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Leasehold and freehold: key differences explained

13.12.2018 Site Manager

You might remember we recently highlighted the intricacies of ground rent and maintenance, where we touched briefly upon the differences between leasehold and freehold ownership. We often get asked about the advantages or disadvantages of different types of ownership, so we’ve outlined some of the key differences of a leasehold versus a freehold.

Who owns the freehold?

If a property is listed as freehold, it means that you will have outright ownership of the property and the land it encompasses until you decide to sell the property on. As the freeholder of your home it is your responsibility to maintain the building, including exterior components such as the roof and guttering, and land in which your property stands.

As outlined above, owning the freehold of your home means that you have total control of the property and land, giving you freedom to manage your home and make reasonable changes as you see fit. You also won’t need to worry about the length of a lease with a freehold home, meaning no need for extensions or concerns over this affecting your property value.

What are the disadvantages of owning a home freehold?

The initial costs associated with buying a freehold property can be unrealistic for some looking to get on the property ladder and, coupled with this, the responsibility for a building’s entirety and its surrounding land can be overwhelming. Moreover, this can prove to be a costly obligation if any complications arise with the property structure.

What does leasehold ownership mean?

When a property is advertised as leasehold, it means that you are purchasing the property itself but not the building or surrounding grounds. Whilst this method of ownership is most common with flats, apartments and maisonettes, some houses can also be sold as leasehold.

Generally, there will be a landlord that owns the building and land, the freeholder, and manages the length of your lease.

What are the advantages of a leasehold property?

The lower cost of a leasehold property is usually the most attractive factor for buyers, particularly those looking to get onto the property ladder, and some find the prospect of lesser responsibility for property maintenance and repairs appealing.

What are the disadvantages of a leasehold property?

The length of a lease is usually long-term, often around 90 years, but we would always recommend considering how many years are left on the lease of a property you might be interested in. With a shorter lease, you might need to pay to renew it after only a few years of ownership. Additionally, a short lease can cause the value of a property to decrease, meaning you might struggle to sell the property on in the future.

If you own your home leasehold, you will also need to pay annual fees and service charges to the freeholder, covering your ground rent and ongoing maintenance, and may find you are restricted in any work you can carry out on your home.

However, it is possible to collaborate with neighbouring tenants within your property and buy the freeholder out of the lease. This means that the new collective owners are able to grant new leases for tenants, generally with a much longer duration, and can share responsibility of managing the property and grounds – or even appoint a managing agent.

Controversies around leasehold properties

In recent years, there have been controversies with leasehold ownership as many new homes have been built and sold on this basis, causing some homeowners to feel trapped by freeholder fees and experience some unexpected pitfalls.

The good news is that the government have recently come down on unjust landlords, and held a consultation for views on how leasehold reforms can be brought in. Whilst these reforms are yet undetermined, it is positive news that we are moving towards greater transparency concerning leasehold properties.

At Austin Gray, our team of property experts can provide professional services and advice around property ownership when you need it, helping make the process of buying and selling smoother, and have successfully supported tenants with the collective ownership of property freeholds. If you’d like to know more about the professional services we provide, get in touch with the team today.

Plus, if you’d like to receive useful tips and information around buying and selling, the latest industry news or some of our latest properties in your area, you can also sign up to our newsletter to receive it straight to your inbox.