What is the difference between a freehold and leasehold property?
Freehold and leasehold are the two basic types of property ownership and it’s crucial for anyone involved in a transaction to know the difference.
What is a freehold property?
If you buy a freehold property you will own the building as well as the ground it stands on. This benefits the buyer because it means there is no need to pay ground rent or concern yourself with who pays what for maintenance. In simple terms, the freeholder pays for everything.
Freehold properties are often preferred because there’s no recurring lease to pay, and you don’t have to extend a lease.
What is a leasehold property?
In effect, there are two owners of a leasehold property: the leaseholder, who owns the building; and the freeholder, who owns the land.
Under a leasehold arrangement a lease from the freeholder (sometimes called the landlord) is held for a specified period. Property leases are typically long term – commonly 90 years and sometimes 120 years. However, leases can be for periods as long as 999 years, or as short as 40 years.
It is essential to make certain that any lease spells out:
- The annual cost of the ground rent
- The length of time left on the lease
- Whether increases are allowed and how frequently
- The freeholder/landlord and leaseholder obligations
What leaseholders must do:
- As well as ground rent, leaseholders typically pay maintenance fees, service charges and a proportion of the building insurance
- If leaseholders want to carry out any majors works they must usually get the permission of the freeholder
- Sometimes leaseholders are prevented from subletting all or part of the premises
- If leaseholders don’t meet the terms of the lease it may become forfeit. This could happen if, for example, the leaseholder repeatedly failed to pay ground rent.
- Leaseholders are not normally responsible for maintaining the common parts of the building, such as staircases, external walls and roof. This is usually down to the freeholder.
- However, sometimes leaseholders claim a ‘right to manage’, meaning they are responsible for some or all of these items
Buying the freehold on a leasehold property
In some circumstances leaseholders have a right to buy the freehold, a procedure known as enfranchisement. This involves technical procedures and professional advice should be taken if you are considering this route.
This answer is a guide only. The difference between a freehold and leasehold property can also vary depending on whether it is a commercial or residential property. Jones Melling has a team of specialists who can advise you on the status of your property ownership.