put in an offer on a property as it might affect whether you can afford to live there.
But you’ll usually need to get the landlord’s permission to make any significant changes.
Other charges might include:
- Ground rent;
- Administration charges, or
- Buildings insurance (arranged by the landlord)
Your rights as a leaseholder
As a leaseholder you have rights preventing the landlord from taking advantage of you financially.
For example, you can ask to see:
- A summary of what the service charges are being spent on.
- How they have been calculated.
- Any supporting paperwork, such as receipts for work done.
The landlord must also consult you:
- About any building work costing more than £250.
- Before doing any work lasting more than a year.
- Before doing any work costing you over £100 a year.
What to do if you’re unhappy with the property management
If you’re unhappy with charges or the way the property is managed, you have two options:
- Right to Manage - lets leaseholders take over certain management tasks from the landlord without having to prove bad management. You’ll need to qualify, and set up a management company with the other leaseholders.
- Apply to appoint a new manager but you must prove bad management (unfair costs, breach of agreements). You will need to apply to the Residential Property Tribunal.
By John Doe
John Doe is a seasoned conveyancing solicitor. He serves as the lead of our operations in the UK.
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