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, but what do they actually mean? This easy guide outlines whatever you need to know about freehold vs. leasehold and how each one impacts 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 structure along with the land it stands on. Freehold and leasehold are the 2 primary kinds of lawfully owning residential or commercial property in the UK. Freehold is the typical kind of ownership for houses.

What is leasehold?

A leasehold purchase means that you own the house/flat/relevant building, however you have to lease the land it bases 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 discover if a residential or commercial property is leasehold or freehold you can check the Land Registry website. Here, you can search by postcode and take a look at a copy of the structure owner's title. The title is a document that confirms 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 during the purchase, then your residential or commercial property is leasehold.

Is freehold better than leasehold?

Freehold purchases are better than leasehold in regards to total simplicity and complete . Freehold residential or commercial properties tend to cost more in advance to acquire than leasehold, but leasehold residential or commercial properties often include extra expenses and legal problems or constraints.

Leaseholder costs might consist of upkeep fees, yearly service fee, developing insurance coverage, and ground rent. Restrictions applying to leasehold residential or commercial properties may include things like:

- The leaseholder might have to get authorization to do deal with the residential or commercial property.
- The freeholder may not allow animals.
- The leaseholder may not be allowed to sublet the residential or commercial property.
Also, the freeholder can choose to sell a residential or commercial property's title while a leaseholder is residing in the building. The new owner could then levy service charges, such as a boost to any service charge, with little to no notification. Overall, when it concerns freehold vs. leasehold, owning a freehold residential or commercial property is easier and less restrictive than a leasehold.

Exist benefits to owning a leasehold residential or commercial property?

There can be benefits to owning a leasehold residential or commercial property. These may consist of having access to communal centers such as a fitness center or resident lounge within a development. A leasehold residential or commercial property within a development might also offer advantages such as concierge services or covered parking.

If work needs to be done on the residential or commercial property, the freeholder is accountable for arranging it. However, the leaseholder will frequently need to contribute towards the cost of the works.

What are the advantages of buying a freehold?

The primary advantage of buying a freehold is that you own the land your residential or commercial property sits on. You don't have to pay any added fees or ground rent. You likewise don't need to look for authorization to make changes to the residential or commercial property.

Freehold residential or commercial properties are also simpler to offer. The closer a lease is to ending, the more difficult it is to offer a leasehold residential or commercial property. Mortgage rates also 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 remaining time on the lease, extending can cost 10s of countless pounds. However, this is altering - see our upgrade on the Leasehold and Freehold Reform Act at the bottom of this 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 damaging terms - such as few staying years, high service charges, etc. However, be encouraged that purchasing the freehold on a leasehold residential or commercial property is typically a costly and lengthy procedure.

Is a 999 year lease as excellent as freehold?

Having a 999-year lease is not the same as having a freehold, it is just a long leasehold. It has the very same benefits and downsides as a shorter lease, with the exception of not having to stress over the lease going out or needing a renewal.

Having a 999-year leasehold still would not exempt you from paying any required ground rent and service fee to the present freeholder, for example. The long lease time just eliminates one of the main causes for issue regarding this arrangement.

Are freehold homes worth more than leasehold?

Leasehold residential or commercial properties do tend to be more affordable than freehold residential or commercial properties of the exact same type, since of the dangers connected to leasing. The main concern being the variety of remaining years on the lease. However, this is simply a basic pattern, not an outright rule.

Does a freehold imply 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 list you as the freeholder. You will have complete ownership over that land up until you choose to offer it.

Buying.
Flying freeholds: All your questions answered

Buying.
What does Share of Freehold mean?

Buying.
What is a service charge? Why do I pay it?

For how long does a freehold last?

The freehold on a residential or commercial property lasts till the owner chooses to offer it. At the point of sale, the freehold then transfers to the new owner.
nove.team
How long does a leasehold last?

Leaseholds last for a set variety 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 worth of the residential or commercial property. Short-lease residential or commercial properties can rapidly drop in value. For example, a residential or commercial property with a 60-year lease deserves 10 per cent less than one with a 90-year lease.

What happens when a leasehold runs out?

When a leasehold expires, the ownership of the land and the residential or commercial property reverts 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 lived in a residential or commercial property for more than 2 years, you have the right 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 pay for this extension. Extension fees can cost as much as 20 percent of your residential or commercial property's worth. Again, the recently signed Reform Act intends to make this cheaper.

Can you turn a leasehold into a freehold?

