What’s the difference between freehold and leasehold properties?

Key takeaways

• If you own the freehold to your property, you own both the building and the land it stands on

• If you own a leasehold property, you own the property but not the land, and you must pay ground rent to the freeholder

• Leasehold properties come with service charges and require permission for major changes

What’s the difference between freehold and leasehold?

If you own the freehold to your property, you own the building as well as the land. If you own a leasehold property, you have bought the property alone. This is common in blocks of flats, where you don’t own the whole building your property is in.

Some of the main differences between leasehold and freehold properties are:

What does owning a leasehold mean in practice?

When you buy a leasehold property, you’re effectively buying a lease that confers the right to live in a property for a pre-determined number of years. At no stage do you own the house or flat outright. Instead it remains the property of the freeholder or landlord, who also owns the ground on which it’s built.

Leaseholds are most common when you buy a flat, where the block and surrounding outdoor spaces are owned by the landlord or freeholder.

What does owning a freehold mean in practice?

Owning a property’s freehold means every facet of your home belongs to you. That means you own everything, from the land it’s built on to the bricks that it’s made from.

Owning a freehold means that you’re free to make changes or improvements to your home or garden and you can sell up at your discretion.

Freehold flats do exist, although they’re rarer than leaseholds. Where flats are freehold, you typically own a share of the freehold, along with the landlord or builder and others in the same building.

Most commonly, though, a freehold is much more likely to be a house, most of which in the UK are sold as freehold.

What are the pros and cons of a leasehold?

Pros of a leasehold

• Upkeep and repairs aren’t usually your direct responsibility: With you and other leaseholders contributing to upkeep through a service charge, you’ll share the expense of pricey repairs (such as roof repairs and keeping communal areas looking presentable).

• Freeholders sort the buildings insurance: You’ll typically still pay for buildings insurance (usually via your service charge), but it’s not your responsibility to deal with the insurer or source quotes.

• Leasehold properties are usually cheaper: It’s not uncommon for leasehold flats to be as much as 25% cheaper than freehold flats (depending on the location).

• There’s a possibility of extending your lease by buying freehold: Flat owners can pool their funds to buy the freehold of their flat, and then extend their leases to 999 years.

Cons of a leasehold

• You pay service charges and ground rent: This can take a bite out of your monthly budget and can increase substantially over time.

• Short leases can be a financial risk: Short leases make it harder to sell a property, and extending the lease can be expensive.

• Refurbishments and extensions require permission: The freeholder will have to give you written permission and there’s no guarantee they’ll approve your plans.

What are the pros and cons of freehold?

Pros of a freehold

• You don’t have to worry about the lease running out: Once you own a freehold property, it’s yours until you decide to sell.

• No service charge or ground rent to pay: With no set, recurring charges for which you’re liable you’ve got more money in your pocket.

• Properties are easier to sell: Freehold properties tend to attract a premium price – with the caveat that you’ll likely have paid more for the property to begin with.

• You’re in charge: You’re much freer to make changes to your property, and you’re in control of how much to spend on maintaining it and which suppliers to use.

Cons of a freehold

• Upkeep expenses fall on you alone: With a freehold, you’re solely responsible for paying for maintenance of the building and grounds, which can be expensive if major repairs are required.

• Buildings insurance is your responsibility: Unlike leasehold properties, you’ll have to sort buildings cover and deal with insurers.

• You may have to find more money initially: Freeholds typically attract a premium price, so can put an additional financial burden on you, especially if you’re a first-time buyer.

Is a 999-year lease the same as a freehold?

Although some people might regard a 999-year lease as being as good as a freehold, the two are not the same.

If you own a 999-year lease there’s no concern that the lease will run down to a point where the property becomes hard to sell. But even though the lease is long, the leaseholder is still obliged to pay ground rent and service charges, and is still subject to restrictions on property alterations.

Can a freehold be sold?

Yes, a freehold can be sold. Regulations stipulate that a freeholder can sell the freehold whenever they wish, but with the proviso that they must offer the Right of First Refusal to qualifying tenants.

If the tenants/leaseholders are not interested in buying the freehold, the freeholder is at liberty to sell the freehold to another buyer on the open market.

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