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If you are about to become a homeowner, you’ll need to know the difference between these two forms of ownership. So, what is the difference between leasehold and freehold, and why does it matter?

While you are househunting, you might come across the terms leasehold and freehold. All too often people dismiss this as legal jargon which doesn’t concern them, however, if you find out you are buying a leasehold property, you must clarify the terms of your lease. So what is the difference between leasehold and freehold?

What is freehold?

Freehold is the preferred option when buying a property. Freehold means you own the building and the land it sits on. You will hold the title and deeds, and the land registry will list you as the legal ‘freeholder’ of the property. There is no other party involved, and you are solely responsible for the building and its grounds.

So what is leasehold?

A leasehold is where you obtain a lease to use the property for a set number of years. There are different types of leasehold, but in residential properties, the freeholder usually owns the land the house sits on. These leases are typically long term and can range from anywhere between 90-120 years or even as high as 999 years.

If you hold the leasehold, you will have a contract which sets out each sides legal responsibilities. In the case of residential leasehold, you will have to pay ground rent and maybe some maintenance fees for the surrounding communal grounds.

Several problems can arise as a result of buying a leasehold property. The most common issue is when the lease term is running short; anything less than 85 years can become problematic. The reason for this is that it can start to affect the value of the property. Once a lease expires, the ownership of the property goes back to the freeholder. If you consider that a leasehold with zero years left is worthless, then the closer the lease gets to expiry, the more it loses value. Leases won’t start to lose value until the term drops below a critical level, but the reduction in value will accelerate as the term comes closer to expiration, and the cost to renew will increase.

This is all very important for someone who is purchasing a property. You should always ensure there is a reasonable time left on the lease to avoid the unexpected cost of renewing it or trying to buy the freehold.

You should always consult a solicitor about tenure. Your conveyancing solicitor will advise on how to proceed if you are buying a leasehold property.

Disclaimer

The material contained in this article is intended for information purposes only and not as advice. We take no responsibility for the result of any actions you take as a result of reading this information.

You should always obtain the relevant professional advice prior to making investment decisions.

 

 

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