Leasehold and Freehold - What's the difference?

When buying a property, it is important to understand the difference between a ‘freehold’ and a ‘leasehold’ property. Hopefully this information will assist in helping make your decision.

Leasehold and freehold properties are the two most common types of property ownership in England and Wales. Whilst houses are usually freehold and flats are usually leasehold, this is not always the case. 

In terms of marketability, it should be noted that leasehold houses and freehold flats can cause issues and delays during the conveyancing process. Some mortgage lenders will not lend against freehold flats and leasehold houses can be considered undesirable. Whilst these issues may not concern you for your purchase, it should be considered from a re-sale point of view and whether this could affect the future marketability and price achieved from the property in the future. 

What is the difference? 

Freehold 

With freehold property, you own the whole of the property and the land included within the boundaries. Generally, you are free to do anything with or on the property, subject to any necessary consents (i.e. subject to laws and planning restrictions). 

As the owner of a freehold property, you are responsible for arranging buildings insurance, you are also in control of when works of repair are carried out and who carries out the work. The only regular outgoings are likely to be Council Tax, utility charges and mortgage payments (where applicable).

Leasehold 

With leasehold property, you own the building (or part of it) only for a defined number of years. There will be a freeholder of the leasehold land who owns the land on which the leasehold property is situated. 

The lease is granted to you for a specific time, which can vary enormously for example a short lease can be for a period of 6 months or a long lease for a period of 999 years (“the Term”). At the end if the Term, the leasehold property is returned to the landlord.

The freeholder usually retains a certain amount of control over the leasehold property, in terms of its use. It is common for most leases to contain covenants (obligations you must observe), such as not causing a nuisance or annoyance to neighbouring properties or a requirement for written consent from the freeholder being required to keep pets. If a leaseholder beaches a covenant in a lease, the freeholder can take enforcement action against the leaseholder, often at the cost of the leaseholder, which can include bringing the lease to an end and preventing you from occupying the property.  

Leases also often stipulate that the leaseholder is to pay the freeholder an annual rent, sometimes known as ground rent. Ground rent in long residential leases is currently a hot topic of discussion, and the Government are in the process of reform in this area.

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of advice.