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What is the Difference Between Leasehold and Freehold Property?

6 August 2019

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When looking to purchase a new home you will notice that the property details will note if it is leasehold or freehold. You may be left wondering what the difference is and what its implications are for you as the home owner. Residential property experts TRUE Solicitors LLP highlight the legal variations in owning a leasehold or freehold property.

What does it mean if a property is freehold?

If you’re buying a freehold property you are purchasing the legal rights to the property and the land that it is built on. Your name will be listed on the land registry as the ‘freeholder’. The main benefits of purchasing a freehold property include:

• No need to pay ground rents or service charges.
• No limitations on what you can do in your home, for example you are free to own pets, smoke or carry out building work (with planning permission).
• No fear of declining value purely related to the term of a lease running out, or the need to pay for an expensive renewal of the lease.

There are very few disadvantages to owning a freehold property apart from the fact that the initial outlay is more expensive, as you are purchasing the land and the property. You are also responsible for maintaining the interior and exterior of the property, including elements such as the roof, exterior walls and fences. For some people this may be seen as too much of a responsibility and a cost burden, should anything need to be fixed or replaced.

What does it mean if a property is leasehold?

If you buy a leasehold property you are entering a legal agreement where you own the property but not the land that it is built on. You will enter a lease agreement with the freeholder of the land – the landlord, for a set period of time. The length of the lease varies and can be anything from as short as 40 years to as long as 999 years. Once the lease comes to an end the property reverts back into the hands of the freeholder. Therefore properties with a lease of 80 years or less are best to be avoided. Although most homebuyers prefer to purchase a freehold property there are some advantages to leasehold including:

• Usually less expensive to buy.
• Usually come with less responsibility for personally having to repairing and maintain external walls and roofs – as this will be covered by the monthly service charge.
• Leasehold properties usually consist of apartment blocks that sometimes include added benefits such as concierge, swimming pools and gyms.

The main disadvantages to purchasing a leasehold property include:

• The declining value of leasehold property is the biggest deterrent to purchasing a leasehold property. Buying a home with a leasehold term of less than 80 years is best to be avoided, as your mortgage provider is unlikely to lend you the money and it will be very difficult to sell the property on.
• Costly annual maintenance fees which cover the maintenance of the building, the communal areas and the external grounds. These costs usually increase annually and you may be asked to pay additional one off costs for substantial renovations, such as the need for a new roof.
• Annual ground rent payment to the freeholder – the cost payable to the owner of the land that your property is built on. This is usually around £50 per annum.
• Restrictions on how you can use your property e.g. no pets, no smoking and no sub-letting.
• The need to obtain permission from the freeholder to do any major works to the property.
• You are at risk of forfeiting the lease if you do not make your monthly/annual service charge payments on time.
• There can often be disputes between the freeholder and the leaseholder over issues such as the upkeep of the communal areas, planning permission and the general feeling from the leaseholder that the freeholder is charging too much for the service charge.

Can I extend the time period on a leasehold property?

It is possible to extend the time period on your leasehold property. The law differs depending on whether you have a house or flat:

Flat:

• If you have owned a leasehold flat for at least two years, with a lease older than 21 years at the time of purchase, you may be able to extend your lease by 90 years.
• The freeholder does however have the right to reject your offer. If your offer is rejected then you can challenge them in court.
• It is essential to seek legal advice when considering requesting a lease extension, and it is important to apply for the extension well in advance of the time when the lease has only 21 years left.
• You will need to pay the legal fees of not only your solicitor but also that of the freeholder, plus stamp duty over the amount of £125,000.
• You may also need to get all of the other leaseholders in the apartment block to agree to request a lease extension to their properties too.
• If the freeholder agrees to extend the leasehold you will not have to pay any more ground rent and can negotiate new terms of the lease.

House:

• You may have the right to extend your lease by 50 years.
• All of the same conditions apply as above, with the exception that you do not need to buy a lease extension for a house, instead your ground rent will go up.

Is it possible to buy the freehold?

If the landlord is selling the freehold, you as the leaseholder must be offered the chance to purchase it first. Purchasing the freehold is known legally as ‘enfranchisement’. If you own a house you can buy the entire freehold, however if you own a flat you can only purchase a share of the freehold. You will need to seek legal advice and assistance along with paying legal fees if you wish to buy the freehold.

When purchasing a home it is essential to check if it is leasehold or freehold, to avoid any issues that may arise in the future. If you are looking to buy, sell or remortgage your home contact TRUE Solicitors today. Our expert residential conveyancing team provide an efficient, proactive service. We offer fixed fee, stress fee conveyancing, with a no completion, no fee guarantee. You can also get a free estimate using our simple online fee calculator.

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