What difference does it really make if you buy leasehold or freehold?
PUBLISHED: 12:09 20 March 2018 | UPDATED: 12:36 20 March 2018
What difference does it really make if you buy freehold or leasehold? Rebecca Leeman, a chartered legal executive at Spire Solicitors LLP, goes into the fine detail.
When buying a property you may come across the term freehold or leasehold. This may seem like technical legal jargon but the differences are important and will determine if you own your home outright or have a landlord. As a general rule, most houses are freehold and most flats are leasehold.
When you buy a freehold property, you own the building and the land it sits on and this will continue in perpetuity. Theoretically, all land in England and Wales is owned by the Crown so this is as close to owning property in England and Wales as outright as possible. When you buy a leasehold property, you own the dwelling for a set number of years subject to the conditions of a lease. The freehold is owned by the landlord and they are usually responsible for maintaining the building (which the flat is part of) and the land (which the building sits on).
The main differences between freehold and leasehold are:
- Ground rent: leasehold properties usually have an annual ground rent which is payable to the landlord. This has been in the news a lot recently due to escalating ground rent provisions and it is important to look at not just what the ground rent will be when you purchase, but also in the later period of the Lease. It is very uncommon for freehold properties to have any ground rent payments.
- Service charges: Under the terms of a lease you usually have to pay service charges for costs and expenses incurred by the landlord. These will usually be relating to building repairs and maintenance. When you own the freehold, you own the land and all of the building so it will be up to you to decide when, for example, the windows needs replacing. However, with a leasehold property, the landlord is usually responsible for the exterior of the building and as such, may decide to replace the windows when you may not have chosen to.
- Renovation: If you are looking to carry out renovation works, a lessee would need permission from the landlord to do these works. This usually means having plans drawn up and sending these to the landlord for approval as well as paying their fees for the same. If you want to do any works of a structural nature or to the exterior of the building, you will also need consent from the landlord and indeed, they may refuse. However, it is less common for their to be restrictions of the same nature on freehold properties. You may find that newer properties do have restrictions from the developer which require consent, but often this is only for the first five years from completion.
- Lease length: leases are only granted for a set number of years. There are provisions in the Leasehold Reform Act 1993 which allow qualifying owners the right to extend their lease by an additional 90 years. The extension is usually required before the remaining term drops below 80 years and can be another expense to consider when you are purchasing a leasehold Property. The cost of the Lease extension can be thousands of pounds and you will also need to pay your own legal fees and potentially the landlord’s legal and valuation fees. The ownership of a Freehold property continues in perpetuity and there is no limitation on the length of time for which you can own the property.
- Selling the property: When you sell a leasehold property, you usually have to pay for a management pack from the landlord or their agent. This will tell the buyer and their solicitor about the service charges and general management from the Landlord’s point of view. When you are buying a leasehold property, you may also need to pay fees for a Deed of Covenant, a Certificate of Compliance as well as a notice fee to notify the Landlord that you have purchased the Property. It is less common that items such as a Deed of Covenant or Notice of Assignment will be required when purchasing a freehold Property. You may find that sometimes there are management companies involved for communal areas of garden or parks and they may require items such as a Deed of Covenant or Notice but this is less common when purchasing a Freehold property.
- Option to buy the freehold: Some leaseholders have the option to purchase their Freehold. The Leasehold Reform Act 1993 gave qualifying owners of flats in a building the opportunity to collectively purchase the freehold of the building from their landlord.
If you would like to discuss any points in this article further, please contact Spire Solicitors LLP on 01603 677077 www.spiresolicitors.co.uk for all your legal needs.
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