Helping you discover the difference between freehold vs leasehold, which is better for you and which one is easier to sell...
When buying a property, it’s crucial you know everything about it. How big is it? What does it cost? What are the neighbours like? Is it freehold or leasehold?
Wait, there’s a difference in property type?! It could be freehold, or leasehold and I need to know the difference?
Yes, yes you do!
Don’t panic though – you’re in the right place to find out the difference in freehold vs leasehold!
Not only that, but we’re going to help you find the answer to which is better for you AND which type is easier to sell…
Well, let’s not waste any more time! Use the menu below to help you find what you’re looking for. Not sure where to start? Maybe at the very beginning:
- What is a leasehold property?
- What is freehold property?
- Freehold vs leasehold: what’s the difference?
- Freehold vs leasehold: which is easier to sell?
Want to sell your freehold or leasehold FAST?
To help you compare a freehold vs leasehold, you will need to know what each of these property types mean and how they will affect you as a buyer/owner/seller. Let’s start on leasehold property…
A leasehold property means that you have a lease from the freeholder (or landlord) to use the home for a number of years. The leases can be any length, with the longest one being 999 years. If you’re nearing the end of a lease you will need to extend it, or you will lose the right to be able to use the property.
As a leaseholder, the contract you have with your freeholder will outline the responsibilities of each party, including the guidelines and fees which must be followed and paid by the leaseholder.
For example, a leaseholder will have to pay a service charge, as well as maintenance fees and a share of the building’s insurance. A leaseholder will also have to pay ground rent, which is essentially paying rent for the land the building is on, as a leaseholder doesn’t own the land.
Leaseholders may not be allowed to keep pets in the property, depending on the rules set out by the freeholder. A leaseholder may also not be able to sublet the property and must obtain permission for any major work to be done to the property.
If the leaseholder doesn’t keep up to the terms of the lease, then the lease can be forfeited, which essentially means the lease no longer exists and the leaseholder has no right to claim any interest in the property and must therefore find somewhere else to live.
Okay, so now you know what leasehold means, you’re ready to learn about freehold. When comparing freehold vs leasehold, we must admit a freehold property seems much easier to understand…
A freehold property means you will own the property and the land the property is on outright. This will mean your name will be on the Land Registry. Being a freeholder of a property is often considered more desirable, as you own the property outright, meaning there’s less room for anything to go wrong.
You’re not relying on anyone else to care for or maintain the property and you won’t have to pay any fees, such as ground rent. You also own the property for an unlimited amount of time, unlike with leasehold where you can only own the property for the amount of time on the lease.
Is freehold better than leasehold?
After reading the differences between freehold vs leasehold, you may be inclined to think that freehold is a better option, and we can see why. Leaseholds do have a declining value, with the number of years left on the lease being a crucial factor.
If the number of years left on the lease is a substantial number, like 999 years, then this property could be seen as almost as good as freehold, as it’s VERY unlikely you’ll be living in the property for this number of years.
A lease with a low number of years is going to have a lower market value, as anyone buying the property will need to pay the costs to extend the lease, or risk losing the property once the lease ends.
Really, there’s no right or wrong answer, and the property which is best for you may be different to what’s better for someone else. If you’re asking which is better for selling on with freehold vs leasehold, then keep your eyes peeled for our last section…
Is a 999-year lease as good as freehold?
Don’t worry, we know that we’ve just sort of answered this, but we’re going to give you a little more detail this time.
In short, a 999-year lease isn’t as good as a freehold.
Whilst a 999-year lease is good, as it will mean the leasehold has the highest value it can, the property still has a lease and restrictions on it – things you wouldn’t get in a freehold.
For example, you may not be able to keep your beloved furry friend, or you may be subject to high service charges and ground rent, which can make the cost of living more expensive in a leasehold compared to a freehold.
Worried you won't be able to sell with a short lease?
Can leasehold become freehold?
Yes – this may come as a surprise to you, but a leasehold property can become freehold! In order for this to happen, you must buy the freehold for the property off the freeholder.
The process of buying the freehold will differ slightly between a house and a flat, as in a flat you will need at least 50% of the building’s flats to agree to take part in the buying of the freehold.
You must also meet certain criteria in order to be able to buy the freehold:
- Current lease must have at least 21 years left
- Must not be a commercial lease
- If in a flat – building must contain at least 2 flats
- Building must not be a charitable housing trust, national trust or cathedral precinct
When it comes to buying the freehold, there are two routes which you can go down – the formal or informal route.
Following the formal route is more costly and means all parties must follow the strict instructions and timescales set out by law. Taking this route, though, does offer more protection to leaseholders if they’re unable to agree on terms or price with the freeholder.
Through an informal route, there are fewer costs, and the leaseholders are able to go directly to the freeholder to ask to buy the freehold. If the freeholder agrees, negotiations can begin. If anything goes wrong with negotiations, there’s less protection in the informal route, so this is something you will need to keep in mind.
If you’re asking us – we say it may be best to go down the informal route first, as it may be more cost-effective. Then, if negotiations fall through and you meet the criteria, you’re able to go down the formal route, giving deadlines and more protection.
Although buying the freehold will mean no ground rent, control over service charges and potentially adding value to your home, there are also downsides which come as a result of buying the freehold.
For example, it’s a time-consuming and costly procedure, which relies on getting your neighbours co-operation. You will also need the help of a lawyer to rewrite or rephrase the lease, adding more costs to the process.
Can a freeholder refuse to sell the freehold?
Sadly, a freeholder can refuse to sell the freehold to you if the leaseholders aren’t eligible to purchase it.
If a freeholder wishes to sell the freehold, by law they must offer it to the leaseholders first. If you’re unable to buy the freehold due to not meeting the criteria, then the freehold can be sold to an overseas investor.
As a result of this, if you later become able to buy the freehold, the overseas investor can charge you an extortionate amount to buy the freehold, making it an impossible task.
Can't buy the freehold and want to sell?
When looking at freehold vs leasehold property, you will want to think about the sell on value of the property. No matter how many years you’re thinking of staying in the property, there will always come a time where the property needs selling, making sell on value an important factor.
As a general statement, a freehold property will be easier to sell, as there’s less room for something to go wrong. What we mean by this is, in a leasehold property, there’s always a time limit on how long is left on the lease.
There’s also always going to be restrictions on what you can and can’t do AND fees, such as ground rent or service charges, which you can’t escape from.
Having said this, when looking at freehold vs leasehold property, each will have their pros and cons. For example, a freehold will have a higher initial cost compared to a leasehold. A leasehold property also has certain ways in which problems can be dealt with.
For example, if a leaseholder is having an issue with noisy neighbours, this will be dealt with, in comparison to a freehold property where the only option is to complain directly to the police, who may not take any action.
If you’re currently struggling to sell a leasehold or freehold property, then don’t worry! We have a guaranteed method to help you sell your property in as little as 7 days – you could even call it fool proof…
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No need to worry about which is easier to sell...