/ freehold vs leasehold

Freehold vs Leasehold

Freehold vs Leasehold

What is the difference between a Freehold and a leasehold?

There are several means of home ownership, these include freehold, leasehold or leasehold with a share of the freehold.

What is freehold?

A freehold is where you own the property outright and are completely responsible for its maintenance. If your property is mortgaged, you ofcourse don't own it outright as the mortgage lender still has an interest in it.

Advantages of having a freehold property:

  • You own the whole property
  • You have no lease holder cost such as ground rent or maintenance
  • You don't have to deal with a freeholder (a landlord) because you are the freeholder!
  • You don't have to pay ground rent, service charges or other landlord charges.

Buying a share of a leasehold

You can own a share of the leasehold if at least half of the leaseholders agree to buy in.

This will mean you can extend your lease with much ease and control costs.

To do this you will need to serve a section 23 notice to your landlord.

Be mindful as this might be quite an expensive process and you might need legal advice.

In most cases you will need to set up a company or have a managing agent to manage the building.

For more specific information about buying a share of the freehold see The Leasehold Advisory Service website.

If the majority of leaseholders in the building get together, you can collectively exercise your ‘right to manage’ – i.e. to appoint new managing agents.

Or you can collectively try to buy the property from the landlord. This is known as ‘collective enfranchisement’.

Each flat then owns a ‘share of freehold’. You manage the maintenance and insurance of the building yourselves, and there is no need to ever again renew the lease

What is leasehold?

With a leasehold you essentially own the property for a fixed amount of time and when this ends the ownership is then transferred back to the freeholder except you can extend the lease.

Before you buy a leasehold property you should consider how many months are left on the lease and how this might affect you getting a mortgage. You should also consider any costs such as service charge.

Mortgage lenders will prefer to lend on a property where there is another 25 years after your mortgage term will finish.

Mortgage lenders will usually stay away from leasehold properties that have less than 70 years left to run.

Benefits of a leasehold property

There is less responsibility with this tenure type because the freeholder has to maintain the common parts of the building which can include the entrance area, staircases, lifts, exterior walls, roofs and gardens.

You can extend the lease by up to 90 years after you have resided in the property for 2 years and are a qualifying tenant. To be a qualifying tenant your original lease would have had to be for 21 years or more.

If any issues arise during this process you can take your case to the leasehold valuation tribunal.

Disadvantages of a leasehold property

There are costs such as maintenance fees, ground rent and other charges which you must consider.

  • You can lose the lease (the property) if you do not pay these charges.
  • The leasehold property ofcourse diminishes in value as th term of the lease decreases.
  • You must seek the freeholders permission before making any changes to the property.You will also not be allowed to sublet and may be guided b a set of rules throughout your tie at the property.

What is the difference between a Freehold and a Leasehold?

With a freehold you own the whole property and the ground beneath it whilst with a leasehold the ownership reverts back to the freeholder after your lease term expires.

Final thoughts:

You can extend the lease or buy the property from the freeholder. This is not cheap option and you may require legal advice.

What is a Flying freehold

Flying freeholds are a bit more complicated.

For example, if part of your home extends, because of the way the properties were divided, over land owned by your neighbour, this could result in a flying freehold. Take legal advice from a conveyancing solicitor on how this might affect you.

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