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Freehold or Leasehold?

Freehold or Leasehold?

Rachael Holliday explains the difference between freehold and leasehold properties, and what to consider when buying a leasehold property.

When home buyers look into purchasing a property, they will come across references to properties being classed as either “freehold” or “leasehold”.

What is freehold?

If you own the freehold, it means that you own the building and the land it stands on (subject to any mines and minerals reserved by previous owners). As the freeholder, you will have responsibility for maintaining the whole building including the roof and the outside walls. Subject to planning legislation and to any restrictions mentioned in the title, you are free to extend or re-develop the property as you see fit.

Most houses are freehold (but some shared ownership properties may not be).

What is leasehold?

With leasehold properties, you occupy the property and the land it is built upon a certain term which will be set out in the lease agreement. Leases are usually for a term of between 125 years and 999 years. Most flats and maisonettes are leasehold.

What happens at the end of the Lease?

There is legislation in place to assist leaseholders obtaining lease extensions from the freeholder. Provided you meet certain criteria, you may have the right to extend your lease by 90 years. However, the freeholder will charge for extending the lease and the costs will depend on the property.

If the term of the lease is not extended and the lease term expires then ownership of the property will revert back to the freeholder.

Things you should consider when purchasing a leasehold property:

1. The term of the Lease.

Properties with long leases (such as 999 years) are more desirable than those with a shorter term. If you have a short lease, (particularly less than 70 years) you may find that mortgage lenders are reluctant to lend against the property. As a result, fewer people will be able to purchase when you look re-sell and this could dramatically reduce the value of the property.

2. Payment of ground rent/service charges

The landlord is usually responsible for maintaining the common parts of the building such as the entrance hall, staircase, exterior walls and roof and also any communal gardens.

However, the landlord will usually recover the maintenance costs from the leaseholders by collecting maintenance fees and service charges as well as a proportion of the buildings insurance premium.

You might also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.

Make sure you’re aware of the service charges before you complete your purchase as, in some areas, these can be very expensive.

3. Restrictions on the property

With leasehold properties it is common for the Lease to impose restrictions on the property such as:

  • Having to obtain permission from the Landlord for any majors works done to the property
  • Not being able to keep pets at the property
  • Not being able to sub-let the property without the Landlord’s consent.

If you have any queries in respect of freehold or leasehold properties, please contact our conveyancing team on 01228 552222.

About the author

Rachael Holliday profile photo

Rachael Holliday

Rachael is a Chartered Legal Executive in the residential conveyancing team.

Published: Friday 12th May 2017
Categorised: Residential Conveyancing, Legal Services in Newcastle, Penrith, West Cumbria

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