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Leasehold versus freehold

Published: 02/06/2020

As a rule of thumb, in England and Wales, houses are freehold, and flats and maisonettes are leaseholds. However, some new build houses can be leasehold.

The critical difference between leasehold and freehold properties is:

Leasehold:  The property is held for a temporary period of time
Freehold:    The property is held permanently

Freehold

Freehold means that you own outright the bricks and mortar and the land that it sits on, and your name appears on the land registry as the owner.

Advantages

  • you will not have to deal or answer to a landlord 
  • you will not be required to pay any of the charges associated with having a landlord 
  • there will be no annual ground rent payable 
  • you will not have to worry about the property falling into disrepair through the neglect of the landlord
  • you will be able to make structural changes to the property

Disadvantages

You will be responsible for the maintenance and repairs of the property and the land the property stands on while you own the freehold.

Leasehold

Temporary ownership may last sometimes hundreds of years but the property and the land upon it sits, is effectively owned by someone else. A lease gives you the right to live in the property for a fixed period of time generally ranging from 90 to 125 years. However, some new builds can be as high as 999 years.

The length of the lease is key. You should bear in mind that you will be taking over the lease from its previous owner, and the length of the lease can affect your ability to secure a mortgage offer and may impact the resale value too.

It's advisable to have a lease that will not drop below 80-years while owning it. It's also worth considering asking the vendor to extend the length of the lease before purchase, doing this can save a vast amount of money down the line.

When you have lived in the property for two years, you can consider applying for an extension to the lease by serving a S42 Notice on the freeholder (a Statutory Lease Extension).

Conclusion

A steadily decreasing lease can be seen as a diminishing asset, whereas in a stable market, a freehold will hold its value. The value of short lease properties will be affected, whereas, those with a long lease, will perform in a similar way to a freehold property.


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