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Freehold vs leasehold properties

Confused by the terms freehold and leasehold? As you set out on your home-buying journey you will come across references to properties being either “freehold” or “leasehold.” We explain the difference between these options and what they mean to you as a buyer.

Freehold vs leasehold properties

Broadly speaking, properties in England and Wales are either freehold or leasehold.  Flying freeholds and commonholds confuse the issue a little, and Scotland has its own ‘feuhold’. However, it is important to understand what you are buying, and the implications of the different types of ownership.

What is a Freehold property?

When you purchase a freehold property you will receive outright ownership of both the property and the land on which it sits. A freehold interest in land gives the buyer the right to live at the property for as long as they wish – there is no time limit on your period of ownership; you will simply own and occupy your home until you choose to move.

Alterations and extensions to the property are allowed as you own both the property and the surrounding grounds as outlined in the title documents. However, keep in mind that any alterations you plan to make will need to be made within the constraints of the law and local planning restrictions. Planning approval will be required to make structural changes to the property; this is even more important if you are thinking of purchasing an older property which may be a listed building or located in a conservation area.

Freehold properties tend to be houses, although there are an increasing number of flats becoming available in which owners share the ownership (and responsibilities) of the freehold with the other flat owners. This is due to recent legislation that has given leaseholders the opportunity to buy up freeholds.
Freeholds are more straightforward and confer greater ownership, so it is not surprising that they are more desirable and expensive.

Flying freehold

Flying freeholds are a bit more complicated.  For example, if part of your home extends, because of the way the properties were divided, over land owned by your neighbour, this could result in a flying freehold.  Take legal advice from your conveyancing solicitor.

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What is a Leasehold property?

With a leasehold property, you are buying not the property itself, but the right to live in it for a specified period (stated in the lease) as long as 999 years. Buying a leasehold property does not give you outright ownership of the property and the land within its boundaries. However, if you are purchasing a lease previously owned by someone else, it does not “reset” the duration of the leasehold. So, if they have lived in a property for 20 years of a 100-year lease, you are only purchasing rights to the remaining 80 years.

This information should always be made clear on the property listing, but if you are in any doubt, ask the estate agent. It is an important piece of information that you need to know. Naturally, the length of lease will affect its value, and anything with a lease of less than about 60 years could make it difficult to find a mortgage. 

The lease

Leases vary.  Read yours carefully and take legal advice: you need to be aware of your rights and entitlements as they might restrict you from subletting, having pets, the noise you can make or undertaking certain alterations.  Failure to comply could not only end up costing you a lot of money but you may even find that you lose the property altogether.

Annual charges

With leasehold properties you also have an obligation to cover the costs for maintenance and repairs in the form of payments to the freeholder, which are referred to as ground rent and service charges. Enquire about these fees: it can be galling to move into a basement flat and find that you have to pay tens of thousands of pounds you hadn’t budgeted on for your share of a new roof over the flat above.  Beware also that maintenance charges can rise annually without limit.  However, if there is a disaster with the external fabric of the building, your freeholder will be the one to organize and rectify any problem.

Extending the lease or buying the freehold

As a leaseholder it is possible to extend the leasehold of your new home to up to 999 years, giving you lifetime security, while recent legislation has also made it easier to purchase the freehold for an additional fee. Extending the lease can be an expensive option – up to around 20 per cent of the value of the flat – and you will need to employ a property lawyer to liaise with the freeholder. Bear in mind that, if the asking price on a leasehold flat seems unusually cheap, this can sometimes be due to a short remaining lease, so you should investigate leasehold extension costs before confirming your offer.

Since the introduction of the ‘right to manage,’ leaseholders may be entitled to manage the building as if they were the freeholder even if they do not own the freehold. Contact the Leasehold Enfranchisement Advisory Service for more information. 

Commonhold property, or “share of freehold”  

Although more unusual, some blocks of flats and other apartments are sold on a commonhold basis. Put simply, a commonhold is a group of people who mutually own their block of flats with no overall landlord. Each flat or unit has a freehold owner, usually a member of a commonhold association, which is responsible for maintaining the communal areas of the property.
One advantage of a commonhold is that all decisions regarding the building are made jointly by the owners, who can make decisions without the influence of a freehold landlord who perhaps doesn’t have your best interests at heart.

The principles of freehold, leasehold and commonhold property are generally straightforward, but make sure you choose a property with your long term financial circumstances in mind.

Last updated October 2017

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