If you're purchasing residential or commercial property in the UK, you'll need to know whether the purchase will be freehold or leasehold. You may have heard of these terms before, but what do they actually imply? This easy guide details whatever you need to know about freehold vs. leasehold and how every one impacts how you own your residential or commercial property.

Leasehold vs. freehold FAQs

What is freehold?

Buying a residential or commercial property freehold merely means that you own the building as well as the land it stands on. Freehold and leasehold are the 2 main forms of legally owning residential or commercial property in the UK. Freehold is the normal form of ownership for homes.

What is leasehold?

A leasehold purchase implies that you own the house/flat/relevant structure, but you need to lease the land it bases on from the freeholder. The freeholder owns the land. This is the regular form of ownership for flats.

How do I understand if a residential or commercial property is freehold?

To find out if a residential or commercial property is leasehold or freehold you can check the Land Registry website. Here, you can browse by postal code and take a look at a copy of the building owner's title. The title is a document that verifies whether the residential or commercial property is freehold or leasehold.

If you already owned the residential or commercial property and were asked to sign a lease agreement throughout the purchase, then your residential or commercial property is leasehold.

Is freehold much better than leasehold?

Freehold purchases are better than leasehold in terms of general simpleness and total ownership. Freehold residential or commercial properties tend to cost more upfront to purchase than leasehold, however leasehold residential or commercial properties often include extra costs and legal problems or restrictions.

Leaseholder costs may include maintenance charges, annual service fee, constructing insurance, and ground lease. Restrictions applying to leasehold residential or commercial properties may consist of things like:

- The leaseholder may have to get approval to do work on the residential or commercial property.
- The freeholder may not permit pets.
- The leaseholder may not be enabled to sublet the residential or commercial property.
Also, the freeholder can pick to sell a residential or commercial property's title while a leaseholder is residing in the building. The new owner could then levy surcharges, such as an increase to any service fee, with little to no notification. Overall, when it concerns freehold vs. leasehold, owning a freehold residential or commercial property is simpler and less restrictive than a leasehold.

Are there benefits to owning a leasehold residential or commercial property?

There can be advantages to owning a leasehold residential or commercial property. These may consist of having access to communal facilities such as a gym or resident lounge within a development. A leasehold residential or commercial property within a development may also supply advantages such as concierge services or covered parking.

If work needs to be done on the residential or commercial property, the freeholder is accountable for arranging it. However, the leaseholder will frequently have to contribute towards the cost of the works.

What are the advantages of buying a freehold?

The main advantage of buying a freehold is that you own the land your residential or commercial property rests on. You do not need to pay any surcharges or ground rent. You also don't have to look for permission to make changes to the residential or commercial property.

Freehold residential or commercial properties are also simpler to offer. The closer a lease is to expiring, the harder it is to offer a leasehold residential or commercial property. Mortgage rates likewise increase if the lease is under 70 years.

You can extend the lease on a residential or commercial property, but at a cost. Depending on the remaining time on the lease, extending can cost tens of countless pounds. However, this is changing - see our upgrade on the Leasehold and Freehold Reform Act at the bottom of this post.

Is it worth buying the freehold of my home?

It can be worth purchasing the freehold of your residential or commercial property if the lease has - such as couple of remaining years, high service charges, etc. However, be advised that purchasing the freehold on a leasehold residential or commercial property is frequently a pricey and time-consuming procedure.

Is a 999 year lease as great as freehold?

Having a 999-year lease is not the like having a freehold, it is just a very long leasehold. It has the very same benefits and downsides as a much shorter lease, with the exception of not needing to stress over the lease running out or needing a renewal.

Having a 999-year leasehold still wouldn't excuse you from paying any needed ground lease and service charges to the existing freeholder, for instance. The long lease time simply removes one of the primary causes for concern regarding this arrangement.

Are freehold houses worth more than leasehold?

Leasehold residential or commercial properties do tend to be less expensive than freehold residential or commercial properties of the very same type, because of the risks attached to leasing. The primary concern being the number of remaining years on the lease. However, this is just a basic pattern, not an absolute rule.

Does a freehold suggest you own the land?

If you own the freehold, you own the residential or commercial property and the land it bases on. The title for the residential or commercial property will note you as the freeholder. You will have complete ownership over that land up until you pick to sell it.

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How long does a freehold last?

The freehold on a residential or commercial property lasts until the owner chooses to offer it. At the point of sale, the freehold then moves to the new owner.

For how long does a leasehold last?

Leaseholds last for a set variety of years. Standard leasehold lengths are 90 or 120 years. However, leaseholds can last as long as 999 years.

As the length of the lease decreases, so does the worth of the residential or commercial property. Short-lease residential or commercial properties can quickly drop in worth. For example, a residential or commercial property with a 60-year lease deserves 10 per cent less than one with a 90-year lease.

What occurs when a leasehold runs out?

When a leasehold expires, the ownership of the land and the residential or commercial property reverts to the freeholder. This implies that the freeholder now owns the residential or commercial property.

It utilized to be the case that if you have resided in a residential or commercial property for more than two years, you can extend the lease by 90 years. Now, thanks to the Leasehold and Freehold Reform Act, this is no longer a requirement. However, you would have to pay for this extension. Extension costs can cost as much as 20 percent of your residential or commercial property's value. Again, the recently signed Reform Act aims to make this more affordable.

Can you turn a leasehold into a freehold?

