Freehold Vs. Leasehold
A Simple Explanation of The Differences
Understanding The Differences
The conditions under which residential property is brought or sold in the UK is known as tenure and this typically falls into two categories: freehold and leasehold. Depending on whether you purchase a property under a freehold or leasehold agreement determines your rights to the property. In this article we outline the basic differences between the two forms.
If you buy a freehold property, you own the property and the land it stands on. In this arrangement, you’re known as a ‘freeholder’. This means Freeholders are able to make any alterations they wish to the property – as long as they adhere to planning regulations and listed buildings regulations.
In prime central London only a minority of properties are listed for sale on a freehold basis, as most of the freeholder rights are owned by one of the three major landlords: The Grosvenor Estate (covering Belgravia and Mayfair), The Crown Estate (covering Westminster and St. James) and The Cadogan Estate (covering Chelsea and Knightsbridge).
All of that said, occasionally freehold properties in prime central London do come to market.
When you buy a freehold property, you own the dwelling but not the land it stands on. In this arrangement, you’re known as a ‘leaseholder’. Each lease lasts for a specified length of time which gives the purchaser the right to occupy the property for the length of the lease.
As part of a leaseholder’s contractual rights, they would normally expect the freeholder – commonly known as the landlord – to manage, maintain and repair the building’s structure and common areas including; staircases, hallways and lifts and exterior grounds. However these obligations of the freeholder will vary on a case by case basis as normally outlined in the terms of the agreement.
Leases are typically created from their outset to last for 125 years or sometimes 99 years. A leaseholder can sell what time remains on their lease to others, but when the lease expires those rights revert back to the freeholder. Therefore the value of a lease tends to fall significantly once the number of remaining years on the lease falls below a threshold, that varies according to local market conditions and the nature of your property. For your average leaseholder in England this might be 80 years, but in the prime property market this rule does not always apply. Prime buyers often have multiple homes and have different motivations for purchasing a lease. For example if a property has 15 years remaining on the lease, and the leaseholder is given first rights to negotiating a lease extension at the end of the period, then some buyers may see this effectively as a discounted price whereby they can pay ‘half now, half later’ for the property. In fact these shorter leases are quite common in London’s prime residential market, given the type of buyers that exist.