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The difference between freehold and leasehold property

Leasehold extension

As a solicitor I sometimes fall into the trap of assuming that everyone knows the basics of Leasehold and Freehold properties which is not always the case. In light of this I have prepared a brief guide to the basic differences between the two.

The majority of property in the UK is either held as Leasehold or Freehold. The major difference between the two is that with a leasehold property you own a ‘right’ to occupy a specified piece of land for a specified amount of time. With a Freehold property you own the land or property outright which is not usually subject to the above restrictions. In addition with freehold you actually own all the land directly below your property, and the sky above your property; with leasehold you can own a ‘chunk’ of property – for example a specific flat.

The length of the lease can be any amount of time but typically ranges between 99 and 125 years.

Leaseholds are usually used in relation to some form of flats or apartment. The reason that flats are usually leasehold is that they are usually reliant upon each other for support and shelter (e.g. the top flat will also own the roof, the bottom flat will own the foundations, and all the other flats own their walls. All of the flats rely on each other for support). Because of this mutual need for support you want to make sure that if one flat is letting an important part fall into disrepair, then the others can force them to do something about it. Because of the way property law has formed, it is much easier to do this if they are all leases than if they were all freehold. Hence most flats/apartments are leasehold.

With a leasehold property you enter into a lease with the Freeholder (the person who owns the freehold – yes there’s still a freehold – there’s always a freehold) or Landlord. This is essentially an agreement governing the Tenants relationship with the owner of the land and details what you can and cannot do. The important thing to remember with leasehold properties is that you are restricted in some aspects of your use of the property unlike Freehold properties where you are relatively unencumbered.

For larger blocks of flats there will quite often be a management company which looks after the property on behalf of the Freeholder.

Leasehold properties normally have a ground rent payable. This can be a peppercorn rent (a nominal amount that is quite often not even collected) or several hundred pounds a year. In addition the Freeholder (through the management company) will often collect service or maintenance charges. These charges are for the maintenance of the building and communal areas as well as insuring the property.

A leasehold property is a diminishing asset – i.e. as the length of the lease is reduced below a certain length then it’s value decreases. This actually does not happen until a lease is reduced to about 60 years. When a lease reduces to this level it is usually a good idea to extend the lease or in some circumstances purchase the Freehold – see my separate blog on this.

If you have any questions about leasehold properties or are considering purchasing a leasehold property please get in touch by email or by leaving a comment on this blog.

William

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