When purchasing a property it is important to understand the difference between Leasehold and Freehold ownership the details of which can become very complicated. Each comes with its own responsibilities and costs which can affect how the property is maintained, purchased and sold.
If you purchase a property as a freehold it means that you have outright ownership of the property and land on which it is built on.
As a freehold owner you are solely responsible for the up keep of the property and the land it stands on this means you are also responsible for paying any cost involved in maintaining it.
Benefits of being the freeholder
- You don’t have to maintain a lease or worry about lease extensions
- You do not have to pay ground rent
- You are not reliant on another person (a freeholder) to maintain the building or failing to do so
- You are not charged by another person (a freeholder) for them to maintain the building
- You do not need permission from another person (a freeholder) to make changes to the property’s exterior (bare in mind you are still subject to planning permission)
Leasehold is when you own the property but not the land that it is built on. The leaseholder will ‘Lease’ the land the property stands on for a fixed period of time and you will pay ground rent on an annual basis to the freeholder of the land. (Flats are most commonly held in this way.)
The Length of a Lease can vary from anywhere between 99 years to 999 years. When purchasing a leasehold property you will take over the lease from the previous owner so it is important to find out how many years are remaining on the Lease.
Most mortgage lenders will require a lease to run for at least 25 years, however some may wish to see up to 50 years more than your agreed mortgage. For example, if you have agreed 30 years for your mortgage and your mortgage provider requires 50 additional years, you will need the remaining years of the leasehold to be 80 years. You can ask the land lord (the freeholder of the land) for a lease extension at any time. Lease extensions can become quite complicated and the advice of a professional is highly recommended.
It is also important to note that as a leaseholder you do not own the land the property is built on and in the case of flats you do not own the building. The freeholder is responsible for maintaining the exterior of the building, the land the building is on and any communal areas. As an owner of a leasehold property you are responsible for any repairs or maintenance to your own property.
Things you should take into consideration when purchasing a leasehold property are;
- How many years are left on the lease
- How the length of the remaining lease could affect any possible mortgage
- Whether the lease will need to be extended
- Cost of maintenance and running costs of the building and communal areas (also known as Service charges)
- Ground rent and any ground rent escalation clause in the lease
- Administration charges
- Buildings insurance