What the difference between freehold and leasehold, and how might it affect you when moving house?

If you’re thinking about moving house in the next few months, one of the issues you may have to deal with in your property conveyance is whether the property you are considering buying is freehold or leasehold. Now, on the face of it the distinction between the two may not seem any more than a legal technicality, but the truth is the distinction is fundamentally important: essentially it means the difference between owning your home outright or having a landlord, and if this issue isn’t sorted out when the property is purchased, there could potentially be long-term problems to face further down the line.

So what are the two forms of property ownership tenure, and what are the differences between them?

Freehold

If you own the freehold, you not only own the property in question; you also own the land which it stands on outright in perpetuity. On the Land Registry your name, as property owner, will be shown as ‘freeholder’ and you will own the absolute title. Most whole houses are normally sold freehold, though there is an increasing trend for new build properties to be sold leasehold. When buying a property, owning the freehold is generally accepted to be the preferred option. Why should that be the case? Well, if you own the freehold:

  • You won’t have to pay annual ground rent
  • You won’t have the property freeholder failing to maintain the property or charging large amounts for required maintenance
  • You will have responsibility for maintaining the fabric of the building, that is the outside walls and the roof

Leasehold

If you buy the leasehold of a property, you will be granted a lease by the freeholder/ landlord to hold the property for a number of years. Leases can vary from as little as 40 years, right up to 999 years. Although you may still own the property you purchased, there will still be various restrictions in pace, such as:

  • The need to have to have a written contract with the freeholder, which sets down the legal rights and responsibilities of both parties to the agreement
  • Leaseholders will have to pay maintenance fees, annual service charges and their share of the building insurance. Why is this the case? Well, the freeholder will normally be responsible for maintaining the common parts of the building, that is, the entrance hall and staircase, as well as the exterior walls and roof.
  • Leaseholders will normally pay an annual “ground rent” to the freeholder
  • Leaseholders will have to obtain permission for any majors works done to the property
  • Leaseholders may face other restrictions, such as not owning pets or subletting

You may think these restrictions are not particularly onerous or worth worrying about, but it’s worth pointing out that if leaseholders fail to fulfil the terms of the lease, such, not paying the fees or ground rent, then potentially the lease can become forfeit.

What other potential issues are there with leasehold properties?

Long-term value

When the term of the leasehold runs its course, the property reverts to the freeholder. So, it follows that the shorter the lease, the less it is worth. In terms of value, long leases will stay fairly stable, but unfortunately the value of short leases can drop rapidly.

Short leaseholds

If you are considering buying a property with a lease of less than 90 years, then we would urge you to be cautious. If the property in question has a short lease, then property can decline in value even if property prices in the general area are still rising. The upshot of this is that fewer people will probably want to buy the house when it is put up for resale, and mortgage companies may also be reluctant to lend because of the short lease. resell; it also means that mortgage companies might be reluctant to lend on it.

If you would like further advice about the difference between freehold and leasehold property, then contact Harold Stock & Co. We are experts in property conveyancing in Stockport and the surrounding areas, and will be able to provide you with all the necessary information to help you make an informed choice. For more information, contact Harold Stock on 0330 400 4040 or email info@haroldstock.com

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>