If you're buying 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, however what do they in fact imply? This easy guide lays out whatever you need to understand about freehold vs. leasehold and how each one affects how you own your residential or commercial property.

Leasehold vs. freehold FAQs

What is freehold?

Buying a residential or commercial property freehold simply indicates that you own the building as well as the land it bases on. Freehold and leasehold are the 2 main kinds of lawfully owning residential or commercial property in the UK. Freehold is the typical type of ownership for homes.

What is leasehold?

A leasehold purchase suggests that you own the house/flat/relevant structure, but you need to rent the land it stands on from the freeholder. The freeholder owns the land. This is the normal form of ownership for flats.

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

To find out if a residential or commercial property is leasehold or freehold you can inspect the Land Registry website. Here, you can search by postcode and look at a copy of the building owner's title. The title is a file that verifies whether the residential or commercial property is freehold or leasehold.

If you currently owned the residential or commercial property and were asked to sign a lease arrangement 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 overall simplicity and total ownership. Freehold residential or commercial properties tend to cost more upfront to buy than leasehold, however leasehold residential or commercial properties typically come with extra costs and legal problems or constraints.

Leaseholder expenses might include maintenance charges, yearly service charges, building insurance coverage, and ground lease. Restrictions applying to leasehold residential or commercial properties might include things like:

- The leaseholder may need to get approval to do work on the residential or commercial property.
- The freeholder might not allow family pets.
- The leaseholder might not be allowed to sublet the residential or commercial property.
Also, the freeholder can choose to offer a residential or commercial property's title while a leaseholder is residing in the building. The brand-new owner might then impose service charges, such as an increase to any service fee, with little to no notice. Overall, when it concerns freehold vs. leasehold, owning a freehold residential or commercial property is easier and less restrictive than a leasehold.

Exist advantages to owning a leasehold residential or commercial property?

There can be advantages to owning a leasehold residential or commercial property. These might include having access to communal facilities such as a health club or resident lounge within an advancement. 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 responsible for arranging it. However, the leaseholder will often need to contribute towards the expense of the works.

What are the benefits of purchasing a freehold?

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

Freehold residential or commercial properties are also easier to sell. 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 an expense. Depending upon the staying time on the lease, extending can cost tens of thousands of pounds. However, this is altering - see our upgrade on the Leasehold and Freehold Reform Act at the bottom of this short article.

Is it worth purchasing the freehold of my home?

It can be worth purchasing the freehold of your residential or commercial property if the lease has unfavourable terms - such as few remaining years, high service charges, etc. However, be advised that buying the freehold on a leasehold residential or commercial property is often an expensive and time-consuming process.

Is a 999 year lease as good as freehold?

Having a 999-year lease is not the same as having a freehold, it is just a long . It has the exact same advantages and disadvantages as a shorter lease, with the exception of not needing to fret about the lease running out or requiring a renewal.

Having a 999-year leasehold still would not excuse you from paying any needed ground lease and service fee to the existing freeholder, for example. The long lease time just removes among 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 same type, because of the risks attached to leasing. The primary concern being the number of staying years on the lease. However, this is simply a basic trend, not an absolute rule.

Does a freehold mean 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 until you pick to offer it.

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The length of time does a freehold last?

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

For how long does a leasehold last?

Leaseholds last for a set number 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 value of the residential or commercial property. Short-lease residential or commercial properties can rapidly drop in value. For instance, a residential or commercial property with a 60-year lease deserves 10 percent 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 goes back to the freeholder. This suggests that the freeholder now owns the residential or commercial property.

It used to be the case that if you have actually resided in a residential or commercial property for more than 2 years, you deserve to extend the lease by 90 years. Now, thanks to the Leasehold and Freehold Reform Act, this is no longer a requirement. However, you would need to spend for this extension. Extension charges can cost approximately 20 per cent of your residential or commercial property's worth. Again, the just recently signed Reform Act intends to make this cheaper.

Can you turn a leasehold into a freehold?