In specific scenarios, you can turn a leasehold into a freehold. Leaseholders of flats can buy the freehold for their residential or commercial property with particular limitations. These consist of:

- The building requires to contain at least 2 apartments.
- At least 75% of the building is used for residential purposes.
- A minimum of 75% of the flats are owned by leaseholders who own long leases of at least 21 years.
- A minimum of half of the leaseholders desire to buy a share of the freehold.
- If there are just two flats in the building, both leaseholders should want to buy the freehold.
Once a group of leaseholders have acquired the freehold, they can set their own ground rents and service charges. However, they are then accountable for preserving the structure.

Can a freeholder refuse to sell the freehold to leaseholders?

Freeholders can not refuse to offer the freehold to leaseholders of flats on the residential or commercial property, if they fulfill the listed requirements. It is a legal right for leaseholders to have the choice to purchase out the freehold if they satisfy these requirements.

What do leaseholders commonly dispute with freeholders?

Common conflicts made by leaseholders versus freeholders include the cost of yearly service fee. The HomeOwners Alliance says that 26% of all leaseholders in the UK feel that they are being overcharged by their freeholder.

Similarly, 23% of leaseholders complain that they have an absence of control over how and when significant works are done. 18% experience problems when significant works are performed, such as extreme noise or disruption.

Freehold vs. leasehold: which is better?

The question of freehold vs. leasehold is not an uncomplicated one. Buying a freehold residential or commercial property is typically easier and more flexible than a leasehold. However, most flats are leasehold residential or commercial properties.

If you are buying a leasehold, you must examine for how long is left on the lease. The value of a leasehold residential or commercial property is tied to the length of its staying lease. The longer left on the lease, the much better.

It's likewise worth checking just how much the ground rent and service fee are if purchasing a leasehold residential or commercial property. Also, inspect whether you get access to any common facilities or other advantages.

If you truly don't desire to reside in a leasehold residential or commercial property and you get on well with your neighbours, you may want to think about buying the freehold outright. Bear in mind that you'll need at least half the other leaseholders on board to do this. Buying a share of freehold is the most common method to turn a leasehold into freehold residential or commercial property.

Recent changes to leaseholds

There's been a major reform of UK leasehold law on the cards for years. The very first phase of the Leasehold Reforms (and Ground Rent) Bill came into result at the end of June 2022. The main headline modification then was that ground rents were abolished for brand-new residential or commercial properties. This remains great news if you plan to purchase a leasehold residential or commercial property to reside in or lease.

The new law likewise suggests that if you already have a leasehold residential or commercial property, the ground rent can not be increased. Once your existing lease term expires, the brand-new agreement must, by law, charge zero ground rent. Additionally, ground lease can no longer be charged on retirement residential or commercial properties.

Update May 2024: Leasehold and Freehold Reform Act ends up being law

On 24th May 2024, the Leasehold and Freehold Reform Act ended up being law. While a few of the arrangements originally described in the initial expense have been dropped, it has kept a number of changes that will make it much easier and more affordable for leaseholders to live in, lease, or otherwise handle their residential or commercial property. A few of the primary arrangements of the new law consist of:

- Banning new leasehold homes in England and Wales - however not on brand-new flats.
- Making it less expensive and simpler to extend your lease or purchase the freehold for existing leaseholders in both houses and flats.
- Increasing the standard lease extension term to 990 years, up from the present 90 years, with ₤ 0 ground lease.
- Removing the requirement for new leaseholders to have actually owned their home or flat for 2 years before these changes use to them.
- Making purchasing or offering a leasehold residential or commercial property quicker and easier, with a maximum time and cost for the arrangement of info to a leaseholder by the freeholder.
- Requiring transparency over service fee for leaseholders. I.e.: Freeholders or their management companies must prove and transparently how they charge for all aspects of their service charge costs.
- Replacing structures insurance coverage commissions with a transparent administration fee for handling representatives, property owners and freeholders.
- Extending access to "redress" schemes for leaseholders who feel they've been a victim of bad practice.
- Scrapping the presumption that leaseholders should pay the freeholders' legal costs when challenging bad practice.
- Granting freehold property owners on personal and blended tenure estates the very same rights of redress as leaseholders.
- Building on the legislation in the Building Safety Act 2022, that guarantees freeholders and developers are unable to escape their liabilities to fund building remediation work.
- Allowing leaseholders in structures with approximately 50% non-residential floorspace to buy their freehold or take over its management. This is an increase from the current 25% threshold.
These legal rights and protections represent a continued effort to make leasehold residential or commercial properties less expensive and complicated to own. This is excellent news for anyone looking to purchase this type of residential or commercial property now or in the coming years. The HomeOwners Alliance has even more thorough information about the primary subjects of debate for leasehold law modifications, so have a look if you want to find out more.

If you require more advice on legal terms and problems around residential or commercial property purchases, our guides section has everything you require. We have guides on conveyancing, transfer of equity, ground lease and much more. We hope that this freehold vs leasehold guide gives you the best starting understanding to help choose the ideal residential or commercial property for your needs.

HomeViews is the only independent review platform for residential advancements in the UK. Prospective purchasers and renters use it to make an informed choice on where to live based on insights from thoroughly verified resident evaluations. Part of Rightmove since February 2024, we're dealing with developers, home contractors, operators, housing associations and the Government to provide locals a voice, acknowledge high entertainers and to help enhance requirements throughout the market.
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