What Is The Difference Between Leasehold And Freehold?
Looking to buy a property in London? Apart from determining your budget, the neighbourhood, the cost of utilities, tax, and the type of property you require, a key aspect you should pay attention to relates to the kind of ownership. In the UK, there are two key ways to own a property:
A third option exists in the form of a share of freehold that refers to collective ownership of the property.
Consulting your estate agent London can help you understand the unique differences between leasehold, freehold and share of freehold. The type of ownership agreement you have determines how you finance, sell, insure, and maintain the property.
What is a freehold property?
When you buy a freehold property, it means that the land and the building is owned by you exclusively. For most properties in the UK, freehold properties are the norm.
As a freehold owner of the property, you are responsible for the management and maintenance costs of the home. At the time of acquiring the property, the building and land survey highlights potential dangers that can be addressed by the previous owner. Still, any issues found after the sale are your responsibility.
As property freeholder, there are several advantages. Firstly, there is no need to deal with any landlord or be concerned about the lease time in the agreement.
However, as the property freeholder, you are responsible for the property in many ways that might affect the local community or council, including border disputes, noise pollution, overhanging trees, and general appearance, among others.
In short, the following points are essential to know when buying a freehold property:
- If you own a freehold property, it means you have outright ownership of the land and the building that stands on it. The land registry will have your name as “freeholder”, with “title absolute”.
- There’s no need to pay the annual ground rent as a freeholder
- There are no concerns of the freeholder not maintaining the building or charging a hefty amount for the same.
- You can decide on how you maintain the building’s exterior
- There are no concerns with respect to lease terms
- You are responsible for the maintenance of the building’s fabric including outside walls and roof
- Whole houses are typically freehold
- Some newly built standalone homes can be leasehold houses. You must check with your estate agent London before you make a purchase decision.
Leasehold is a long-term lease of the property from the landowner. In the UK, such situations are found with apartment blocks. The lease agreement can be as little as 40 years or extended to 999 years. After the lease period expires, the lease needs to be stretched as per the prevalent price, or the leasehold property needs to be returned to its owner. Possession of the leasehold property is subject to annual ground rent payment. Most London flats are leasehold properties.
If you are considering buying a leasehold property, it is crucial to focus on the lease time frame and how this affects the price of the property when you need to extend the lease.
An advantage of a leasehold property is that you are not responsible for the management or maintenance of the land or building. The landlord takes care of the building’s management along with control of gardens and communal spaces directly or with the help of a dedicated agency.
You need to pay a service charge as a leaseholder to the landlord towards management and maintenance.
It is also possible to buy the freehold of the property leased in case 50 per cent of the leasehold tenants group is in favour of the same. The co-op of freehold buyers serves the ‘Section 13 Notice’ to the landlord.
This form of freehold purchase from the owner gives the tenants’ group collective ownership, and the group takes collective responsibility for maintenance, building insurance, and management.
- The most common lease lengths are 99, 125 for ex-local authority, 999 and 500
- Mortgage lenders prefer 50 years remaining at the expiry of the mortgage term
- The lease includes ground rent details, enforcement covenants, rights of access, repair and maintenance covenants
- The lease length can be prolonged by entering into an agreement with freeholder for a specified cost
- A service charge, although not essential, is common. The freeholder employs a separate managing agent for some apartment blocks
- Share of freehold refers to leaseholders becoming directors and collective owners of the leasehold property
- Leaseholders need to obtain permission to carry out major works in the property
- There can be other restrictions for leasehold property owners concerning pets and subletting
- If leaseholders fail to uphold the lease terms as in failing to pay fees, the lease becomes forfeit
If you are new to London or are confused about the different types of ownership of properties, the best course of action is to contact your estate agent London who can guide you on making the best decision based on your requirements.
If you are looking to rent or purchase a home in the city, speak to our estate agent London today. We can help you find a home in the heart of London. Contact our Soho office on 020 7734 4062, fill in the form below or pop in to our office on Broadwick Street and we can point you in the right direction.