What’s the difference between Leasehold and Freehold?
06th August 19
The terms ‘leasehold’ and ‘freehold’ are commonly mistaken for one another when discussing the subject of property ownership. There are a few distinct differences to note between the two terms, and it is important that you understand what these are before taking the steps to secure a property, as getting confused and mixing up the two can (and most likely will) prove costly in the long run.
What is a freehold?
As a freeholder you are the person that wholly owns a property. The property, including the land that it stands on is owned outright by the freeholder and is therefore directly responsible for maintaining all facets of said property, whether that be the roof, the outside walls or anything else which could feasibly fall within those parameters. Houses are generally owned freehold – though there has recently been an increase in leasehold ownership with new build homes, so that’s something to keep in mind when buying.
What is a leasehold?
As a leaseholder, your ownership of a property is limited strictly to the period in which you’ve agreed a lease with the freeholder (the landlord). Leases of this sort typically don’t expire for a long period of time (usually between 99 and 120 years), but once the lease ends the ownership of the property returns to the freeholder. Tenants are able to request that they extend the lease at any time, having the right to increase their lease by 90 years after owning the home for two years (providing they qualify as tenants). In general, flats and maisonettes are usually owned leaseholds as whilst the owner will own the property in the building, the land the property sits on will be owned by a different party entirely.
What are the advantages and disadvantages of freeholding and leaseholding?
Freeholding is the most common route most property owners would choose as there’s generally less outside interference – i.e. not having to deal with a freeholder. This means that issues such as an expiring lease and annual charges for ground rent and services can be avoided from the get-go.
There are of course some people who perceive disadvantages to the freeholding system – some people would prefer not to be held completely responsible for the maintenance of a building, preferring instead to leave these things to a freeholder as agreed in the initial terms of the lease. This is quite a rare occurrence though, as most people like to be in complete control when taking ownership over a property.
A major advantage noted by leaseholders is that properties bought through leasehold are usually less expensive than ones bought under freehold. Another area which favours the choice of leaseholder is for those of you looking for short-term accommodation – if you know that your needs from a property only span a shorter number of years then a lease could very well make more sense for you.
A problem found by many with a lease is the effect on the value of property that it can have. It is generally recommended that buyers approach a lease of anything less than 90 years with a lot of trepidation, as once the lease goes beyond this point the value on your property can begin to depreciate rapidly, and to a substantial level.
When it comes down to it, this decision comes down to a matter of your personal preference and circumstances – there really is no general right or wrong answer for this, which is why it is so crucial that you evaluate all of your options and even speak to an expert if possible.
Feel free to contact us if you’d like some specific one-to-one advice regarding this area of property before moving forward with your property hunt. The team at Home Estate Agents are always happy to assist with any queries or assistance you might need in order to make your move pass as smoothly as possible.