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What is the difference between a freehold and a leasehold property?

The process of buying a property can feel overwhelming at times, and the new jargon buyers are introduced to when they first talk to an auctioneer or estate agent doesn’t always help. From words you may have heard before like Stamp Duty Land Tax (SDLT) and sealed bidding, to contract-specific terms like unconditional and conditional which are likely to be brand new, there’s a lot to get to grips with before you buy. Two of the most important terms you should familiarise yourself with are freehold and leasehold.

Used to describe the conditions on which you own a property, leasehold and freehold specifically relate to whether or not you have full ownership of the building and the land it stands on, or partial ownership, where the property is owned but the land is rented. Which type of ownership is available on the property you purchase can have considerable legal implications, so it’s very important to learn the difference between leasehold and freehold before bidding or making an offer. 

To help make sure your property purchase goes as smoothly as possible, our experts at SDL Property Auctions are here to introduce you to what leasehold and freehold properties are, their differences, and which ownership option is better for you. We’ll also cover how to check whether a property is available as leasehold or freehold, so you can do your research on any lot that catches your eye.

What is a freehold property?

The more common type of property ownership agreement, purchasing freehold means that you have complete, full ownership of the property. This includes both the building itself, and the land it stands on, so you don’t need to worry about any conflicting interests or issues from landlords. 

What is a leasehold property?

Purchasing a property that is leasehold means that, while you own the building, another party (called the freeholder or landlord) owns the land on which it stands. Because of this, when you purchase the property, you’re also purchasing a lease which grants you the exclusive right to occupy the land for the duration of the lease period. The length of the lease will change from lot to lot, and the remaining duration is not reset upon sale of the property, so the time left on the lease is passed onto the new owner. A leasehold is more common with flats and apartments.

What are the disadvantages of leasehold?

Ground rent: Not entirely dissimilar from renting a property from a landlord, becoming a leasehold homeowner means that you will be ‘renting’ the land from the freeholder. As such, leasehold properties require an annual ground rent to be paid to the landowner, on top of your own mortgage repayments (if the purchase is made through finance). 

Service charges: A typical feature of a leasehold property, particularly for apartments or properties with shared-access facilities, is a service charge. These fees are often set to affordable levels and go towards the upkeep of any gardens and building maintenance, which can be a relief for owners to have off their to-do list, but in cases where these charges are unfairly expensive, it can be a concerning additional spend to have to account for.

Lease length: The duration of time left on the lease when you purchase the property is very important. The first issue arises during the buying process, as purchasing a property with a short lease can prove challenging if you’re not a cash-buyer, as many mortgage lenders will refuse to lend on lots with a lease shorter than 80 years. If you purchase without this posing any problem, you may then be faced with issues later down the line when remortgaging or selling the property. This is because, with the naturally shorter lease duration, lenders may again be hesitant to remortgage, while buyers could be put off for fear of issues securing their own mortgage. You could also see the value of your property decrease with a shorter lease. 

To learn more about the issues to be aware of, read our blog on understanding the problems of owning a short-term lease property. However, it’s also important to know that times are changing, and the struggles faced by leasehold owners are being addressed by updated laws. We cover the key changes being brought about in our full article on the latest news about the Leasehold Reform Bill.

Is it better to own freehold or leasehold?

Though individual circumstances definitely come into play, because of the potential difficulties that can arise when owning a leasehold property, buying freehold property is usually better than leasehold. This is particularly true when the property in question has a shorter lease of under 80 years, as re-selling and re-mortgaging becomes increasingly difficult. 

It’s because of the challenges that leasehold properties are notorious for that the Government has begun to step in. Already, leasehold properties are all but extinct in Scotland, where various acts of Scottish parliament have effectively banned new leasehold properties. In the most recent act introduced, the Long Leases Act of 2012, long leases of over 175 years were automatically converted into outright ownership, significantly reducing the number of leasehold lots in the country. Changes are being made in England and Wales too, with the new Leasehold Reform Bill making significant changes to help ensure leasehold owners are treated more fairly and make it an easier and more attractive way of owning property.

How can I check if a property is freehold or leasehold?

In most cases, whether a property for sale is available as leasehold or freehold should be included in the property listing details. If this has been omitted for any reason, you can check yourself by searching for the property details in the Land Registry database, or by instructing your solicitor to find out from the seller’s solicitor.

At SDL Property Auctions, all of the properties we have available in our Upcoming Auctions are sold with a complete legal pack, which includes information on whether or not the property is available as leasehold or freehold, so you always know where you stand. Properties will sometimes be listed without the legal pack so that they can be viewed by buyers while the sellers solicitors compile all the relevant documents and information, but rest assured you’ll have the chance to review the full legal pack, as this is usually added to the listing a week prior to the auction.

Find freehold and leasehold properties for sale at SDL Property Auctions

Whether you’re looking for a freehold property for long-term security, or want to make the most of the investment opportunities created by short-term leasehold properties being sold for under their market value, browse the full range of listings available at SDL Property Auctions in our Property Finder.