Freehold vs Leasehold: Understanding the Key Differences

When buying a home in England and Wales, one of the first factors you’ll encounter is whether the property is freehold or leasehold. These terms define the type of ownership you are acquiring and have important implications for homeowners. It’s important to understand the differences between Freehold and Leasehold as both have key advantages and disadvantages to consider.

What is Freehold?

If you purchase a freehold property, you own both the building and the land it stands on outright. Your ownership is not limited by time, and you are responsible for maintaining the property and the land.

Freehold is generally considered the most straightforward form of ownership, as there is no landlord or ground rent to pay. Most houses in England and Wales are sold as freehold, although there are exceptions.

However, it is becoming more common for new housing developments to include estate service charges for the upkeep of shared facilities. Typically, a management company is set up to manage these areas, which can involve administrative steps when selling the property, similar to those required for a leasehold property.

What is Leasehold?

A leasehold property gives you the right to live in the property for a fixed number of years, decades, or even centuries. Leases are commonly granted for 99, 125, or 999 years. The land itself remains owned by the freeholder or landlord.

As a leaseholder, you may be required to pay:

• Ground rent (reforms are phasing out new ground rents for most residential leases),
• Service charges and maintenance fees for shared areas such as hallways, gardens, or lifts,
• Contributions to major works, like roof repairs or external decoration.

Flats are almost always sold as leasehold because of the shared nature of the building. Historically, some houses were sold as leasehold, but this practice has been widely criticised. Since 2019, most new-build houses cannot legally be sold on a leasehold basis, except in limited circumstances.

Key Differences Between Freehold and Leasehold

Understanding the distinction between freehold and leasehold is crucial, as it can have long-term implications for property owners:

• Ownership: Freehold gives permanent ownership of the land and property. Leasehold grants ownership for a fixed term only.
• Costs: Leaseholders may incur ongoing costs, including ground rent, service charges, and fees for lease extensions. Freeholders are responsible for all maintenance costs, although some freeholds have estate service charges.
• Control: Freeholders typically have complete control over their property (subject to planning laws). Leaseholders usually require the freeholder's permission for alterations.  A lease will also contain covenants (obligations) on the part of the leaseholder, and if the leaseholder does not comply with them, the freeholder can take action to recover the property.
• Expiry: Leasehold properties decrease in value as the lease term shortens. Extending a lease can be expensive, especially if the remaining term is under 80 years.

Recent Leasehold Reforms

The law around leasehold ownership is evolving:

• Leasehold Reform (Ground Rent) Act 2022: Abolished ground rent for most new residential long leases. Existing leaseholders may still have to pay ground rent unless they extend or vary their lease.
   
• Leasehold and Freehold Reform Act 2024 (upcoming): Expected to make it easier and cheaper to extend leases (standardising them to 990 years and abolishing marriage value) or buy the freehold, while also increasing transparency of service charges.

Which is Better: Freehold or Leasehold?

Many buyers prefer freehold properties because they typically avoid ongoing costs and restrictions. However, flats are usually leasehold, as generally, mortgage lenders will not lend on freehold flats. Leases (when properly drafted) provide a legal framework that ensures the obligations for the maintenance and insurance of the building, as well as the obligation to contribute fairly to costs, can be enforced.

The “better” option depends on your individual circumstances, the terms of the lease, and the remaining lease length. Note that in Scotland and Northern Ireland, leasehold ownership is uncommon or abolished, and different rules apply.

Final Thoughts

Whether you're considering a freehold or leasehold property, understanding the implications of each is essential before making a purchase. Our experienced residential property and conveyancing team is here to guide you through the process, ensuring you make informed decisions every step of the way.

Contact Us Today

If you have questions or need assistance, don't hesitate to reach out:

Email: enquiries@warnergoodman.co.uk
Phone: 01329 288 121