What’s the Difference Between Leasehold and Freehold Home Ownership?

What’s the difference between freehold and leasehold?

There are several differences between leasehold and freehold ownership, and you need to know about them before buying a new home. This issue can affect the market value of your property. And it can change the legal process involved.

We’ve put together a brief guide on the differences between leasehold and freehold ownership. Make sure you know what they mean for your plans before buying or selling your home.

What is a freehold?

Freehold property includes ownership of both the building and the land it sits on. You’re responsible for the upkeep and management of this land.

Buying a freehold property is usually the preferred option. You don’t have to pay ground rent, you don’t have to deal with a landlord, and you don’t need to worry about a lease for the land expiring while you still own the building.

Shared freeholds

A shared freehold is something you might end up with if you buy a flat. All of the property owners in the building can get together and buy the land from the landlord. Each owner then receives an equal share of the freehold. While expensive, this course of action gives you more control over what you can do with your property.

What is a leasehold?

Differences between freehold and leasehold

A leasehold gives you ownership of a building for the duration of the lease, but the land always remains the landlord’s property. Once the lease is expired, the ownership of the property returns to the landlord.

One of the most significant drawbacks of owning a leasehold property is that you often have to get permission from the landlord to perform building work, extensions, and major renovations.

Should I be concerned that I own a leasehold property?

If your lease is coming to an end in the next few years, your property’s value will probably decline rapidly. As a result, mortgage providers are very wary about lending for leasehold properties with less than 30 years remaining, meaning you could run into difficulties if you need to sell your home for its true worth.

But there’s some good news if you already own a leasehold property. If you’ve lived in the home for at least two years, you have the legal right to request 90 years to your lease. Of course, you’ll have to pay a fair market price for this extension, but it’s usually far better than the alternatives.

Reach out to your landlord if you want to arrange an extension. It’s always better (and cheaper) to do this by agreement. However, if they disagree, the matter might have to be settled in court.

Leasehold properties incur charges and ground rent, and as the owner of a leasehold property, you’ll incur charges and ground rent throughout your ownership. However, the rent is usually meagre — less than £100 a year.

Differences between freehold and leasehold

If you’re living in a shared building or community, you may also have to pay charges to cover the following:

  • Maintenance of communal gardens.
  • Repairs and maintenance of buildings and structures.
  • Service charges (security, reception, etc.)
  • Utility bills for blocks of flats.

What are your rights as a leaseholder?

Although you don’t own the land on which your property sits, you have certain rights as the leasehold owner. They include:

    • If improvement works are to last more than a year and the cost of planned building work exceeds £250, the freeholder must consult you.
    • You have the right to see a breakdown of how the freeholder spends your service charges.
    • You have the right to take over management of the building along with your fellow tenants.

Don’t worry if you’ve just discovered your home is leasehold. You have several options available, including extending the lease or buying it outright.

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