freehold versus leasehold

Freehold or Leasehold?

If you are looking to buy a property, it is important to understand whether it is freehold or leasehold.

If you buy a freehold property, you will own the property outright, including the land on which the property is built, with no time limit on the period of ownership. 

If you buy a leasehold property, you will only own the property for a fixed number of years but not the land on which it is built, nor, in general, any structural parts. 

Historically, most flat leases were granted for 99 years, although more recent leases can be granted for anything from 125 years up to 999 years. 

The land on which the flats are built is owned by the freeholder. It is the freeholder who grants a lease of the property for the given number of years, which creates a landlord and tenant relationship. Unless the lease is extended, the property will return to the freeholder once the number of years comes to an end. 

If you purchase a leasehold property, you will usually need to pay an annual ground rent to the freeholder. If you own the freehold, then no ground rent will be payable. 

As a leaseholder, the freeholder or Landlord is usually responsible for insuring and maintaining the structural and communal parts of the building. These costs will normally be passed on to the leaseholders by payment of a service charge. You may also be asked to pay into a sinking fund to help cover any unexpected maintenance work. If you own the freehold, then you will be responsible for insuring and maintaining both the property and the land, deciding what and when any maintenance is undertaken. 

Occasionally flats are freehold; this is a flat without any leasehold title. The problem with these types of property is that there is no means of obliging the other owners in the block to contribute to any of the liabilities associated with maintenance or insurance. This means that within the building that the freehold flat is situated, you are completely reliant upon your neighbour to maintain his part of the structure, such as the roof, main walls or foundations and there is no obvious legal obligation or agreement between you to force each other to carry out those repairs or share the cost of maintenance or repairs. For this reason, freehold flats are generally not accepted as good security by most lenders. 

Freehold flats should not be confused with the situation where the leaseholders own the flats and together own a share of the freehold. 

Buying a leasehold property is likely to take longer than buying a freehold property as more legal work is involved; in addition to reviewing the terms of the lease, your conveyancer will also be checking management, ground rent and service charge accounts are all in order before completing the purchase. 

This article is only a brief guide. If you would like more information, or for a no obligation discussion, please contact Okells FrancisLaw LLP on either 01989 762009 or 01594 842242 or email them at office@okells-law.co.uk.