Considering selling your home and relocating? Then be prepared to hear the terms freehold and leasehold a lot. Understanding what they mean is important as it could make the difference between owning a home and the land it’s on completely or having a landlord.
Here, quick sale property experts, We Buy Any House explore what the two mean and how owning one over the other can differ.
What do freehold and leasehold mean and what’s the difference?
If you are the freeholder it means that you own both the building and the land that it’s found on. If you were to search the property in the Land Registry you would find it under your name as the ‘freeholder’ and owner of the title completely.
This is the preferred purchase option in pretty much every instance and comes with many advantages. Chief of which is the fact that you don’t need to pay ground rent or any added fees.
Bear in mind though, it means that you will be held responsible for maintaining the building exterior, i.e roofs and walls.
The biggest difference of leasehold is that you do not own the land that the home is built upon. It essentially meaning that you’re renting the property from a freeholder for a set number of years or decades.
The freeholder holds the power in this instance and is able to set down and create legal rights that the leaseholder must follow. As leaseholder you’re often expected to pay certain fees including service charge and ground rent.
What are the most common complaints about leasehold and freehold
As with most relationships relating to property, it’s not uncommon for issues to occur between leasehold and freehold.
- Leaseholders can sometimes find themselves overcharged for fees such as ground rent and maintenance, so make sure that if you purchase leasehold, you're certain of the amount you’ll be paying.
- The biggest issue facing a freeholder is usually that a leaseholder breaches the terms of their lease. This could mean conducting major works on the property without the correct permissions or failing to pay necessary charges.
- The flip side to the above contention is often that leaseholders don’t believe that freeholders are correctly caring for the external parts of the building.
If you want to work towards avoiding such conflict, the key is to ensure some complete communication between both parties.
What is a commonhold?
There is a third option when it comes to property, and that’s commonhold. This is a lease used when a building contains more than one occupant and is divided into varying freehold units. For example, if there are a number of flats in a building, each one will have its own freehold. A commonhold lease means that the owners of the flats manage the communal and common parts of the building together.
Leaseholds usually have a lifespan, meaning that the contact of the lease is set to last a certain number of years. And when that lifespan reaches 0 the ownership of the property returns to the freeholder. This means that the length of your leasehold will obviously affect its value. The shorter the lease, the less it’s worth. The longer the lease, the more it’s worth.
It’s often recommended to avoid purchasing a leasehold property that has a lease less than 90 years as it’ll affect the value of the home and can make reselling a few years down the line much harder.
Is a leasehold extendable?
So, if a short leasehold means less value, it begs the question: can a leasehold be extendable? In recent years, new Government acts have meant that leaseholders are protected against short leases. They also mean that a leaseholder could potentially extend their lease or buy the property from the freeholder. The laws to do this differ depending on whether you live in a house or a flat.
How do I buy the freehold on a leasehold property?
As well as extending the lease you can also purchase the freehold, which is known as enfranchisement. It can be an expensive, complicated, and time consuming ordeal to arrange this.