Leasehold and freehold are different ways you can own a home. They each come with their own rules, advantages and disadvantages.
If you’re shopping around for your first home, you’ve likely noticed that there are two types of property ownership: leasehold and freehold.
We're going to break down how these different types of homeownership work and how they compare so you understand what you're committing to if you decide to buy a property.
What is a leasehold?
A leasehold is where you own a property, but not the land it sits on or, if it's a flat, the building it’s in. Leaseholds are most common with flats.
When you buy the property, it comes with "a lease" which is permission to live on that land for a period of time.
As you're basically renting the ground that your property is on, you may have to pay "ground rent" to whoever the owns the land. Always ask how much this is before making an offer on a leasehold property.
How does a leasehold work?
With a leasehold, you pay ground rent to whoever owns the building and the land your property is on (the freeholder). They’ll be responsible for the maintenance of the building. You may also need to pay them a service charge for that maintenance or the cost might come out of the ground rent.
One of the advantages of owning a leasehold property is that you’re only responsible for the upkeep of your flat. For example, if something breaks in a communal area of the building, it’s not your responsibility to have it fixed.
But not owning the building means you may not be able to make some changes to your home and the lease might contain rules such as no pets. Always ask your solicitor to show you it before you complete.
Leaseholds are usually long term, over 100 years, but can be up to 999 years. Technically, if it gets down to 0 years then you no longer have a right to live on that land. So, it's important to extend the lease - this can be expensive and might mean getting several people to cooperate. That's why short leases usually mean cheaper properties.
What are the advantages and disadvantages of owning a leasehold property?
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What is a freehold?
A freehold is ownership of the land the property sits on. Freeholds are most common with houses.
You can also own property as a "share of freehold", which is more common with houses that have been converted into two or three flats. This is where two or more property owners own the freehold between them and generally share costs - they might pay into a shared sinking fund or pay for things as needed.
How does a freehold work?
When you buy the property, you buy the land it sits on too.
This gives you more freedom to make changes although of course you may still need to consider planning permission.
How does a share of freehold work and how does it compare to a leasehold?
As the name suggests, you share the ownership of the land and any communal areas.
Although this means you won't need to pay ground rent, some people choose to instead put money into a shared sinking fund (a fund for emergency repairs) so it's worth checking if this is the case before making an offer. You'll also need to share costs like building insurance and maintaining communal areas.
What are the advantages and disadvantages of owning a freehold property?
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