What’s the difference between freehold and leasehold?

UK homeowners have two main options: freehold and leasehold. With freehold, you own the property and land. With leasehold, you own the property for a fixed period of time but not the land it is built on.

John Fitzsimons Published on 19 July 2021.
What’s the difference between freehold and leasehold?

Home ownership comes in two main forms in the UK: freehold and leasehold. Understanding the difference between the two is really important before you go ahead with a home purchase, as they come with very different costs and responsibilities.

What is freehold?

Owning a property on a freehold basis means you own not just the building itself, but the land it stands on.

You are responsible for looking after everything to do with the property, from your possessions inside, to the walls and roof of the building’s outside structure.

As a result, if you want to make any changes to the structure of the property ‒ such as adding an extension ‒ then you are free to do so, as long as you have any necessary planning permission from the local council.

What is leasehold?

Leasehold is rather different. You effectively lease ownership of a property for a specific period. This tends to be over a lengthy period, but can vary from anywhere between 40 to 999 years.

You will have a contract with the freeholder of your property, which sets out precisely what you are responsible for. There are likely to be certain annual costs you will be required to pay, such as ground rent, while you will also be required to contribute towards maintenance and service charges.

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Generally you will need to get permission from the freeholder if you want to carry out any major works to the property, while there may also be limitations on things like keeping pets.

Should the lease expire then the full ownership of the property will revert back to the freeholder.

Leasehold is usually reserved for flats and apartments, however this is not always the case and many older properties are on leaseholds, but recent years have seen a number of new build homes sold in this way. The Government has now banned this practice, ensuring that all new build homes are sold as freehold.

The pros and cons of freehold and leasehold ownership

There are a lot of potential problems with leasehold ownership.

The additional costs and charges can be significant, with the terms of some leases seeing ground rent double every couple of years. As a result, what appears at the outset to be an affordable extra charge can end up costing a huge amount.

The service charges can also present a problem. You will be expected to contribute towards work on the upkeep of the building even if you don’t directly benefit from it, and there have long been complaints from leaseholders that the costs of these works are excessive.

Another issue is the length of the lease. As this gets shorter, it can become more difficult to get a mortgage or attract buyers. You can pay to extend the lease but the process can be costly and complicated.

And then there is the restrictive nature of leasehold. The property may not feel like it is truly yours, as you have to get permission to carry out significant work or be prevented from owning pets.

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There are no such limitations in place if you buy a property freehold. You can make those changes, and you don’t have to worry about escalating service charges or ground rent. However, you will be the only one responsible for the upkeep ‒ and therefore the cost of repairs ‒ to the structure of the building itself, which can prove expensive.

Another issue to bear in mind is conveyancing costs. Conveyancers are property lawyers, who go through the legal aspects of a purchase and draw up the transaction contracts. Leasehold purchases are inevitably more complicated, and so may result in a larger conveyancing bill than a freehold purchase.

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Can I buy the freehold?

If you are a leaseholder, then there is the option of attempting to purchase the freehold of your property. If your property is a flat, you may be able to buy a share of the freehold, which you would own alongside the other flat owners. If the property is a house you may be able to buy the full freehold.

This can be a lengthy and expensive process, and it’s well worth getting expert legal advice.

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Image source: Getty Images

About the author:

John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more

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