Leasehold and freehold are two main ways of owning property in the UK. Understanding these can help you make better choices and feel more empowered in your home life.
What’s the Difference?
Freehold
In freehold, you own the building and the land it’s on. This means it’s yours forever. You won’t have to pay yearly ground rent. It’s your job to look after the building, like fixing the roof and outside walls.
People often prefer freeholding because it gives them more control and less worry about extra costs or rules from someone else.
Leasehold
Leasehold is different. You own the property but not the land it’s on, and only for a certain time. This time is set in your lease agreement with the land’s owner, called the freeholder. Lease agreements can be long, like 90 or 120 years, or even up to 999 years.
But, they can also be short, like 40 years. In a leasehold, you must follow the rules set by the freeholder.
This can include paying ground rent each year, maintenance fees, and a part of the building’s insurance.
You might need permission for big changes to your place and might have rules like no pets or not being able to rent out the property.
Does Leasehold Limit You?
Yes, not everyone can rent their leasehold property. Here are a few ways leaseholds can limit you:
- Financial Commitments: Leaseholding can cost you more. You have to pay yearly ground rent, maintenance fees, and a part of the building’s insurance. These costs can add up. Sometimes, freeholders might charge too much for these things.
- Property Value: If your leasehold is short, your property’s worth goes down. For example, a place with a 60-year lease is worth less than the same place with a 99-year lease.
- Selling and Mortgage Problems: Selling a leasehold property with a short lease can be hard. It’s also tough to get a mortgage for these properties.
- Control Over Your Property: In a leasehold, you often need the freeholder’s permission for big changes. You might not have much say in how the building is looked after.
Can You Extend a Lease or Buy the Freehold?
Yes, but it can be costly. You can extend a flat’s lease by 90 years, but you’ll have to pay a premium. Buying the freehold also involves the following factors:
Extending Your Lease
If you have a leasehold, you can ask to make your lease longer. You can usually add 90 years to your lease. But you need to pay for this. You can also change some terms, like who pays for work on the flat. You should have had the lease for at least 2 years to do this.
Buying the Freehold
You can also try to buy the freehold of your property. This makes you the full owner. It can be a bit complex and costs money, but it gives you more control. Each case is different, so it’s good to get advice if you’re thinking about this.
Recent Reforms for Leaseholders
Leasehold Reforms
The UK government has made big changes to help leaseholders. These changes aim to give leaseholders more rights and make things fairer. They include making it easier and cheaper to buy the freehold or extend the lease. Lease extensions can now go up to 990 years.
The changes also make service charges clearer and let leaseholders manage their buildings if they want. These reforms mean leaseholders can challenge unfair charges more easily and have more say in their homes.
Freehold Reforms
For freehold, the main changes are about making things fairer and clearer. These reforms ensure that freehold homeowners have the same rights as leaseholders, especially in mixed-use buildings. This means better information about charges and more rights to challenge them.
Conclusively
Leasehold does limit your freedom in some ways, like extra costs and less control over your property. With a leasehold, you face yearly fees, a decrease in property value if the lease is short, challenges in selling or getting a mortgage, and needing permission for big changes. However, you can extend your lease or buy the freehold, giving you more control, but at a cost.
Recent UK government reforms are helping both leaseholders and freeholders by making things fairer and clearer, giving more rights to leaseholders, and ensuring better transparency for all. Understanding these differences helps you make better choices for your home and life.
