Understanding the difference between freehold and leasehold

An important, but often misunderstood, aspect of property ownership is the difference between freehold and leasehold.

There are three main ways you can own a property; freehold, leasehold or leasehold with a share of the freehold. Understanding the difference is extremely important when buying a property, as there are a number of common issues and misconceptions between them.

A freeholder owns the property itself and the land it occupies.  Owning a freehold property means that you are not required to pay any ground rent as you own the ground the property sits on. As you are responsible for any maintenance of the property and the land, you have control over how much you spend and when any works are carried out.

In contrast, a leaseholder owns the right to occupy a property for a fixed number of years, known as ‘the term’ and this is typically 99 years or more. It is a type of long-term tenancy, it is not the same as outright ownership.

You will not be responsible for maintaining the structure of the building and any communal areas. The landlord will do this or appoint a managing agent to do so for them. Leaseholders share the costs of this by paying a service charge to the landlord. You may also be asked to pay into a reserve fund to help cover any unexpected maintenance work required in the future.

There are some advantages and disadvantages of buying a leasehold property. For example:

  • You have less responsibility for repairs and maintenance
  • There are usually some conditions and restrictions as to how you may use the property, such as whether you can have pets or are allowed to sub-let the property or make alterations to it
  • The landlord has control over the amount of service charges and the cost of those charges and how frequently repairs and maintenance are carried out
  • How many years are left on the lease, the amount of ground rent payable and service charges may affect the property resale value and how attractive the property is to buyers in the future
  • Leases often contain escalating ground rent review provisions which can be problematic
  • The remaining term of the lease ie. how many years it has left is important because it can impact on the price you pay to buy a property and also the price you may have to pay if you want to extend your lease. If the term remaining on the lease is 85 years or less you should seek specialist advice.

If you would like further information, please contact Linda Crawford or Luke Cain in our residential property team.

Suffolk Property Solicitors – for more information on our range of legal services, please contact us.