The primary distinction between freehold and leasehold lies in the ownership rights and the duration of those rights.
Both freehold and leasehold homes have pros and cons. Freehold refers to outright ownership of a property and the land it sits on. Meanwhile, leasehold is a temporary ownership arrangement where the property is leased for a specific period.
Here are the main differences you should understand before deciding between freehold and leasehold ownership.
What is freehold property ownership?
Freehold property ownership refers to the ownership of real estate or land without any time limits or restrictions.
When you own a freehold property, you have complete and indefinite ownership rights over that property. This means you can use, sell, or transfer the property as you see fit without seeking permission from a third party.
In a freehold ownership, the owner holds the property’s title deed, which serves as legal proof of their ownership.
Unlike leasehold properties, where ownership is temporary and subject to a lease agreement, freehold ownership is perpetual and not subject to any ground rent or lease payments.
Freehold properties can include residential homes, commercial buildings, or vacant land. The owner has the freedom to make alterations, renovations, or develop the property according to their needs and local regulations. Additionally, freehold ownership typically comes with the rights to the land beneath the property and any associated airspace.
It’s important to note that while freehold ownership provides extensive rights, it is still subject to local laws, zoning regulations, and any applicable covenants or restrictions that may be in place. Owners are responsible for maintaining the property, paying property taxes, and adhering to any relevant rules and regulations.
Overall, freehold property ownership offers a higher level of control, security, and potential for long-term investment compared to leasehold or other forms of property ownership.
What is leasehold property ownership?
Leasehold property ownership refers to a type of real estate tenure where the owner holds the rights to use and occupy a property for a fixed period of time, as specified in a lease agreement.
Unlike freehold ownership, where the owner has indefinite and absolute ownership rights, leasehold ownership has a predetermined expiration date.
In a leasehold arrangement, the leaseholder (the person or entity holding the lease) does not own the land on which the property is built. Instead, they lease the property from the freeholder (the landowner) for a set number of years, typically ranging from 99 to 999 years.
During the lease term, the leaseholder has the exclusive right to use and occupy the property, subject to the conditions outlined in the lease agreement.
Leasehold ownership is common for flats, apartments, and some houses, particularly in areas where land is scarce or expensive. The leaseholder is responsible for paying ground rent to the freeholder, which is typically a small annual fee.
As the lease nears its expiration date, the property’s value may decrease, making it more challenging to sell or remortgage. When the lease expires, the ownership of the property reverts back to the freeholder, unless the leaseholder chooses to extend the lease or purchase the freehold, which can often be an expensive process.
It’s essential for leasehold property owners to be aware of the remaining lease term and plan accordingly to ensure they can continue living in the property or realise its full value upon sale.
Key differences between freehold and leasehold
Freehold ownership:
Allows the owner complete control over the property
Offers permanent and absolute ownership of the property and land
Enables the owner to make alterations without seeking permission
Passes down ownership to heirs or can be sold to new buyers
Means no ground rent or service charges are payable to a third party
Provides potential for capital appreciation as the property value increases
Leasehold ownership:
Means the property is leased from a freeholder (landowner) for a fixed term
Is initially more affordable than freehold properties
Often requires shared maintenance costs for common areas in multi-unit properties
Often requires ground rent and service charges
Provides potential for capital appreciation during the lease term
Allows the option to extend the lease, subject to costs
Gives the leaseholder the right to occupy the property during the lease period but does not own the land
Requires the leaseholder to seek permission for alterations or extensions
Conclusion
It’s essential to understand the implications of each ownership type before making a property investment decision.
Both freehold and leasehold ownership have their advantages and disadvantages, and the choice depends on individual preferences, budget, and long-term goals.