Freehold VS Leasehold: The Ultimate Shake Down

Happy 2023!

Is there a better way to start a new year than to explore the complicated matter of Estates in Land (well don’t we sound fancy) in property purchases? Hang on, there is? Well, ah, that’s embarrassing. Unfortunately, we’ve started this now and we suppose we’d better finish it.

You may think that buying a property is buying a property: once you’ve paid your money and signed on the dotted line, surely you own the place and that’s that?! My friends, we’re sorry to disillusion you (especially so early on in the year) but we’re afraid conveyancing just isn’t as sensible as that.

When you buy a property there are all sorts of variations and footnotes that can have an impact on how much of the property you move into at the end actually belongs to you. Besides the matter of mortgage companies, part ownership schemes and the like (we’ll save those for another day) the sort of ownership you have will depend on whether the word freehold or the word leasehold appears on your title.

Yes, we’re well aware that these terms sound like something from a Regency period drama. However, they’re still very much in use today and you’re about to be treated to a crash course on all things freehold vs leasehold. Please buckle your seatbelts, etc etc.

What the Austen does freehold mean?

To put things simply, a freehold property is probably what you imagine when you think about owning a property. With freehold, once your name’s on the deeds, you own the whole thing, from the land the place stands on to the walls, the roof and everything inside. Though there may well be some restrictions on this (we won’t go into details here, but just imagine us whispering things like restrictive covenants, rights of way, listed building status) generally speaking, the place is yours to do what you want with, for as long as you choose to.

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Alright… so what about leasehold?

If you guessed that leasehold is where things get slightly more complicated, please award yourself a golden sovereign or two. Essentially speaking, when you buy a leasehold property, you’re not really buying the property, you’re actually buying the rights to that property for a certain number of years. Typical leases run from 99–999 years, so you don’t necessarily need to worry about running out of time and being thrown out by your ear. However, it does mean that you don’t own the property in the same uncomplicated way as you do a freehold property.

When you buy a leasehold property, there will be a freeholder involved. The freeholder owns the land the building sits on. They will also usually retain the responsibility for maintaining common areas as well as the exterior and roof of the building. As the leaseholder, you will usually have to pay an annual ground rent to the freeholder, which can be a lot or can be a little. You may also have to pay a maintenance fee, service charges and abide by certain restrictions, such as no pets, seeking permission to do structural work to the property or not using the property for certain purposes (e.g. holiday lets). Though the freeholder does take on a reasonably similar role to that of a landlord, they would not have the right to enter the leaseholder’s property or be required to provide maintenance to the inside of the property. ?

Once a leaseholder has owned a property for more than two years, subject to certain conditions, they have the right to extend their lease. However, the cost of this is subject to negotiation with the freeholder and can be pricey. Some leasehold properties may also come with the option of buying a portion of the freehold, or perhaps, in the case of a block of flats, banding together with other leaseholders to collectively buy the freehold.

What kind of properties might you expect to be leasehold?

Flats are almost always sold on a leasehold basis in England and Wales. This makes sense, as the freeholder of the building might sell off individual flats but retain ownership and responsibility for the building itself and any communal areas. Properties that form part of historic estates can also be sold as leasehold, meaning that the estate retains ownership of the land itself.

However, leasehold can be used for any property, even when it doesn’t seem particularly logical. In recent years, there’s been some growth in property developers selling newbuild properties on a leasehold basis. This has led to something of a scandal about developers demanding rapidly spiralling amounts of ground rent, and is therefore a major factor in recent calls for leasehold reform. (Didn’t we tell you this topic was a riot?! You can read more about potential reform and the arguments for it here.)

A brief diversion on the subject of freehold flats

You may or may not be interested to know that there are such things as freelance flats. In fact, there are quite a lot of them on the East Coast of Yorkshire. However, though we’re sure they’re very nice, as conveyancers we’re pretty much duty-bound to tell you that they’re complicated things that attract a fairly limited number of mortgage companies. In fact, the whole business is so technical that they’re worthy of a whole blog post of their own, so forgive us for not droning on about them here.

What’s the difference in the conveyancing process?

Great news for potential buyers of leasehold properties here! (Please read that in your best sarcastic voice). When you buy or sell a leasehold property, you will have a fair few additional hoops to jump through than if you were buying a freehold property.

On top of all the usual legal bits and pieces, you and your conveyancer will have to:

·????????Consider the number of years left on the lease (anything under eighty years can make it difficult to get a mortgage or ensure resale value).

·????????Be granted a leasehold information pack (this is usually paid for by the seller and – just like the ground rent – can be a lot or a little.

·????????Study the lease and associated clauses to ensure everything is up to snuff and there isn’t anything too restrictive.

·????????Ensure you are able to budget to cover the costs of any ground rent, fees or charges associated with the lease.

All this additional rigmarole can add anything from a few weeks to a few months to the conveyancing process.

So… which is better?

If you’re asking which contract type would win in some kind of ultimate shake down… freehold properties are generally the less complicated and more secure option. Though, in truth, this is kind of a moot point.

When you decide to buy a property – whether a smart new-build semi, a flat in a historic conversion or a chocolate box cottage – you don’t get to choose whether to buy it on a freehold or leasehold basis. In reality, it’s more of a take-it-or-leave-it situation, and if it’s the historic flat you had your eye on, leasehold is likely to be your lot.

Got any more questions about leasehold vs freehold? Want to give us your best shake down tips? Have an opinion on what Elizabeth Bennet or Marianne Dashwood might have to say on the matter? Please don’t hesitate to get in touch if so; it may be a brand new year, but you can still find us in the same old place.?