Published on : July 25, 2018 15:34
Freehold and Leasehold explained.
Here’s what you need to know.
These days it seems the words freehold and leasehold are thrown about a little too lightly without people really understanding the differences and how it can affect you when purchasing a property (especially if it’s at auction). There are a few key differences between freehold and leasehold so understanding why a property is either can be a big factor in picking the right property for your individual circumstances.
A freehold property or a freeholder has outright ownership of a property and the land in which the property was built on. Most houses are freehold but be careful with new-builds as they can be leasehold. Being a freeholder has many responsibilizes especially if your plan is to buy a house as a buy to let investment. Not complying could make for an unhappy tenant who could take legal action against you. As a freeholder, you are responsible for maintenance of the property and its land though you don’t have to pay ground rent or service charges and you don’t have to worry about the lease running out.
A leaseholder owns the lease for the property but not the land on which it stands; it is usually a flat or an apartment. Therefore, this makes the landlord a freeholder and the tenant a leaseholder. The leaseholder will have entered into a legal agreement with the freeholder, called a lease, which will expire after a set period of years (typically 99, 125, 250, 500 or 999 years). It’s important to understand what a “good” lease is as it can be difficult to obtain a mortgage if it becomes too low.
A short lease term can also negatively impact the value of the property, even if the property prices in your area are rising. This is usually reflected in a properties asking price and what people are willing to pay. You can go down the route of extending a properties lease but it can be a costly venture to go down. Also if you want to carry out any major works on the property then you will have to obtain permission from the freeholder.
As a leaseholder, it is important to abide by the terms of your lease. You have to pay annual ground rent, service charges, maintenance fees and your share of the insurance on the property. These can all add up so it helps to know the associated annual or monthly costs incurred because of the lease especially if you also have to pay your mortgage.
Need help with buying at auction?
If you need more help with confusing property jargon then you can read our full article here. If you need help in understanding if a property is lease or freehold then you can contact us on the form below and we can help.