What's The Difference Between Leasehold and Freehold?

Published: 04/09/2018

You’ve done it

After months of searching, viewing properties, and agonising over whether each one could be your #DreamHome, you’ve finally found the property of your dreams. Now it’s time to talk business. The conveyancing process is complex, so you’ll need an experienced property lawyer to get you through it and into your new home sooner rather than later. One of the first questions you’ll be asked is - is your new property a freehold or a leasehold? If you’re a first-time buyer, you may respond with - what does that even mean? It’s likely you’ve thought more about paint colours and furniture choices than the technicalities that could make or break your property purchase. Luckily, here at GWlegal, we have almost 35 years’ experience navigating the conveyancing process. In this article, we will explain the differences between a freehold and leasehold and why you need to be aware of them before buying a property.

What is a freehold?

It is always more preferable to purchase a freehold property, as this mean that you will own the building and the land it is built on outright. Subject to planning permission of course, you will be able to do whatever you want with the space. Owning a freehold property also means you are responsible for all repairs and maintenance to both the property and the land itself within your boundary.

Most properties are freehold.

A simple way to remember what a freehold means is to take a very elementary look at the name itself. A ‘freehold’ means you are essentially ‘free’ to do what you please with your property and land.

What is a leasehold?

In comparison, a ‘leasehold’ property, as the name suggests, means you are not fully ‘free’ to alter the property and land as you please. Rather, it is being ‘leased’ to you. In England and Wales, most flats and maisonettes are leaseholds.

If you purchase a leasehold property, you have ownership of the building, but not the land it stands on, as well as external structures if it is a flat. The land (and external structures) belongs to someone else (the freeholder - who is basically your landlord).

Under this arrangement, the ownership of the property will be subject to a fixed term lease, typically varying from 99 to 125 years. At the end of this time period, the ownership of the property will revert back to the freeholder (or you may be able to make arrangements to purchase it, depending on the property type).

If you are interested in purchasing a leasehold property, it is vital that you check the remaining length of the leasehold, as this could affect your mortgage options or the ability to sell the property later on.

Leasehold vs. freehold - which is the better option?

There are advantages and disadvantages of owning both a freehold and leasehold property.

The advantages of a freehold are, of course, that you own both the building and the land outright, so have the freedom to do with it as you please. You won’t have any mortgage issues as a result of its holding and you can sell the property if and when you please.

The disadvantage of a freehold property is that the responsibility lies completely with you - if something goes wrong, with either the property or the land within your boundaries, you’ll have to fork out the time and funds to fix it.

On the other hand, a leasehold can be more comfortable, as the leaseholder will be responsible for any major maintenance of the land, as well as communal areas, and external walls. In return, you will need to pay fees (including monthly ‘ground rent’ and yearly maintenance fees) to the freeholder, often via a management company, to cover the costs of any such repairs.

Likewise, if you wish to make alterations to the property, you may need to apply for permission from the leaseholder.

It completely depends on your own individual circumstances whether a leasehold or freehold is the best option for you. If you are looking to purchase an inner-city flat in a serviced building, perhaps a leasehold is the best (and maybe only) choice. If want total freedom in your house in the suburbs, spending a little extra time to find the freehold of your dreams may be a better option.

Buying your freehold

When purchasing a leasehold property, or later down the line, it may be possible to purchase the freehold. When you buy the freehold of a house, you'll outright own the land your property sits on.

If you buy your flat’s freehold, however, you’ll jointly own the land with your fellow freeholders - meaning you'll have a share of the building's freehold.

There is also the option to extend your lease.

You would need to seek legal advice to take either of these steps.

New-build homes

New-build homes are now a very popular option, especially for first-time buyers, who are desperate to find an affordable first-home option and are attracted to the idea of being the first family to live in the brand new property.

It is particularly important to be aware of the implications of purchasing a leasehold property if you are considering a new-build home, as in recent years there has been some controversy about this topic - with a lot of talk about unfair leasehold conditions, spiralling ground rent prices, issues with securing mortgages and developers selling the freeholds to investment companies.

Again, this just cements the importance of speaking to a property lawyer before taking any major decisions.

The next steps

Regardless of whether you are looking to purchase a leasehold or a freehold property, you will need to enlist the assistance of an experienced property lawyer.

The experience of your lawyer will be particularly important if you are purchasing a leasehold home, as the conveyancing process can be more complicated in this instance. A good lawyer will be able to highlight any limitations that might arise from ownership of this particular property, and clearly explain your financial obligations to the freeholder and/or management company, so you know exactly what you’re getting into before finalising your property purchase.

This is one of the biggest decisions of your life, so it’s important to make the right choice, with the right team by your side.

Why are we the best conveyancing solicitors for you?

GWlegal are a property solicitors based in Liverpool, specialising in buying or selling, remortgage, declaration of trust, bridging and buy-to-let landlords.

If you have a legal matter you wish to discuss don’t hesitate to get in touch. You can call us on 0345 373 3737 email us hello@gw.legal with your question.

Who are GWlegal? We’re a national firm with local values.

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Content correct at time of publication.

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