Freehold Properties

There have been many arguments and misconceptions around freehold properties vs leasehold properties and this has sometimes had a negative effect on buyers when looking for a new home. A freehold interest in a property is one which means that the homeowner owns the property outright and this includes the land the property is built on. Most properties are freehold although some areas will have a high percentage of leasehold properties.

In terms of common law, a freeholder can do whatever they wish with their land. However, in today’s society, we are expected to follow suit and this means we do have to consider our land and property. A freehold is something that can go on indefinitely and in reality, this does provide peace of mind.

Leasehold

A leasehold property is one which is derived from form a freehold interest and has two main aspects, these being:

  • Fixed duration
  • Exclusive possession

In terms of duration then the term can be anything as agreed between the actual freeholder and the leaseholder. The term ‘exclusive possession’ means that the current leaseholder to exclude all others from the premises and that actually includes the freeholder. This right is governed by the terms of the lease with the leaseholder not breaching any of those terms. This means that leaseholders do have control of the premises and except for the terms, are free to use that property as they see fit. Remember, with a leasehold you do not own the land for which the premises or property is within.

It is worth noting that residential leases could be 99 years or 999 years in length. The latter provides a high degree of certainty for leaseholders. Additionally, it is becoming harder to mortgage a property with 65 years or below left on the lease if we take into account the mortgage term of say 25 years then this will only leave a lease duration of 40 years on the lease. Those leaseholds with hundreds of years are going to be much more valuable too as a short lease may incur large reductions in what the property may sell for.

There is also something called a residential assured shorthand tenancies or otherwise known as AST’s. The duration of these may range from six months onwards.

What does all this mean?

If you are renting a property then you will be looking at a residential assured shorthand tenancy. If you are buying and the property is leasehold then you will want to ensure you establish the term of the lease. If there is a very long lease then you shouldn’t be put off from buying a leasehold, thousands of people go down the leasehold route every year and as long as they looked into everything then they do not have any issues.

If the property is being offered with a shorter lease then you should check with your mortgage provider to hear their thoughts. In addition to this, you should also ask questions about any service charges associated with the lease, especially the terms of these charges and whether they will rise over time. if they do then by how much there have been plenty of concerning stories of overinflated service charges and ground rents.

Further guidance:

Freehold:

  • You own the property as well as the land the property is on and even the sky above the land
  • It is your responsibility to maintain the property and the grounds
  • You won’t have to pay service charges or ground rent

Leasehold:

  • You own the property but the freeholder owns the land
  • Common approach for apartments and blocks of flats
  • Building maintenance is the responsibility of the landlord/freeholder
  • You may have to pay ground rent and service charges

If you have any queries about freehold or leasehold then please do not hesitate to contact a member of our team.