What is the difference between freehold and leasehold property?
Freehold and leasehold are types of property ownership, and they determine whether you will own the entire property or not.
What is a freehold property?
Freehold property is a building that you own, including the land. The Land Registry shows your name as the freeholder, and you own the Title Absolute.
Benefits of freehold property include:
- You have absolute ownership of the property without worrying about a lease expiry.
- You do not have to enter into a contract or deal with the “freeholder” otherwise known as the “landlord”.
- You do not have to pay service charges, annual ground rent, or other expenses.
However, the cost of maintaining the roof, exterior walls, and land is your responsibility.
What is a leasehold property?
A leasehold property is a building that you own, but not the land - the land belongs to the freeholder (landlord). You own leasehold property for a specific number of years, subject to the length of the legal agreement which is called the lease. Upon expiry of your lease, the property ownership reverts to the freeholder.
The lease specifies the legal responsibilities and rights of both the leaseholder (tenant or lessee) and the freeholder. The freeholder is responsible for maintaining all the building’s common parts, such as the roof, exterior walls, and staircases.
With many old properties, often the freeholder is no longer alive or cannot be traced and in some cases, property owners do not pay the annual lease amount because of this or the amount is very little.
As the leaseholder, you have to:
- Pay annual ground rent to the freeholder.
- Pay annual service charges, maintenance fees, and part of the building insurance.
- Abide by other leasehold restrictions like not subletting or not owning pets.
If you do not fulfill the agreement terms, you risk losing the property.
What do I need to consider when buying a leasehold property?
When buying a leasehold property, you need to consider the following:
- The remaining years on the lease.
- The annual cost of service charges, related expenses, and any future increments captured in the contract.
- The recipients of the various payments.
- The freeholder’s name and current address.
Is it important to know the length of a property lease?
Yes, it is critical to consider the remaining period in the lease before you buy a leasehold property. The decreasing lease term affects the property resale and mortgage value with time.
Typically, the remaining term on the lease should be a minimum of 80 years to secure a mortgage quickly.
What is the typical length of a lease?
Leases are usually long-term, often 99, 125, or as lengthy as 999 years, but they can also be shorter, especially for previously owned property. The period commences when the freeholder drafts the agreement, and it does not reset when you sell the property to another leaseholder.
The term decreases with time. You can extend the lease, but it is costly, especially if the remaining term is below 80 years.
Buying property is a significant investment; therefore, consulting a professional with experience is advisable before doing so.
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