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Buying a home

Freehold vs leasehold

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Difference between freehold and leasehold

What is leasehold?

How does a leasehold work?

What does freehold mean?

What is share of freehold?

What's the difference between freehold and leasehold?

When purchasing a property in the UK, there are two types of ownership; leasehold and freehold. There are various differences between freehold and leasehold.

Freehold

You own the property and land outright

If you live in the property yourself, you'll be responsible for its upkeep. If you lease it out however, your freeholder responsibilities may include (but not be limited to);

Maintenance for structural aspects of the building

Upkeep of any communal areas

Managing pest control if necessary

Managing utility supplies (power etc) of any communal areas

Depending on the context, you may need provision for insurance of the building

Collecting any fees agreed with leaseholders (ground rent, service charges)

Leasehold

You own the property for a set period, but not the land it's built on

Your responsibilities as a leaseholder will be outlined in your lease agreement. They may include (but not be limited to);

Your responsibilities for upkeep of the property

Any costs you'll need to pay the freeholder, such as ground rent and service charge

Any specific rules, such as no pets or not being allowed to rent out the property

There may be terms that don’t allow structural changes, such as extensions

You'll be responsible for insuring the contents of your property (if you choose to)

Leaseholds in Scotland

Leaseholds are rare in Scotland and flats are usually sold on a similar basis to commonhold properties in the UK. A flat owner owns their own freehold but the communal areas are looked after by a 'factor' – a company to which flat owners pay a fee.

What is leasehold?

A leasehold property means you own the property but not the land that it’s built on, the land is owned by the freeholder.

There's a legal agreement with the freeholder called a ‘lease’. This states how many years you'll own the property.

If the lease is running low, this can be increased by asking the freeholder, but there will probably be a cost associated with extending it.

Ownership of the property returns to the freeholder when the lease comes to an end.

How does a leasehold work?

With a leasehold property, you’re purchasing the lease of the property from the freeholder. This gives the purchaser the right to live in the property for a set number of years.

When should I renew my lease?

It may be sensible to seek a lease renewal when there’s around 80 years remaining.

A lease can be hundreds of years, so a relatively low remaining term could be an issue if you are selling or remortgaging a property. Mortgage lenders may be less likely to lend on the basis as a remaining lease becomes shorter.

What happens when a leasehold ends?

What if I'm buying a leasehold property?

If you're buying a leasehold, you're effectively purchasing an existing lease agreement, rather than starting a new lease with the freeholder.

If the property has a relatively short lease term remaining, this will likely be reflected in the asking price.

If you're interested in buying a leasehold property, you should always seek a copy of the lease agreement, confirming the remaining lease term. Your conveyancer will help you with this.

What does freehold mean?

Freehold (also known as freehold tenure) means outright ownership of the property and the land indefinitely.

In Scotland, 'heritable title' is similar to a freehold and used when referring to outright ownership of a property.

Share of freehold is a shared ownership of the freehold title. There are two types of share of freehold:

Up to 4 owners can share the freehold in their personal names.

A company is set up and owns the freehold but allows flat owners to own a share in the company. This can also be known as a membership.

What is a flying freehold?

This is where part of the property overhangs or lies beneath another person’s property. Some examples include balconies overhanging neighbours, basements that sit underneath a neighbour’s property or passageways.

Is my house freehold or leasehold?

You can find out if a property or Wales is leasehold or freehold by visiting the Land Registry website. For properties in Scotland, head on over to the Registers of Scotland site at ros.gov.uk.

See the Land Registry site

Shostra Bank mortgages are available to over 18s. Your home may be repossessed if you do not keep up repayments on your mortgage.

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Freehold vs leasehold