Freehold vs Leasehold - Tips and Advice
(Last Updated: 12/11/2024)
06/03/2023
21
6 min read
Key Takeaways
- When buying a house, you can either own it as a freehold or a leasehold. With freeholds, you own the land and the property that is built on it. With leaseholds, however, you do not own the land and you are leasing a part (i.e. a flat) or the entire building that is built on it.
- When deciding on freehold vs leasehold, we recommend considering your intention for a property. For example, if you're interested in buying a house and extending it, a freehold will be better suited. However, a 999-year lease with nominal ground rent can be as good as a freehold.
The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes
Deciding whether a freehold or a leasehold is better for your needs depends on a number of different factors; most relate to what you want to do with the property. For example, if you are looking to extend your property, then buying a freehold would be better, however if you want to enter the buy to let market in the cheapest way, then a leasehold is better (we go into why later).
In this article we explain how you can best choose either a freehold or leasehold by considering your intentions for the property as this is likely to be the best way to decide.
What is freehold tenure? | What does leasehold mean when buying a house? |
|---|---|
What is freehold tenure?"...the legal right to own and use a building or piece of land for an unlimited time". Simply put, you own the land and all of the property/ies on it. You can read more about buying a freehold property by clicking here | What does leasehold mean when buying a house?"...the legal right to live in or use a building or piece of land for an agreed period of time". Simply put you are leasing a part or all of a building and you don't own the land underneath it. You can read more about buying a leasehold property by clicking here. |
What is the difference between freehold and leasehold?
Having a low maintenance home is something that suits some buyers when considering freehold vs leasehold. If this is the case, then maybe a leasehold is better for your needs than a freehold. With a freehold you have to maintain the internal and external parts of the property, including:
- Garden;
- Boundaries (fences and hedges);
- Roof;
- Drains; and
- Access drives.
With the majority of leaseholds, it is the freeholder's obligation to maintain the above, although the cost for doing so is shared between the leaseholders. This may seem like a plus for buyers who want to have their property well-maintained but not do any of the work themselves.
Why would anyone buy a freehold?
Many people look to buy properties with the intention of extending them, normally to increase the property value and to gain more space. If this is what you want to do, then you're invariably looking at buying a freehold rather than a leasehold.
You wouldn't normally be looking to extend a leasehold property for these 2 main reasons:
- your lease only permits you use of the 'demised area' within the property (extending would extend out of this); and
- a leaseholder does not own the ground under their property to extend on it.
Freeholds are easier to extend and develop as you own the land underneath the property. You should however check the Official Copy of Register of Title as there are some freehold titles that limit the number of properties you are allowed to build on the land involved.
* The Land Registry charge a fee to download this document.
What are the disadvantages of freehold?
The only disadvantage of owning a freehold property is that they are generally more expensive than leaseholds. You will be responsible with the upkeep of your property, so you will not be paying ground rent or service charges, but you will have to be prepared for the purchase price to be higher.
Why would anyone buy a leasehold property?
As a rule of thumb, leasehold flats are cheaper than freehold houses, however you must factor in the monthly spend on ground rent or service charges. When taking into consideration the money being spent on these costs, you may find that the difference in cost is smaller than it first appears.
If you want to develop a leasehold property (if it's a case where this is feasible), you need to get freeholder consent to do so but this is unlikely to be granted.
Check your lease for the Leaseholder's Covenant to the Landlord
Check your lease to see if this clause is included (most leases include it as standard): ...Not to make any structural alteration to the Premises or to the external appearance thereof and not to make any internal non structural alterations without the written consent of the Landlord (such consent not to be unreasonably withheld or delayed)...
If you're buying in the North-Eastern region of England, you might find that a tyneside lease is suitable for you. This is commonly found in two-storeys terraced properties, which are split into a self-sufficient ground floor and first floor flats.
With this type of lease, the leasehold owner of the ground floor flat also owns the freehold title to the upstairs flat, while the leasehold owner of the first floor flat own the freehold for the downstairs flat.
I want to buy a house not a flat
Although most houses are freehold, you can still buy a leasehold house. A leasehold house normally has a low ground rent to pay to the freeholder, however you may not have to pay any service charges.
That said, in 2017, some newly-built leasehold houses attracted very negative attention as the ground rent payments were very high and had the risk of becoming even more extortionate. Although the freeholders offered the option to buy the freehold on those properties, the price was eye-wateringly expensive.
Due to the Leasehold Reform Act 2022 coming into effect, a peppercorn ground rent limit will be applied to new residential leases that were granted after commencement of the Act. Historically speaking, a peppercorn ground rent mean a nominal or low value figure. Presently, you will not be expected to pay one actual peppercorn, so the Act effectively restricts ground rents to zero. This, however, does not apply to all leases.
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Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
