If you’ve ever bought or considered buying a property, you’ll have heard the terms “leasehold”, “freehold” and “share of freehold”. These terms relate to the tenure of the property you’ll be buying, and it is important to understand them and consider what the tenure will mean for you as a new homeowner.
If a property is a freehold, the owner (or freeholder) owns the property outright, including the land it has been built on, in perpetuity. Most houses will be freehold properties, as there is only one home on the land.
Freehold is often seen as the most desirable form of tenure, as the homeowner does not need to pay ground rent or service charges, or worry about their lease running out. The freeholder is also able to make material changes to the fabric of the building – the roof and outside walls – such as an extension, without needing to get permission from someone else, although planning permission would be required as normal.
However, being a freeholder does also come with certain responsibilities. As the sole owner of the property, you will be responsible for the upkeep and repairs to the property. You will also be responsible for matters which affect the local council or community, including overhanging trees, noise pollution and the general appearance of the property.
If a property is a leasehold, the leaseholder has the right to live in the property for a set number of years, but the land on which the property is built is owned by a freeholder, sometimes called a landlord. Most flats are leasehold properties, as there are multiple homes on the land. Some newer homes can also be leasehold properties.
The typical lease length is 99 years, although more recently longer leases of 125 and even 999 years have become more common. The leaseholder can extend the lease – by up to 90 years for a flat or 50 for a house – but will usually have to pay a premium to do so.
Leasehold properties are often painted in a poor light. The leaseholder will pay a ground rent and service charge to the freeholder, so leaseholders will have to budget for these costs. In addition, it can be difficult to remortgage or sell a leasehold property if the lease is starting to run out, and a short lease length can lower the value of a property.
However, it’s worth noting that leases themselves are not an issue, but rather bad leases are: those with short durations and unreasonable charges.
There are actually some benefits to being a leaseholder. You won’t be responsible for maintaining or repairing communal areas, and won’t have to negotiate with neighbours to resolve problems. The freeholder will be responsible for this, and freeholders often employ management companies to ensure the process is smoother. In addition, many leaseholders do not need to pay buildings insurance, as this is frequently covered by the freeholder.
Coupled with the fact that it is possible to extend the length of a lease, leasehold properties deserve a better reputation. Millions of homeowners in the UK live in leasehold properties, and if you’ve seen a property you love which happens to be leasehold, there’s no reason why you shouldn’t buy it.
Share of freehold
Leaseholders can sometimes purchase a share of freehold from their freeholder. This can be done only if at least half of the leaseholders agree to buy a share.
The leaseholders will still have the right to live in the property for a set number of years, in the same way as their original lease, but they are now more easily able to extend their lease – by up to 999 years – because the freehold is now owned by an association of the leaseholders.
If you have a share of the freehold, your costs will be lowered as the association of leaseholders can set a lower ground rent and service charge. In this way, it is often preferable to owning a leasehold.
However, you’ll also have more responsibilities with the other parties who share in the freehold, including the upkeep of communal areas such as the roof, external walls, hallways, and communal gardens, and you’ll also be responsible for insuring the building. Some homeowners in these circumstances prefer to hire a managing agent to deal with these responsibilities.
If you’re happy to be involved in the maintenance of the communal areas around your leasehold property, then a share of freehold is desirable, but if you would rather defer the responsibility to your freeholder, you may be more interested in a leasehold.
In sum, freehold, share of freehold and leasehold properties provide homeowners with a varying scale of freedom, responsibility and cost, and all three of these types of tenure have their advantages.
Perhaps the more important thing to consider is the property itself - if you find the perfect property, you should buy it regardless of whether it is comes with the freehold, a leasehold or a share of the freehold!You can see all our properties for sale here.