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Movelawyer Advice Section

Read through some of our advice articles that may help you if you are considering buying a house

Freehold vs. Leasehold Properties

01-08-2018

Most properties in England are either freehold or leasehold, and it is important that you understand the difference between the two and the implications of this for your property ownership.

freehold property vs leasehold property

 

Properties in the UK can be freehold, leasehold, flying freehold, commonhold or, in the case of Scotland, ‘feuhold’.

What is a freehold property?

Purchasing a freehold property will give you immediate ownership of both the property and the surrounding grounds. Having a freehold interest in land means that there is no time limit on your period of ownership, and you have the right to live at the property for as long as you wish. You are allowed to make alterations and extensions to the property as you own both the property and the land it sits on, however, these alterations will need to be in line with the law and local planning restrictions. You must seek planning approval in order to make structural changes to the property, and doing so will be especially crucial if your property is an older building which is listed or is located in a conservation area.

Although freehold properties tend to be houses, there are an increasing number of freehold flats becoming available, whereby the ownership and responsibilities of the freehold are shared between the flat owners. Because a freehold confers greater ownership, owning the property is more straightforward and, hence, (unsurprisingly) more desirable and expensive.

 

What is a flying freehold?

A property is a flying freehold when it is a freehold property which has a part of it overhanging or lying beneath a part of another person’s freehold property. Flying freeholds are fairly common and exist where, for example, part of a bedroom of one house lies above an alleyway running between two houses. The term ‘flying freehold’ really only applies when the ‘flying’ element is occupiable, meaning that things like overhanging drain pipes and guttering are not counted.

Flying freeholds can provoke some sticky legal issues regarding the cost of repairs to, for example, storm damage or major DIY renovation if your neighbours refuse access or protest at your plans. In most cases, flying freeholds do not have to present any issues at all, so long as you maintain friendly relations with your new neighbours.

Due to its position in a legal grey area, some lenders are hesitant to lend money to buy a flying freehold property, and are likely to ask for a very common type of cover known as ‘flying freehold indemnity insurance’.

 

What is a leasehold property?

When purchasing a leasehold property, you are buying not the property itself, but the right to live in it for the period of time specified in the lease – this can be as long as 999 years. Buying a leasehold property means that you do not have outright ownership or the property and the land within its boundaries. Additionally, buying a leasehold property previously owned by someone else does not ‘reset’ the duration of the leasehold – if they have lived in a 100-year-leased property for 30 years, you are only purchasing the right to live in the property for the remaining 70 years.

The remaining lease-duration of a property is an important piece of information and should always be made clear on the property listing, but if it is not or you are simply in doubt, contact the estate agent and ask. The length of lease will affect the property’s value, and anything less than 60 years could make it difficult to find a mortgage.

 

The lease

Leases vary, and it is important that you read yours carefully and take legal advice because it will contain information concerning your rights and entitlement such as whether or not you can sublet or own a pet, how much noise you can make, and whether you can undertake certain alterations. Failure to comply with your lease could not only lose you a lot of money but also the property altogether.

 

Annual charges

Purchasing a leasehold property means that you have an obligation to make payments to its freeholder in order to cover the costs for its maintenance and repairs – these are known as ground rent and service charges. It is crucial that you inquire about these fees before you purchase the property, also, be aware that maintenance charges can rise annually without limit.

 

Extending the lease or buying the freehold

It is possible for you to extend the leasehold of your new home to up to 999 years, but extending your lease can be an expensive option – up to around 20% of the value of the property – and you will need to employ a property lawyer in order to liaise with the freeholder. If the asking price on a leasehold property is unusually cheap, this may be due to a short-remaining lease, so make sure you investigate leasehold extension costs before you confirm your offer.

It is also possible for you to purchase the freehold of the property, but this will require an additional fee. Furthermore, as a leaseholder, you may be entitled to manage the property as if you were a freeholder although you do not own the freehold; contact the Leasehold Enfranchisement Advisory Service for more information.

 

Commonhold property, or 'share of freehold'

Although this is unusual, some blocks of flats and apartments are sold on a commonhold basis whereby the occupants mutually own their block of flats with no overall landlord. Each flat will have a freehold owner – this is usually a member of the commonhold association – that is responsible for maintaining the communal areas of the property. Having a commonhold is advantageous because it means that decisions concerning the building are made collectively by the owners and without the influence of a freehold landlord who may not have their best interests at heart.