From an overview, the language may sound slightly confusing. But when a buyer is considering purchasing a new property, it is crucial to know the difference between freehold properties and leasehold properties. This blog will breakdown the differences to help you understand what type of property is best for you to buy.
Although estate agents tend to gloss over it, there are different types of legal ownership of a property; these being freehold and leasehold. Both come with differences.
Freehold: A freeholder of a property owns it outright. This includes owning the land it’s built on.
Leasehold: A leasehold means there is already an owner of the property. Going through a leasehold means you would be leasing off the freeholder (also called a landlord).
Many buyers don’t realise the difference between the two. Down the line, not understanding the differences can be regretting and hugely expensive.
Being a freeholder means that your name would be on the land registry and as a homeowner, you would own the “title absolute”. Out of the two options, freehold is the much-preferred option. The responsibility is on yourself to look after the property. Unlike leasehold, you don’t have to rely on someone else to maintain the building for you. Also, you will not have to pay an annual fee for ground rent. It is uncommon for whole properties to be leasehold instead of freehold.
Compared to freehold properties, leasehold can be a rather confusing.
In short, a leaseholder will have a contract with a freeholder which conveys the legal rights and responsibilities for both parties. Leases can be very long, usually they are 90 years. However, some are 120 or even 999 years! A ‘short’ lease is classed as forty years.
Within the contract, it will line out how the freeholder will be responsible for maintaining certain parts of the building interior and exterior. For the leaseholder, sometimes in a contract it may have a clause called ‘the right to manage’. This simply means it will be the leaseholder responsible for the building and land. However, those who do not have a right to manage are able to obtain a permission for any large changes to happen on the property.
Being a leaseholder means that there are certain fees that have to be paid to the freeholder such as maintenance fees and an annual ground rent.
Those leaseholders that don’t fulfil their lease, can become forfeit. For example, if they miss paying certain fees.
Should you avoid being part of a leasehold property?
The most problematic leases as usually those that are under ninety years. For this reason, they should be approached warily. Any houses with less than eighty years lease can affect the overall value of the property.
The shorter the lease, the more so it can decline in value even if prices within the local area are riding. Overall, it could make buyers reluctant to purchase your property and some mortgage lenders may not lend money for the property.