When it comes to buying property in England, Wales or Northern Ireland, there are two primary types of ownership – freehold and leasehold. Both have their own pros and cons, depending on the buyer’s needs and preferences. But what exactly are the differences between the two? In this article, we will explain what freehold and leasehold properties are, and what sets them apart from each other.
Freehold Property
A freehold property is a type of ownership where the buyer owns the land and the buildings on that land entirely, as opposed to being leased from someone else. Buyers will have complete ownership and control over the property, including its maintenance and development. This means that the owner will have the freedom to make any changes or modifications to the property without seeking permission from anyone else.
One of the benefits of freehold ownership is that the property’s value tends to appreciate over time. The owner is also free to sell or transfer the property to someone else at any time, allowing them to make a profit that reflects the property’s value growth. Additionally, freehold ownership doesn’t usually come with restrictions on the property, meaning that the owner can use the property as they please, whether that be for residential or commercial purposes.
Leasehold Property
A leasehold property is a type of ownership where the buyer only owns the rights to the property, such as a flat or apartment, for a specific period of time. The buyer will pay a leasehold premium and then an annual ground rent to the landlord, who essentially owns the land on which the property is built. The leasehold period can be anywhere from 99 to 999 years, depending on the agreement.
Leasehold ownership is advantageous for those who cannot afford the full freehold price or those who need a property for a limited amount of time. There is also less responsibility for the leaseholder in terms of maintenance, as the landlord is typically responsible for the repairs of any communal areas of the property. However, it’s important to note that changes or modifications to the property often require the landlord’s consent, and the leaseholder may well be charged an administration fee for this.
Another major downside of leasehold ownership comes when the leasehold period nears its expiry. Once the leasehold term is over, the property automatically reverts back to the landlord, and the owner has no right to continue occupying the property. To ensure continued living in the leasehold property, the leaseholder will have to renew the lease, which can come with considerable additional costs. This is when the value of a leasehold property can depreciate rapidly, making it difficult to sell or even to mortgage.
Key Differences between Freehold and Leasehold
The main difference between freehold and leasehold properties is the extent of ownership and control given to the buyer. In a freehold property, the buyer owns the property outright, while in a leasehold property, the buyer only owns the right to occupy it for a specific period of time. Because of this, the leaseholder has a more limited control over the property, while the freeholder is free to make any changes or modifications they please.
Another essential difference is in the duration of ownership. A leasehold property typically comes with a fixed-term lease, while a freehold property provides perpetual ownership. As we mentioned earlier, leasehold ownership comes with a renewal option, so ownership can be extended, but this will come with extra consultative and arguably legal fees.
Freehold properties have a higher value than leasehold properties because of their complete ownership value. However, leasehold ownership tends to be more affordable as the buyer only purchases the right to occupy the property and not the land the property is built-on.
In conclusion, the choice between freehold and leasehold ownership will depend largely on personal preferences, circumstances, and factors such as upfront costs, maintenance and repair obligations, potential for property value appreciation and long-term concerns. It’s recommended that potential buyers evaluate their options thoroughly and seek advice from experts like real estate agents and legal professionals before making a purchase.
Editor WD Cardiff
