Freehold and Leasehold – What’s the difference?

1st April, 2019

When it comes to buying a home it is not always clear exactly what type of holding is being sold. Tags such as “chain free” and “quick sale” raise our hopes of a quick move. In this article, we will highlight the main differences between freehold and leasehold properties, an important aspect to consider when buying a home.

When buying a freehold property you will own the property in its entirety for an unlimited amount of time and you will be responsible for its maintenance and upkeep. However, there are many variables that you will need to take into consideration:

Your property may have the benefit of rights over your neighbour’s property (for example rights of way or rights to use drains or cables etc) but equally, your neighbours may have the benefit of rights over your property.
The property could also be affected by restrictive covenants (obligations not to do something) that bind the property forever, such as a covenant not to park commercial vehicles on the property or not to conduct trade or business from the property.

A leasehold property could be subject to similar rights and covenants but a key distinction is that a lease runs for a term of years; it is important to find out exactly how many years you have left on your lease as this could affect your ability to obtain a mortgage. A further distinction between a leasehold property and a freehold property is the existence of the lease itself. A buyer of a leasehold property becomes the tenant under that lease, and the lease itself will contain many covenants on the part of the tenant which need to be complied with.

Generally speaking, houses are more commonly freehold but a leasehold house might exist, for example on an estate where the estate owner grants long leases (99, 125 or 999 years) of his estate properties. Flats/apartments are almost always leasehold. Each tenant will usually be required to pay the landlord ground rent and a service charge. In return, the landlord will be responsible for maintenance of the communal areas of the whole building, external walls and the roof.

In some instances, a landlord who does not wish to be involved in the general everyday management of his properties may decide to involve a management company or managing agents to deal with the collection of ground rent and service charge and to deal with the maintenance and upkeep of the common parts of the building or estate. They would be the home owner’s point of contact in the building or on the estate if anything needs to be maintained or for general upkeep of the communal services.

Furthermore, it is important to understand that where a management company is involved, they are very much part of the process of the sale or purchase of your leasehold home.

When buying a leasehold property, the conveyancing transaction can take longer. There are various factors to take into consideration when planning your moving time scales:

The initial step is for the seller’s solicitors to obtain a “Leasehold Management Pack” from the freeholders directly or from the management company who look after the estate or the apartment building.
This will be sent to the buyer’s solicitors to review with the property’s title (deeds). The buyer’s solicitor will then review the title and the management pack and report to the buyer on:

o whether or not the buyer will need to become a shareholder of the management company;

o the process of transferring the existing tenant’s share certificate to the buyer;

o what the service charge is (usually 3 years statements of accounts should be obtained in order to establish whether there are any deficit or arrears in the service charge);

o what the ground rent is (if any); and

o what the management company’s fees are to collate the pack, transfer the property into the buyer’s name and comply with any restrictions on the property title (which are designed to ensure that every new buyer is bound by the same rules).

Buying your home could take time and it is imperative you set aside enough time to allow your conveyancer to deal with any complexities that may arise.

If you require further information in respect of a leasehold or freehold property transaction, please contact a member of our team.

Useful link: https://www.lease-advice.org/. For information on the services Howes Percival offers navigate to our Residential Conveyancing Law page.

The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.

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