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Freehold VS Leasehold

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Freehold or Leasehold: The differences



Freehold or leasehold? But the most important thing is to know the differences between freehold and leasehold properties when buying property. Most people will be familiar with the terms freehold or leasehold; commonhold and flying freehold, however, maybe new to you, so I am also going to talk a little about that. Essentially, freehold and leasehold are types of estates. Commonhold is a new type of freehold.

Freehold Property

If you purchase a freehold property, you will own the home, the land it is built on, and you will have the right 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 a legistration that is making it easier for leaseholders to buy the freehold.

Flying Freehold

You may have heard of ¡°flying freehold¡±, but never really understood the difference between it and a regular freehold. It¡¯s actually just as common as a regular freehold, and is not considered abnormal. However, flying freeholds are a bit of a grey area in the eyes of the law, consequently most lenders will probably not support you financially to buy a property of that type.

A Flying Freehold is the part of the freehold property which overhangs land which does not form part of that property freehold. The flying part doesn¡¯t need to be up in the air, it can be over a part of someone else¡¯s freehold, or over a common part, 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 won¡¯t 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 should stipulate how the service charge is worked out, and how it is divided between the other leaseholders. It¡¯s important to calculate all these costs before committing to a leasehold property, as you may not have budgeted 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.

Why do people get leasehold properties? Well, because most flats are leasehold, and it means everyone living with 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 the leasehold to up to 999 years, and you can actually purchase the freehold, but at a cost.

Commonhold Property

Commonhold is a relatively new idea; it was introduced at the end of 2004. Most properties won¡¯t 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 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 standardisation of documentation which is the same throughout all commonhold properties- there will be no input from a dodgy landlord. And what appeals to people the most is that with commonhold, the property won¡¯t 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 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.

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