Leasehold Vs Freehold

Leasehold Vs Freehold:

When it comes to owning a house, there are two major forms of ownership involved – freehold and leasehold. This determines the extent of your ownership of the house you live in.

In other words, freehold and leasehold properties determine whether the property (and land) you live in is your own or if you have a landlord for the same.

If you are planning to purchase a new house with a mortgage, it is important to consider the type of home ownership you want to go for.

This would dictate all the processes you follow while applying for a mortgage. These processes and jargon may seem complicated to you at first but are important to understand to get your job done.

The best way to make the right decisions is to work with a reliable mortgage broker in your area, especially if you are looking for first-time buyer mortgage deals.

If you want to remortgage your existing property, engage with a remortgage broker to get the best deals in the market. Working with a mortgage broker provides you with seamless assistance and makes your work a lot easier.

Now, let us understand the difference between freehold and leasehold properties.

What is a freehold property?

Freehold property is the type of ownership wherein you own the property and the land it is built on forever. There is are no time limits and restrictions on the period for which you hold the ownership of the property.

Unless you are willing to transfer the ownership of the property, the Land Registry would have your name as the “freeholder” of the property.

If the buyer has the required resources for buying the property outright, this is a highly preferred form of home ownership. The biggest reason why home buyers prefer freehold property is that they are not required to pay the ground rent on an annual basis.
Moreover, as a freeholder, you have complete responsibility and control over the maintenance of your property. You need not rely on anyone else living in and taking care of your property.

In other words, if you own a freehold property, you are the ultimate owner of the same till you keep the property.

What is a leasehold property?

As opposed to a freehold property, a leasehold property involves a freeholder providing the ownership of the property to an individual on a lease. Here, the freeholder is also known as the landlord. The landlord gives their property on a lease for a specific number of years. These leases are often given for a longer period of time, ideally ranging from 99 to 125 years.

If you own a leasehold property, you do not own the property and the land it is built on forever. You will have a contract with the freeholder containing the legal rights, duties, and responsibilities of both the parties involved.

Here, the freeholder is generally responsible for looking after the maintenance of the common areas of the house (staircase, hall, etc.), the exterior walls, and the roof. However, if you are willing to manage these areas by yourself, you can ask for the “right to manage” from the freeholder to shoulder the responsibility.

If you are living in a leasehold property, you will need to pay service charges (annually), maintenance fees, the ground rent, and a portion of the building’s insurance to the freeholder. To do any major work within the premises of a leasehold property, you would need to take prior permission for the same from the freeholder.

While you can live freely in a leasehold property, it is important to follow the terms and conditions put by the freeholder. If a leaseholder fails to comply with these terms and defaults payments, the lease can be forfeited, making them lose the property.

Extending the Lease

If current lease on the leasehold property is short and want to extend the same, the Government has given you the right to do so. It also allows existing leaseholders to buy the property they are living in and turn into freeholders.
Here are some important aspects to consider if you want to extend your lease on a flat:

• Typically, leaseholders are allowed to extend their lease on flats for a period of 90 years.
• In such cases, you are no longer required to pay the ground rent for the property.
• Leaseholders are allowed to negotiate new terms with the freeholders.
• You have the right to extend your lease on the property only if you have held the lease for at least 2 years and the property was leased to you on a “long lease”, i.e., for more than 21 years.
• Leaseholders are liable to pay a premium for extending their lease on the concerned property.
• Once you express your will to extend the lease to the freeholder, they have the right to accept, reject, or negotiate the offer. If your offer is rejected on grounds, you are not able to understand, you can challenge the freeholder in a court of law.

Here are some important aspects to consider if you want to extend your lease on a house:

• Here, leaseholders are allowed to extend their lease for a period of 50 years.
• On extending the lease, you can negotiate specific terms with your freeholder, such as payment for maintenance, repairs, etc.
• Similar to extending your lease on a flat, you have the right to extend your lease on the house only if you have held the lease for at least 2 years and the property was leased to you on a “long lease”, i.e., for
  more than 21 years.
• Unlike the extension of your lease on flats, you will not be asked to pay a premium. Instead, you may see a hike in the ground rent to be paid.

These were some of the most basic yet important differences between freehold and leasehold properties. However, before you go ahead with the purchase of your dream property, make sure you are thorough with the nitty-gritty details about the different home ownership types.