Buying a Leasehold or Freehold Home – What You Need to Know

If you’re planning to buy a house or a flat it will be either a leasehold tenure or freehold tenure. This might seem a small detail compared to finding the home of your dreams but there are important differences between the two types of tenure that you need to understand.

Freehold Properties

Freehold is the simplest form of property tenure. As a freeholder you own the building and the land it sits on outright until you sell it. Subject to normal legal constraints such as planning permission, you can do what you like to your home unless there are specific covenants in the deeds or it’s a listed property.  A service charge may be payable if the property forms part of a new estate with common open space, but rent should not be an issue. 

Leasehold Properties

With a leasehold property somebody else owns the freehold as landord, which means they still own the land the property sits on, but you have the right to be there for the term of the lease as a tenant. This gives a landlord certain rights, such as the ability to levy ground rent and service charges. If you fail to pay these charges or don’t stick to other conditions in the lease the freeholder may have the right to repossess your home.

Here are some other factors to pay attention to with leasehold properties:

  • The lease term is typically 99 to 125 years but can be up to 999 years. At the end of the lease period the property reverts to the freeholder. 
  • Normally you are legally entitled to extend the lease, but if you leave it too near to the end of the term you could incur a cost to reflect the additional value of having a longer lease. There will be fees to pay for extending your lease (such as legal and survey costs), but any ground rent will be reduced to a ‘peppercorn rent’ on extension following recent changes to the law.
  • Service charges to maintain the building and any grounds are often paid to management companies who will arrange contractors to carry out maintenance and repair works to communal areas or structural parts of the building (in the case of flats). These should be a fair reflection of the actual costs involved and the management company should provide an annual breakdown of how service charges have been spent. There is a legal mechanism to ensure a fair process when issuing service charge demands. 
  • If you want to make significant alterations or renovations to a leasehold property you may need the freeholder’s permission.
  • Ground rents on existing leases need to be looked at carefully as lease agreements sometimes allow these to escalate significantly in future years, making properties less and less mortgageable.

If you have any questions about property ownership and want to make certain your home purchase proceeds smoothlycall PowellsLaw on 01934 623 501 or email helpforyou@powellslaw.com.

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