Freehold and Leasehold – What’s the Difference?
One of the most important things to understand with any property purchase is whether you are dealing with a leasehold or freehold property. This is something which your solicitor should explain to you when the purchase is going through, but understanding the terminology is key to knowing what sort of property you wish to view, or make an offer on.
Freehold
A freehold property means you own it outright. You own the house itself, and the land which that house is built on. The freeholder or owner is the one who is responsible for maintenance of the land where the property is build as well as the land itself. Most houses in England and Wales are freehold, except for some estates which have been built on a shared ownership basis, where the housing association or company you are renting from is the overall freeholder.
Leasehold
Leasehold is a different form of ownership, where you are in essence entering into a long-term rental agreement with the freeholder. You are still legally the owner of the property as a leaseholder, but the freeholder will own the ground which the property is built on. If the lease on your property runs out, ownership reverts to the freeholder unless you’ve taken steps to extend the lease first.
Most flats and maisonettes in England and Wales are leasehold, but some houses might be too so it’s important to understand exactly what you are buying into. If you’re in a leasehold property, the freeholder is generally responsible for major maintenance projects like replacing a roof, and can charge ground rent every year to their leaseholders. Always check leases carefully to make sure you are clear about what you will be paying for.
When you buy a leasehold property like a flat, you take over the remaining years on the lease from the previous owner. Properties with short leases are generally cheaper than properties with very long leases. Leaseholders do have the right to purchase the freehold to their property, and if you are in s block of flats and similar you will have to get together with your fellow leaseholders and manage the purchase of the freehold as a group. There is a charge for this, which will depend on many different factors. Purchasing your freehold is a complex legal process and is really something which you will need specialist help with.
Commonhold Properties
This is a more unusual form of property ownership, but is something you may come across in blocks of flats. In a commonhold model, the property owners remain as leaseholders, and form a separate company which acts as the freeholder and takes charge of the maintenance and repair of all common areas and land. All leaseholders are members of the company and have a say in how it is managed and what money is spent on. Leaseholders might also decide not to take on the maintenance themselves, but to pay a third party company to do it for them.