When you buy a property, it will generally be either on a freehold or leasehold basis. It’s important to learn the differences, so you know exactly what kind of ownership you’ll have when you buy your home. We’ll help you understand what freehold and leasehold really mean in this guide.
Freehold and leasehold are essentially types of property ownership. The kind you choose will determine whether you pay ground rent, what kind of changes you can make to the property and for how long you’ll own it.
What does freehold mean?
A freehold is the permanent and absolute tenure of land or property. Basically, if you buy a freehold property, it means you own that property and the land on which it stands outright, in perpetuity. It’s completely yours unless you decide to sell it.
Every property will have a freehold, you just might not own it. If you don’t own your freehold, then you’ll have a landlord who does – they’re called the freeholder. The freeholder can be an individual or a company, like a housing association.
As a rule of thumb, houses are typically available as freehold properties while most flats are available as leasehold. However, leasehold houses and freehold flats do exist - we talk about these more below.
It’s worth noting that there are slightly different rules and processes for buying the freehold on flats from houses. See Buying the Freehold on Your House and Buying the Freehold on Your Flat below for more information.
What does leasehold mean?
A leasehold is the holding of a property by lease. Leasehold ownership is different from renting as you do, technically, own your property, but you only own it for the length of your lease agreement with your freeholder. Unlike a freehold, you don’t own the land on which your property stands. Instead, someone else will own the freehold – the actual land and the building itself - and you pay for the right to live in the property for a selected period, i.e. until the lease ends.
Your lease agreement will determine what you do and don’t own, and what you can and can’t do to the property, e.g. put up a satellite TV dish or move an internal wall. The ownership of the property returns to the landlord when your lease ends.
The majority of flats you can buy are leasehold, but there are some leasehold houses as well.
Within local regulations you can do what you like to a freehold property. If you want to change things about a leasehold, you need to get the freeholder’s permission within the terms of the lease.
What are the differences between freehold and leasehold?
When considering the freehold vs leasehold dilemma, it’s a good idea to look at the benefits and drawbacks of each.
Benefits of Freehold
- You don’t have to worry about your lease running out – you own the property
- You can redecorate/renovate/improve your property as you see fit, without necessarily asking permission
- You don’t have to deal with a landlord/freeholder
Drawbacks of Freehold
- It’s your responsibility to maintain the property, its exterior, its facilities and any garden area
Benefits of Leasehold
- You usually have less responsibility when it comes to repairs to the property itself – it’s up to the landlord
- They’re ideal for people requiring short-term accommodation
- There’s normally the opportunity to buy the property outright – you have the right to buy the freehold on a house if you meet certain qualifying criteria, or you can buy a share of the freehold on flats via collective enfranchisement
Drawbacks of Leasehold
- You’ll have to approach the landlord for a renewal when your lease expires, which isn’t guaranteed
- You have to pay ground rent
- You might have to pay significant service charges – e.g. for the cleaning of communal areas, upkeep of any garden, general maintenance and building insurance and more
What to know when buying a leasehold property
Before you decide whether it’s worth buying a leasehold property, there are few things you should understand.
- A leasehold is like a long-term rental, but it’s still technically a type of ownership
- When you buy a leasehold, you only own the property for an agreed-upon period
- It’s likely that you’ll have to pay ground rent and maybe a service charge, among other fees like insurance and maintenance
- You’ll probably be able to extend your lease, but this can be expensive
- You may have to obtain permission from the freeholder to make certain changes to the property
- You have some responsibility when it comes to maintaining the interior of your property – but the freeholder will likely be responsible for the majority of repairs
Finding Out Who Owns the Freehold
As a leaseholder, you have the right to know the freeholder’s name and address. You can use the land and property register to find out who owns the freehold on your property.
How Does a Leasehold Work?
Recently, developers have been selling leasehold houses. They’re not as common as freehold houses, but they do exist. So, what exactly does it mean when you buy a leasehold house? Do you only own some of the rooms? What about the garden? How much freedom do you have with redecorating? What bills will you pay?
These are all common – and necessary – questions you should know the answers to before you decide whether you should buy a leasehold house.
Leasehold ownership of a house usually includes the interior and exterior of the property. This is different from a flat in which you usually only own the interior. Leasehold ownership of a house often includes some of the land, e.g. a garden or driveway, but not necessarily the whole property.
This usually means you can make some changes to the property, but it’s always best to check the terms of your lease or speak with the freeholder – otherwise you could face penalties if you violate the lease. Lenders will sometimes decline these properties depending on the ongoing costs of the lease, like the service charge and the ground rent.
A lot of leasehold houses are available through shared ownership schemes. These work slightly differently. You purchase a share – or percentage - of the property and pay rent on the remainder that’s still owned by a landlord. You don’t pay any rent to a third party on a normal leasehold property like you would on a shared ownership one. However, you usually have to pay annual ground rent as well as an annual service charge.
Buying the Freehold on Your House
You have the legal right to apply to buy the freehold on your house so long as you meet certain criteria. You can approach your landlord at any time to buy the freehold outright, but this doesn’t mean they have to sell.
If you’re the leaseholder of a shared ownership home, you reserve the right to purchase additional shares until you own 100%. Sometimes this coincides with buying the freehold on your house, but the ins and outs will depend on the actual lease.
Someone will almost always own the leasehold on a flat. Even if you rent a flat, you’re renting it off someone.
Leasehold ownership of a flat relates primarily to the interior of the flat itself, the walls, the ceiling, the floorboards, etc. It doesn’t usually relate to the structure of the property, the exterior or anything outside of the flat. Any communal areas and the land on which the flat stands are owned and maintained by the freeholder. The leaseholder pays a communal service charge for the upkeep.
As the leaseholder, you have some rights to the property. You don’t have any rights if you’re simply renting. You can usually paint the walls and change the carpets in a leasehold, etc. but it’s always best to check the terms of your lease first.
Buying the Freehold on Your Flat
Buying the freehold is obviously a little more complicated for flats than houses, as your flat will likely be built on the same land and be part of the same building as the other flats in the building complex. Consequently, you can’t be the sole freehold owner unless the freeholder sells the whole complex to just you. If you own a leasehold flat and want to purchase the freehold, you would usually only purchase a share of the freehold in which you’d jointly own the freehold along with the building’s other tenants. This is known as shared freeholders. It’s also sometimes called collective enfranchisement.