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Leasehold vs Freehold: What's the Difference?

August 11, 2020
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When you are planning to buy your first property, you will quickly become aware of two words: leasehold vs freehold. These descriptors will often be added to the online listing so that you know the status of the property. Before purchasing a property, it’s important that you know if you are purchasing a leasehold or a freehold because your rights and responsibilities will change depending on this key status.

What is a leasehold?

With a leasehold, you own the property but not the land that it sits on. This means that you will also pay rent to the landowner for the duration of your lease. In essence, you own the lease to the land, so you are free to sell the property in the future.

Leasehold agreements can last years, decades or even centuries. Most flats are sold as leasehold properties because it would be complicated to split up the freehold. However, in some cases (particularly in houses that are converted into flats) the residents will own a share of the freehold, which is known as ‘share of freehold’.

What is a freehold?

With a freehold, you own the property and the land it is built on. Interestingly, you will also own the aerial rights up to 500m above your property and ground rights below your property. As you own the property and the land, you will be responsible for all repairs and maintenance.

Problems with leasehold

A common problem with leasehold properties that is only now coming to light is in the way leasehold contracts are managed. One estimate says that around 12,000 leaseholders are facing ground rent fees that double every 10 years. Some new build houses were even sold as freehold, but this leasehold clause was added to their contract.

In 2019, a pledge was signed by leading property developers and freeholders agreeing to abolish these extortionate terms. There is also an investigation underway to determine if these leaseholds were mis-sold. It isn’t yet clear if those responsible will face any consequences if it is determined that they mis-sold the leaseholds.

Should I buy a leasehold?

The presence of “leasehold” on a home listing shouldn’t be enough to put you off. Provided you check the fine print and make sure that the leasehold payments are and will continue to be affordable, you should have no issues with a leasehold property. And if you are purchasing a flat, you may have no choice but to opt for a leasehold.

Another thing to look out for is the length of the leasehold. Most leaseholds will last for around 99-125 years, but some will be as long as 999 years. Anything shorter than 80 years should be avoided as it can make it difficult to remortgage the property in the future.

Your leaseholder rights

As a leaseholder, you have additional rights which are not available to freeholders. For example, communal areas will need to be managed and maintained by the landowner. Buildings insurance will also have to be provided by the landowner, so this can lower your monthly expenses.

As a leaseholder, you also have additional rights for dealing with things like noisy neighbours. There should be clauses in the leaseholder contract that outlines how noise complaints or antisocial behaviour will be dealt with.

If you are unhappy with the way something has been handled by the landowner, there are steps you can take. The first would be to speak to other residents and see if they share your feelings. You could strengthen your case to the landowner if multiple residents complain about the same thing. If this does not help you to solve your issues with the landowner, you can try mediation and then apply to tribunal if you are unhappy with the outcome.

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