In certain situations, you can turn a leasehold into a freehold. Leaseholders of flats can buy the freehold for their residential or commercial property with certain constraints. These include:

- The structure needs to consist of at least two homes.
- At least 75% of the building is used for property functions.
- 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 wish to purchase a share of the freehold.
- If there are just two flats in the building, both leaseholders should wish to purchase the freehold.
Once a group of leaseholders have bought the freehold, they can set their own ground rents and service fee. However, they are then accountable for keeping the building.

Can a freeholder refuse to offer the freehold to leaseholders?

Freeholders can not decline to sell 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 alternative to purchase out the freehold if they satisfy these criteria.

What do leaseholders commonly challenge with freeholders?

Common disagreements made by leaseholders against freeholders involve the expense of annual 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 major works are done. 18% experience problems when major works are performed, such as excessive noise or interruption.

Freehold vs. leasehold: which is much better?

The question of freehold vs. leasehold is not a straightforward one. Buying a freehold residential or commercial property is typically simpler and more versatile than a leasehold. However, most flats are leasehold residential or commercial properties.

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

It's also worth inspecting how much the ground lease and service charges are if buying a leasehold residential or commercial property. Also, inspect whether you get access to any communal facilities or other advantages.

If you really do not wish to reside in a leasehold residential or commercial property and you get on well with your neighbours, you might wish to consider purchasing the freehold outright. Keep in mind that you'll need a minimum of 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 modifications to leaseholds

There's been a significant reform of UK leasehold law on the cards for several years. The very first phase of the Leasehold Reforms (and Ground Rent) Bill came into effect at the end of June 2022. The primary headline modification then was that ground rents were eliminated for brand-new residential or commercial properties. This stays good news if you mean to buy a leasehold residential or commercial property to reside in or lease out.

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

Update May 2024: Leasehold and Freehold Reform Act becomes law

On 24th May 2024, the Leasehold and Freehold Reform Act ended up being law. While some of the provisions originally outlined in the initial costs have actually been dropped, it has actually kept a variety of changes that will make it simpler and more affordable for leaseholders to live in, rent, or otherwise manage their residential or commercial property. A few of the main provisions 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 easier to extend your lease or buy the freehold for existing leaseholders in both homes and flats.
- Increasing the basic lease extension term to 990 years, up from the present 90 years, with ₤ 0 ground lease.
- Removing the requirement for brand-new leaseholders to have actually owned their home or flat for two years before these modifications apply to them.
- Making buying or offering a leasehold residential or commercial property quicker and much easier, with a maximum time and charge for the provision of details to a leaseholder by the freeholder.
- Requiring transparency over service fee for leaseholders. I.e.: Freeholders or their management business need to reveal plainly and transparently how they charge for all components of their service charge fees.
- Replacing buildings insurance commissions with a transparent administration fee for handling agents, property owners and freeholders.
- Extending access to "redress" schemes for leaseholders who feel they have actually been a victim of poor practice.
- Scrapping the presumption that leaseholders ought to pay the freeholders' legal costs when challenging poor practice.
- Granting freehold property owners on private and mixed period estates the exact same rights of redress as leaseholders.
- Building on the legislation in the Building Safety Act 2022, that makes sure freeholders and designers are not able to escape their liabilities to money structure removal work.
- Allowing leaseholders in buildings with as much as 50% non-residential floorspace to purchase their freehold or take over its management. This is a boost from the current 25% threshold.
These legal rights and defenses represent an ongoing effort to make leasehold residential or commercial properties less expensive and complex to own. This is excellent news for anybody looking to buy this kind of residential or commercial property now or in the coming years. The HomeOwners Alliance has further in-depth details about the main subjects of argument for leasehold law modifications, so have a look if you wish to discover more.
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If you require more advice on legal terms and issues around residential or commercial property purchases, our guides area has whatever you need. We have guides on conveyancing, transfer of equity, ground rent and much more. We hope that this freehold vs leasehold guide gives you the best beginning understanding to help select the right residential or commercial property for your requirements.

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