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Freehold and Leasehold Properties

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Written by
Zara Khaliq

What is a Freehold Property

When purchasing a freehold property, you become the sole owner of the land and the property that stands on that land. In this circumstance you will be the ‘freeholder’ and you will not be required to pay any ground rent, service charge or maintenance fees (unless there is an open space for which the management company is appointed to deal with the maintenance and repairs of the open space) however, the responsibility for the maintenance of the building on that land will remain with you.

What is a Leasehold Property

When purchasing a leasehold property, you purchase the right to live there for a set number of years but you do not own the land the property stands on. In this arrangement you are known as the ‘leaseholder’ In England, Northern Ireland and Wales typically the properties that are sold with a leasehold are flats, apartments or shared ownership properties.

The land is owned by the landlord also known as the ‘freeholder’ and once the lease runs out the ownership of the entire property diverts back to them. Typically, leaseholders must ask permission to make any alterations to their property from the freeholder and also have to pay rent every year called the ‘ground rent’ and will often have to pay an annual fee to a managing agent.

Pros and Cons of a Leasehold Property

Pros

  • Typically, leasehold properties are lower in value than freehold properties which means you require a lower amount of deposit.
  • Leasehold properties are cheaper to rent than freehold properties which means they are easier to rent and more affordable to the tenant.
  • Purchasing leasehold properties with low leases is a great way of adding value by renewing the lease without carrying out any refurbishment works.
  • Leasehold properties are usually located next to city centres, transportation hubs and malls which is convenient.
  • The long lease gives security as freehold but will also set out the rights and responsibilities of the residents, such as funding the maintenance of the building and placing restrictions on antisocial behaviour.

Cons

  • You should keep in mind the length of your lease because as soon as it comes down to the 85-year period it can be an expensive process to renew the lease.
  • In addition to this, when dealing with a lease extension the leaseholder is expected to pay for their and the landlords legal fees, surveyor fees and the premium the landlord wants for the extension (all of these costs are usually paid by the leaseholder).
  • You should consider the ground rent and service charges, these are set by the management company and could increase on a yearly basis. If you are renting the property, this can decrease your margins.

Please get in touch with Miah Law at info@miahlaw.co.uk or call 0113 350 3007 if you have any questions – we are happy to help.