Leasehold vs Freehold - What's the difference?

What are the different forms of home ownership?

Legally there are two kinds: freehold and leasehold. While most people wouldn’t let you get inside this, the difference can be between a home that is worth buying and one that isn’t. Many people who don’t sort this out when they buy a home end up regretting it and also end up spending significantly more to sort this out.

What is freehold?

If you own the freehold, it means that you own the building and the land it stands on. Registry is done on your name as a “freeholder” making it an obvious preferred option: you can’t really go wrong with it.

  • You won’t have to pay annual ground rent
  • No one will send maintenance bills for the building – everything from inside to outside walls belong to you and hence maintenance is your responsibility
  • Whole houses are normally sold freehold

What is leasehold?

Leasehold means that you just have a lease from the freeholder (sometimes called the landlord) to use the home for a number of years. The leases are usually long term – often 90 years or 120 years

A leaseholder has a contract with the freeholder, which sets down the legal rights and responsibilities of either side

  • You will be required to pay maintenance fees, annual service charges and your share of the buildings insurance
  • You will also normally pay an annual “ground rent”
  • Any major works and you need to obtain permissions
  • If there’s any clause which isn’t fulfilled you stand a risk of forfeiting the lease

Disputes between leaseholders and freeholders

Fees are a major source of contention, with leaseholders often feeling their freeholder is over charging. Maintenance of the building is another issue that most face with the freeholder. On the other hand, freeholders often complain that leaseholders breach the contract terms etc.

Should I avoid buying a property on a short leasehold?

Leases of less than 90 years can be problematic for leaseholders, and should be approached carefully.

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