Subscribe To This Site

The Difference Between Freehold and Leasehold Property

Freehold and Leasehold refers to the amount of time that we have ownership on the property. There are two types of freehold: Regular Freehold and Flying Freehold. And there’s Leasehold and Commonhold.

Freehold Property
If you purchase a freehold property, you will own the home, the land it is built on, and you will have the rights to live there for as long as you please. You can make moderations to the property within restrictions of the law and planning restrictions. You may need permission to make structural changes, particularly with listed buildings (old buildings). Most houses are sold freehold. Flats can be sold freehold, but very rarely, they’re usually leasehold. However, flats are increasingly becoming freehold because of legistration that is making it easier for leaseholders to buy freehold properties.

Flying Freehold
Though flying freehold is hardly heard of, it is actually just as common as a regular freehold. However, flying freeholds are a bit of a grey area in the eyes of the law, consequently most lenders will not likely support you financially to buy a flying freehold property.

A Flying Freehold is the part of the freehold property structure which overhangs the land which does not belong to that property freehold. The ‘flying part’ property structure doesn’t need to be up in the air, it can be over a part of someone else’s freehold, or over a common land area, like a driveway.

Here is an example of how a flying freehold may occur: A semi detached house was separated into two freeholds. However, the dividing line does not go straight down the middle, and one corner of the bathroom is above a part of the lounge next door. Another example where a flying freehold may occur is if an extending balcony is above someone else’s freehold land.

Leasehold Property
If you buy a leasehold property, you are actually buying the rights to live in a property for a set period of time. You do not actually own the property, or the grounds it is situated on. Most flats are leasehold; with the lease, it means you are obligated to pay ground rent to the freeholder. The ground rent will cover the costs for communal maintenance repairs. The lease also stipulates how the service charge is worked out and how it is divided between other leaseholders. It is important to calculate all these costs before committing to a leasehold property, as you may not have the budget for the additional costs.

Once the set period in the lease expires, the ownership of the property is given back to the land owner. Most leases are roughly 99 years; however, you can get an extension. If anyone is buying a leasehold property, it is important to find out how long the lease is for as it will affect the value of the property.

So what are some common leasehold properties? Most flats are leasehold. For leasehold flats, it means everyone who is living in the same building has to split maintenance costs in respect of the common parts of the building and the communal areas.

It is possible to extend leasehold up to 999 years, and you can actually purchase and convert it to freehold, at a cost.

Commonhold Property
Commonhold is a relatively new idea; it was introduced at the end of 2004 in England and Wales. Most properties will not be commonhold, and those that are, were built after September 2004. Again, like leasehold, this type of property is usually found with flats and units.

Most strikingly, commonhold eradicates the concept of a lease and having a landlord. That’s what most appeals to buyers, and why it is favoured over leasehold.

Commonhold is pretty self-explanatory. A group of people mutually own, for example, a block of flats. There is no overall landlord. However, there is a freehold owner, and that is a company called a commonhold association. The owner of each flat is a member of the association (i.e if you buy a commonhold flat, you will be part of the association). The commonhold association is responsible for maintaining the communal areas of the building.

The advantages of commonhold properties are as follows:
- There is no set period of time to when you have to leave
- You are one of the freeholders. All decisions regarding the building are made jointly by the property owners.
- There will be a standardization of documentation which is the same throughout all commonhold properties
- There will be no input from a dodgy landlord.
- The property do not lose value, unlike with leasehold properties that lose value as the period of the lease gets closer to its expiry date.

Leaseholders can convert to commonhold, but every leaseholder will have to buy the freehold together, and everyone in the building must agree to convert to commonhold.

Summary for leasehold and freehold.

Leasehold

-          Lease duration usually last 30, 60, 99 or 999 years

-          Limited by purpose of lease and legislation

-          Stocking levels, cultivation, etc may be restricted by lease conditions.

-           Limited by environmental and town planning controls.

Freehold

-          Limited by environmental and town planning controls. 

Return from Freehold or Leasehold to Homepage