When investing in property, it’s important to know the difference between freehold and leasehold tenures. Below we’ll define both and briefly talk about the different types of leaseholds.
A freehold tenure is where the owner of a property owns it outright without any limitations. Most houses are freehold. With freehold properties, the maintenance of the home comes down to the owner, making it another area to budget for when you’re looking to purchase a freehold property.
A leasehold tenure involves owning a property subject to the leasehold terms for the length of the lease agreement. When the lease finishes, ownership will return to the freeholder. You can ask the freeholder to extend the lease, but it will cost money to do this. If the lease has less than 70 or 80 years, it could be difficult to get a mortgage or sell the property.
Most flats, in addition to maisonettes, are leasehold, meaning you’ll own the property within a building. However, you’ll have no stake in the actual building. Some new build houses have previously been sold as leasehold, where the owner owns the property but not the land, but the government has recently banned this.
For leasehold properties, the property owner won’t be responsible for maintaining the building, but you’ll likely have to pay a service charge and possibly even ground rent, administration charges, and building insurance.
Leasehold with a share of the freehold
Another type of leasehold involves having a share of the freehold. The freehold could be split between a number of owners (up to four) within a property. Or a company could be the owner of the freehold and each tenant holds a share or membership in that company.
It’s crucial to know if a property investment opportunity is a freehold or leasehold. If you’re looking to purchase a leasehold property, find out what the added charges amount to and what services are included before buying the property, in addition to how long is left on the lease. This can help you make a more informed property investment decision.
Service charges can be a significant cost. Therefore, it’s really important to take that cost into consideration when appraising a property investment deal. Our online Deal Calculator differentiates between leasehold and freehold properties, as it’s an important difference to consider. When assessing an opportunity on our platform, make sure to select the right option for the deal you’re calculating.