Leasehold or Freehold? What do they mean and why does it matter?
The vast majority of properties out there are either freehold or leasehold. There are also properties where the owner has a share of the freehold.
In this situation, the Freeholder owns the property outright. This will include the land it is built on (including its garden). Houses are generally freehold properties. When you own a freehold property, you have complete responsibility to look after your building and the land that it sits on. While this is a great responsibility, being a freeholder means that you:
• Always own the property and can, generally, leave it to whomever you wish in your will
• Don’t have to negotiate with anyone regarding the maintenance – it’s all yours to do!
In general, flats and maisonettes are owned as leasehold properties. When you own a leasehold property, you only own the property and any land that it sits on, for the length of the lease contract you have with the freeholder. After your lease runs out, the property’s ownership will then return to the freeholder.
Charges: In comparison to a freehold property, if you own with leasehold, then you are not responsible for the maintenance and repairs on your building. The freeholder will carry out all of this for you. When you own a leasehold property, you will pay a service charge to the freeholder. This pays for communal costs such as gardening, roofs, stairs and any electric required for communal areas. Other charges may include ground rent, buildings insurance and administration charges. When you own a property as a leaseholder, you have the right to:
• See accounts for the service charge
• Receipts for work
The landlord must consult you if:
• There is about to be any work that will cost more than £250
• They want to carry out work that will last longer than a year
• They want to carry out work that will cost you more than £100 a year
If you are purchasing a leasehold property with a mortgage, then the mortgage lender will usually require a minimum of 7 years to be remaining on the lease at the time of sale. If you are purchasing with cash, it is still important to consider length of lease as it will greatly affect resale value. Once you have owned the property for two years, you have the right to extend your lease by 90 years, although the freeholder will charge you for this. In general, you will only be eligible to renew your lease if, when you purchased, it had at least 21 years remaining.
Share of Freehold
The third type of ownership is Share or Freehold. This is when, as a group of owners, you own your properties together. If your property is not involved in a Share of Freehold when you purchase it, it is possible to do so if at least half of the other leaseholders in your group agree to it. This gives you much more control over your property. Find out more on The Leasehold Advisory Service website.