Leasehold vs Freehold: What’s the Difference?

Property ownership comes in two variations: leasehold and freehold.

Your rights to the property will depend on the form of ownership you have, meaning that it’s more than just a form of box-ticking during the purchasing process.

It can also affect what you pay, what responsibilities you have and how easy it is to sell up when you want to move. This makes it vital to find out how you’ll own a home early on.

What does leasehold mean?

Buying a leasehold home can be more complicated than buying a freehold. That’s because although you’ll be the homeowner, it will only be for a fixed period – and you won’t own the land it sits on. You will own the lease, rather than the property.

Essentially, you are the freeholder’s tenant – and when the lease runs out, ownership reverts back to the freeholder. But it’s often possible to extend your lease. This is only an option, though, when you’ve lived in the property for two years. The cost of extending the lease will depend on your property.

You may need a conveyancing solicitor to extend your lease.

Flats and apartments are usually leasehold properties. The freeholder will typically be the builder or property developer. You’ll need their permission to make significant changes to your home, such as renovating or extending.

With most leasehold homes, you’ll also have to pay ground rent and potentially maintenance fees. You may also have to pay utility bills for communal areas. It’s vital to find out how much these charges are and how much they might increase by in the years to come. This can have a huge impact on whether you can afford the home or not.

What does freehold mean?

With a freehold home, you own the property and the land it sits on. This means you’re free to do what you want to the house – provided it’s within regulations and you get the necessary planning permission.

There are no extra charges to pay on a freehold home, so working out whether it’s affordable can be easier for prospective buyers.

Freehold homes are almost always houses – but not all houses are freehold. Newbuild homes are often sold on a leasehold basis, so it’s important to check how you will own it before committing to the purchase.

What is commonhold?

Commonhold is a newer and relatively rare form of ownership. It’s an alternative to the leasehold option and allows you to own your property’s freehold – whether it’s a flat or house – while the rest of the building or estate is owned and managed by you and your fellow property owners as part of a commonhold association.

It means there is no limit to how long you’ll own your home for. Any freehold owner in the building or estate is entitled to take part in running the commonhold association.

A commonhold can only be created on freehold land or a freehold building and has to be registered with the Land Registry as commonhold.

The government recently announced it would be setting up a Commonhold Council to prepare homeowners and the wider property market for "the widespread take-up of commonhold".

Leasehold mortgages

If you’re buying a leasehold home, it can make it more difficult to be approved for a mortgage. Some lenders will have certain conditions your home will have to meet to grant you a mortgage.

For example, they may have lower limits on the loan to value for a leasehold home than for a freehold, meaning you’ll have to have a higher deposit.

Many lenders will also require that the lease has a certain number of years on it before they lend to you. Most won’t lend if the lease is less than 80 years, while some stipulate that there has to be a certain period left after the mortgage term comes to an end – usually starting at 25 years.

Can I buy the freehold of a leasehold home?

It is possible to buy the freehold from the holder in certain circumstances. You can ask the freeholder to sell it at any time through a formal or informal route.

With the formal option, you need to follow a specific procedure and adhere to the established legal deadlines. You’re offered more protection if you and the freeholder can’t come to an agreement as you have the option of applying to a tribunal to decide.

You could also approach the freeholder informally and find out if they’d be interested in selling you the freehold. But they don’t have to agree. You might choose to start the process informally and resort to formal methods if things don’t go your way.

Whether you’re buying a house or interesting in buying the freehold for your home, the right legal team is one of the most important factors in a smooth and straightforward process.

To find out how we can help you, get your free conveyancing quote.