What Is A Freehold Property? How Does It Differ From A Leasehold?

When buying property, freehold and leasehold are just two terms you will come across. It is vital you know the difference between a freehold property and a leasehold property, so what sets them apart?

When buying property in England and Wales, you will come across the terms freehold and leasehold. The two terms describe the different ways you can own a property and generally apply to different property types. Note in Scotland and Northern Ireland slightly different rules apply.

What is a freehold property?

A freehold generally means outright owning the land and the dwelling that sits on it. Most houses in England and Wales are owned on a freehold basis.

A freehold property is typically seen as more desirable and thus more expensive due to the owner having absolute control of the property and land.

What is a leasehold property?

A Leasehold title refers to tenure. You are leasing the property, you own it and receive the title deeds for your property. However, you do not own the land on which it sits. It could be the case that someone who owns the freehold of the land grants a leasehold title which set about the length and annual ground rent. Historically, these were 99 years, although the typical lease nowadays is for 125, with some leases being a long as 250 or even 999 years.

If this is the case, the lease will be lengthy, and an agreement will be drafted based on property and contractual law between the freehold owner (Lessor) and the tenant (Lessee). The leaseholder usually pays an annual fee called ground rent typically between £50 – £250.

Most flats are owned on a leasehold basis. Leases can easily be renewed and the freeholder has no way of denying the extension.

The length of the lease generally only impacts the properties price when there is less than 80 years on remaining. The good news is that a lease can easily be extended and the cost thereof determined by the by valuers using a standard formula. The UK government funded, Leasehold advisory service https://www.lease-advice.org/ is there is assist leaseholders with any disputed with the freeholder.

In general, leaseholds are preferred by oversea investors because it is the freeholder’s responsibility to maintain the communal areas.

Service Charge

The freeholder appoints a management company to take care of the structural integrity of the building and the common areas. They would also arrange building insurance and other aspects relating to the building and its exterior.

If the company is not doing a good job, under the terms of the Landlord and Tenant Act 1985 and 1987, the leaseholder can obtain the Right To Manage and appoint their own management company.

Conclusion

Leasehold is not bad. In Layman’s terms you own your apartment for which you obtain the title deeds. The freeholder owns the ground and receives an annual ground rent. The freeholder appoints an independent management company to provide maintenance and upkeep the communal areas for which the leaseholder pays an annual service charge. It means that owners only need to be responsible for the upkeep of their own property, which if you find the right tenant, is also taken care of.

At One Touch Property, we offer new build flats in modern developments mainly on a leasehold basis. Contact One Touch Property today to find out more about our range of buy to let property investments.