Freehold, leasehold, commonhold – what’s the difference?
When buying or selling a home, a key piece of information you need to know is how the property is legally owned, as this can influence your control and costs over the home.
There are two main ways properties are owned in England and Wales.
Freehold and Leasehold
Freehold is the easiest to explain. When you buy and own a freehold property, you own the building and the land it sits on.
With leasehold, it’s different and although some houses are leasehold, it tends to apply mainly to flats. When you own a leasehold flat, you own the ‘inside’ of the property and everything else is owned by a freeholder (also referred to as the “landlord”) for a set period of time, such as 99 to 999 years. This includes things like the communal areas and even the windows in the property.
There are six main reasons why you need to understand the type of tenure you own, when you are buying or selling:
- With a freehold property you have control over what you do and when to a property. With a leasehold, your freeholder (or their managing agent) will decide when to do maintenance, to what quality and determine the price which you are likely to pay.
- As a freeholder, you are 100% responsible for the full cost of maintenance and repairs, whereas leaseholders pay a proportion of the cost and usually don’t have to worry about organising the works.
- Leasehold properties have additional annual charges including ground rent and service charges, the latter though typically includes buildings insurance. These can vary from a few pounds to hundreds or thousands of pounds a year.
- Buying or selling a leasehold property can take longer due to the additional leasehold contract and it is likely you will also need to pay an extra £100 or more in legal fees.
- If you buy a leasehold property, you need to check the lease length as the value of the property can fall if it’s 80 years or less and it may be more difficult to sell.
- Leasehold properties – if a flat – can be more energy efficient, typically an EPC rating of C although this isn’t a guarantee.
When comparing freehold to leasehold, it can appear that freehold can be a better purchase or easier to rent as the landlord has control over fixing problems – which they won’t always be in a flat. However, the property’s price often reflects the difference, so you may pay less for a leasehold property which can make it a worthwhile purchase.
Changes for leaseholders
There is more good news on the horizon for leaseholders too as things are about to get much fairer in England and Wales thanks to changes the Government are making and planning. These include:
- On 30th June 2022, for new lease agreements (retirement properties post April 2023), future ground rents will be set to zero.
- Some leasehold properties such as those sold under Shared Ownership and Help to Buy will have a 999 year lease, meaning you don’t have to worry about the lease running out.
Future proposals and plans are to:
- Cap the cost of a leasehold pack at a few hundred pounds and ensure it’s delivered to buyers within 15 days
- Make it easier to calculate the cost of extending the lease or buying the freehold
- Reduce the cost of extending a lease by getting rid of ‘marriage valuations’
- Make it easier for leaseholders of flats and houses to extend their lease agreements, including zero ground rent and a term of 990 years.
Commonhold is a third type of tenure that is currently being reformed by the Government.
Commonhold offers a different type of ownership for new and existing flat owners. It enables them to purchase the freehold of the property and rather than own a property for a fixed period of time, commonhold owners own the property with no time limit.
Those that own via commonhold effectively manage and own the building as a “collective”. They can do this themselves or appoint their own managing agent. This type of ownership allows those that own the properties to be responsible for the costs and management of the building.
If you’re looking to buy or sell a property, get in touch with your local branch for a free valuation.
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