Are you thinking of buying a property, but are confused about the difference between a freehold and leasehold? Have you been warned off leaseholds but aren’t sure why? Here are the simple facts to help you consider all the necessary factors before coming to a decision.
Leasehold vs. Freehold
A leasehold means that you own the property, but that the land that the property is built on belongs to the freeholder. The lease for the arrangement lasts for a certain amount of time, commonly 99, 125, or 99 years, and gives you the right to occupy the property for this time. Many apartments are sold under these terms. The lease itself is the legal document that outlines the arrangement between the leaseholder and the freeholder. It sets down the responsibilities and rights of both parties.
A freehold means that you own both the property and the land on which it sits: most houses in the UK come under this category.
What to look out for:
Service charges
These come in the form of a monthly or yearly bill from the freeholder, and pay towards the upkeep and development of the entire building. They vary from several hundred to thousands of pounds annually, and can be raised at any time as long as the law sees the increase as being ‘reasonable’. Make sure to check the service charges seem fair and are justifiable; ask for records of any recent raises and any planned increases, too.
Ground rent
Because you’re leasing the property, you are liable to pay rent for living there. This is often a token amount, but it’s worth verifying before you commit.
Clauses
The leasehold is a legal agreement between you and the freeholder, and can outline any number of conditions that you’ll have to abide by once it’s signed. Get the advice of your estate agent and a solicitor, and check and double check these to ensure that they won’t limit you in the future: if you want to keep pets on the property, for example, or if you might want to sub-let at some point, you may be prohibited from doing so under certain clauses of the lease.
The future of the building
The freeholder is obliged to tell you about any major works that will be performed on the building if you ask, but may not necessarily offer up the information in their efforts to sell it to you. These could cause a dramatic upswing in your service costs, so make sure to check before you buy.
