Buying a house: leasehold vs freehold Buying a leasehold property

As a leaseholder, you own the property, but not the land it stands on. The land remains owned by the landlord, also known as the 'freeholder'. Ownership of the property will also revert back to them once the lease runs out.  

Video guide: what are leasehold and freehold?

Watch our video guide to understand more about how leasehold and freehold work and the key differences between them.

 

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Video transcript

So you bought your dream home. As the owner, you can do whatever you want with it, right? Unfortunately, it's a little bit more complicated than that. Whether you own the freehold or just the leasehold, affects your rights over it. If you own the freehold, you own the property, and the land it stands on until you sell it or someone else inherits it when you die.

This means that subject to planning rules, you can do whatever you like with it. The downside to that is you are responsible for all the repairs and maintenance on it too. Whole houses are usually sold freehold where as flats are often leasehold. Leasehold is a bit more fiddly. If you own a leasehold property, that means you have a lease to live there for a certain number of years but someone else owns the freehold.

You will have to pay a number of different charges to the freeholder, this will normally include a ground rent although this won't usually to be very much. The freeholder is also responsible for repairs and maintenance of common areas of the building such as entrance halls of stairwells, so you will also pay a service charge to cover these costs.

These costs can be expensive, so make sure you find out what they will be before buying. If you're buying a leasehold property, the length of the lease is really important. Leases can be as long as 999 years but more commonly they are start at 90 or 120 years. Once a lease has less than 80 years remaining it can start to cause problems.

As the lease get shorter the value of the property will drop and people are less likely to want to buy it. This also means you may struggle to get a mortgage as lenders will worry about getting their money back if they ever need to reposes the property. Leases can be extended but it's down to the freeholder to agree this.

If you are looking to buy a property with a short lease ask the current owners to see if they can arrange for it to be ended before you buy. It is also possible to buy the freehold to the property, but if you are thinking of doing this you'll need to speak to a solicitor as the procedure is quite complicated.

For more information check out the freehold and leasehold guide on which.co.uk.

Flats are most commonly owned on a leasehold basis, while houses are normally sold as freehold properties Leaseholders have to get permission from the freeholder to make alterations to the property and will often have to pay an annual fee to a managing agent. This is different from owning a freehold property, where buyers are the sole owners of the building and the land it stands on.  

Buying a leasehold property can be tricky, so we recommend seeking independent mortgage advice before taking out a mortgage. 

Which? offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at thousands of mortgages and gives you impartial jargon-free advice. You can call the service on 0808 252 7987.

How long should be left on a property lease?

A lease is a legal document which determines how many years the property's owner can live in the building. When buying a leasehold property, the longer the lease has remaining, the better.

Most leasehold properties are sold with leases which still have decades left to run. However, once a lease has less than 80 years remaining, it becomes more expensive to renew it and harder for potential buyers to be granted a mortgage.

To avoid having to shell out thousands on a renewal, buyers should look for a property with a lease that's unlikely to drop below the 80-year mark while they live there. 

Find out more: How to find a property - a property expert shares her tips in this video guide

Leasehold infographic

Extending a lease    

If you want to buy a leasehold property but it doesn't have long left on the lease, consider asking the vendor to extend the lease before the deal is completed. This could save you thousands of pounds.

If you're a leaseholder yourself and have been living in the property for more than two years, you may have the right to extend your lease using a Section 42 notice. Once the notice has been successfully lodged, you have the right to an extension of 90 years to the current term if you're in a flat. 

You can also negotiate informally with the freeholder to extend the lease, with recourse to the Leasehold Valuation Tribunal (LVT) in the case of a disagreement. The Association of Leasehold Enfranchisement Practitioners has members who are specialists in helping owners of flats extend their leases.

The Leasehold Advisory Service has an online calculator which will help you work out how much extending your lease is likely to cost.

Leasehold property management

Most freeholders will appoint managing agents to look after communal areas of leasehold properties. These agents will charge leaseholders an annual fee to cover ground rents, maintenance service charges and buildings insurance premiums.

Leaseholders can opt to arrange these services themselves under a scheme called 'Right to Manage' (RTM), providing more than half of the building's tenants agree to participate. However, it's generally recommended for professional managing agents to be left in charge of leasehold properties housing more than six people. 

Leasehold disputes

The key weapon for leaseholders who find themselves in a dispute with their managing agent or landlord over service charges is the Leasehold Valuation Tribunal. If you feel your service charges are unreasonable, your buildings insurance is overpriced or the quality of services provided is poor, the LVT can arbitrate if you can’t reach an agreement through negotiation.

Leaseholders can also go to the LVT if they want an extension to their lease or want to buy the freehold but aren’t able to come to an agreement with the existing freeholder on a price.

First-time buyers video: Lydia and Amanda's story

First-time buyers Lydia and Amanda speak about the problems which can arise when trying to buy a property with a short lease and the delays it ended up causing in the search for their first home. 

 

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