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

- The structure needs to consist of at least 2 houses.
- A minimum of 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 a minimum of 21 years.
- A minimum of half of the leaseholders wish to buy a share of the freehold.
- If there are just two flats in the building, both leaseholders should wish to buy the freehold.
Once a group of leaseholders have acquired the freehold, they can set their own ground leas and service charges. However, they are then accountable for keeping the building.

Can a freeholder refuse to offer the freehold to leaseholders?

Freeholders can not refuse to sell the freehold to leaseholders of flats on the residential or commercial property, if they meet 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 typically dispute with freeholders?

Common disagreements made by leaseholders versus freeholders include the cost of yearly service charges. The HomeOwners Alliance states 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 a lack of control over how and when significant works are done. 18% experience problems when significant works are carried out, such as extreme noise or disturbance.

Freehold vs. leasehold: which is much better?

The concern of freehold vs. leasehold is not an uncomplicated one. Buying a freehold residential or commercial property is normally easier and more versatile than a leasehold. However, most flats are leasehold residential or commercial properties.

If you are purchasing a leasehold, you should examine the length of time is left on the lease. The value of a leasehold residential or commercial property is connected to the length of its staying lease. The longer left on the lease, the better.

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

If you really don't want to reside in a leasehold residential or commercial property and you get on well with your neighbours, you may want to consider buying the freehold outright. Keep in mind that you'll require a minimum of half the other leaseholders on board to do this. Buying a share of freehold is the most typical way to turn a leasehold into freehold residential or commercial property.

Recent changes to leaseholds

There's been a major reform of UK leasehold law on the cards for years. The very first phase of the Leasehold Reforms (and Ground Rent) Bill entered into impact at the end of June 2022. The main headline change then was that ground rents were abolished for brand-new residential or commercial properties. This stays excellent news if you mean to purchase a leasehold residential or commercial property to reside in or lease.

The brand-new law also implies that if you already have a leasehold residential or commercial property, the ground lease can not be increased. Once your existing lease term expires, the new agreement must, by law, charge absolutely no ground lease. 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 a few of the arrangements originally laid out in the initial costs have actually been dropped, it has actually kept a number of modifications that will make it much easier and less expensive for leaseholders to live in, lease, or otherwise manage their residential or commercial property. Some of the main provisions of the brand-new law consist of:

- Banning brand-new leasehold houses in England and Wales - but not on brand-new flats.
- Making it less expensive and much easier to extend your lease or buy the freehold for existing leaseholders in both homes and flats.
- Increasing the standard lease extension term to 990 years, up from the current 90 years, with ₤ 0 ground lease.
- Removing the requirement for new leaseholders to have owned their home or flat for 2 years before these modifications apply to them.
- Making purchasing or offering a leasehold residential or commercial property quicker and much easier, with a maximum time and charge for the arrangement of details to a leaseholder by the freeholder.
- Requiring transparency over service charges for leaseholders. I.e.: Freeholders or their management companies should prove and transparently how they charge for all elements of their service charge fees.
- Replacing buildings insurance commissions with a transparent administration charge for handling agents, landlords and freeholders.
- Extending access to "redress" schemes for leaseholders who feel they have actually been a victim of bad practice.
- Scrapping the anticipation that leaseholders need to pay the freeholders' legal expenses when challenging bad practice.
- Granting freehold homeowners on personal and blended tenure estates the same rights of redress as leaseholders.
- Building on the legislation in the Building Safety Act 2022, that guarantees freeholders and designers are not able to leave their liabilities to money building removal work.
- Allowing leaseholders in buildings with approximately 50% non-residential floorspace to buy their freehold or take control of its management. This is a boost from the existing 25% threshold.
These legal rights and securities represent a continued effort to make leasehold residential or commercial properties less expensive and complicated to own. This is great news for anyone seeking to purchase this kind of residential or commercial property now or in the coming years. The HomeOwners Alliance has even more in-depth information about the primary topics of dispute for leasehold law changes, so take a look if you wish to discover more.

If you require more recommendations on legal terms and concerns around residential or commercial property purchases, our guides area has everything you require. We have guides on conveyancing, transfer of equity, ground rent and much more. We hope that this freehold vs leasehold guide gives you the ideal starting knowledge to assist select the best residential or commercial property for your needs.

HomeViews is the only independent evaluation platform for property advancements in the UK. Prospective purchasers and renters use it to make an informed choice on where to live based upon insights from carefully confirmed resident evaluations. Part of Rightmove considering that February 2024, we're working with designers, house contractors, operators, housing associations and the Government to provide citizens a voice, acknowledge high entertainers and to help improve standards across the market.