Freehold V Leasehold – What’s the Difference?

Sally Yaxley

Written by Sally Yaxley, a Legal Executive at Spire Solicitors LLP.

When buying a property you may come across the terms Freehold and Leasehold. The differences are important and determine whether or not you own your home outright.

The main differences between the two are:

–          Leasehold properties usually have an annual ground rent, payable to the Landlord. It is important to consider what the rent will be at the time of purchase but also whether it increases in future. It is uncommon for Freehold properties to have ground rent payments.

–          Leases usually require you to pay service charges for costs and expenses incurred by the Landlord, typically relating to building repairs and maintenance. With a Leasehold property, the Landlord is usually responsible for the exterior of the building and may decide to replace the windows when you may not have chosen to. When you own the freehold, you own the land and the building so you can decide when to carry out work.

–          If you are considering renovation or structural works, a Lessee would need permission from the Landlord before proceeding. This usually means having plans approved by the Landlord and paying their fees for the same. It is less common to see restrictions of the same nature on Freehold properties. Some newer properties have restrictions which require consent from the original Developer, but often this is only for the first 5 years from completion.

–          Leases are granted for a fixed period. There are provisions in the Leasehold Reform Act 1993 allowing qualifying owners to extend their lease by an additional 90 years; this is usually required before the remaining term drops below 80 years and is another expense to consider when purchasing a leasehold property. Ownership of a Freehold property continues in perpetuity and there is no limitation on the length of time you can own the property.

–          When selling a Leasehold property, you usually have to pay for a management pack from the Landlord or their agent, which tells the buyer and their solicitor about service charges and general management of the building. When buying a leasehold property, you may also need to pay fees for a Deed of Covenant, a Certificate of Compliance, and a notice fee to notify the Landlord you have purchased the Property.  It is less common for such notices to be required when purchasing a Freehold Property; however some newer developments have management companies for communal areas of garden/open space and they may require a Deed of Covenant or Notice.

–          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 from their Landlord.

If you would like to discuss any points in this article further, please contact Spire Solicitors LLP on 01603 677077 for all your legal needs.