If you’re thinking about buying a new home and you hear the terms leasehold, freehold, share of freehold, what’s your next move? Reach for the dictionary, call a lawyer or just assume you know what you’re letting yourself in for?
We’d like to explain the differences in simple terms because the differences are important - not just in legal terms – but in costs and responsibilities.
And, they apply whether your next home is a flat or a house. Yes, we did say ‘house’ because most people assume that houses are sold on a freehold basis. Not necessarily.
Leasehold and freehold - the basic differences
Here’s a simple definition from LEASE, the Government’s Leasehold Advisory Service.
A freeholder owns the freehold of a property which can include a building and other property or land. In a block of flats, for example, the freeholder would own the land and the actual building.
A leaseholder will own a flat within that property on a lease for a fixed length of time, but the freeholder will own the property outright. The freeholder is usually responsible for the repair and maintenance of the exterior and common parts of the building. At the end of the lease, the flat ownership reverts to the freeholder, which is normally the landlord.
The basics of share of freehold
Taking that to the next stage – what’s a share of freehold? If we use the example of the block of flats again, each flat owner holds part of the freehold and any responsibilities that go with it, which we’ll explain later.
An alternative arrangement sees individual flat owners hold shares in the company that owns the freehold. Again, the flat owners will have responsibilities that go with their portion of the freehold.
Related: What Does Under Offer Mean? A Glossary Of Buying And Selling Terms
Your responsibilities and benefits as a freeholder
If you own the freehold to a property, you own the building and the land it stands on for as long as you own the property. You don’t have to worry about a lease running out and you don’t have to deal with a third party about property issues.
However, you are responsible for the care and maintenance of the building and the garden and any costs that go with it. You could of course save money by neglecting maintenance, but that could cost you more in the long term and your mortgage company might not be too impressed.
On the plus side, you are free to make any changes or improvements to the property without asking the permission of a third-party owner, although you may need to get other types of permission for major changes. And, any improvements you make could increase the value of your home when you come to sell it.
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Responsibilities in a leasehold house
Although leasehold is normally associated with flats, leasehold houses are becoming more common, particularly on new developments or in shared ownership schemes.
If you buy a leasehold house, you may own part or all of the building and land, depending on the terms of the lease. That could mean paying a freeholder ground rent or service charges.
You need to check the terms of the lease carefully to find out who is responsible for property maintenance. Also, check what type of changes or improvements you can make.
It may be possible to buy the freehold, depending on the terms of the lease and the attitude of the freeholder. In shared ownership schemes, you literally buy a share of a house and make a rental payment to the owner, normally a housing association. You might also have to pay ground rent or service charges to the housing association.
Shared ownership schemes are designed to help home buyers who cannot afford to purchase a property in the normal way, by offering a mixture of low deposits and affordable prices for a share of the property.
Buyers can increase their share in increments and may eventually own the entire property. However, the rules about selling a shared ownership property are complex and determined by the housing association.
Responsibilities and benefits of a share of freehold property
If you buy a flat on a share of freehold basis, you may find yourself responsible for certain aspects of the maintenance of communal areas. The same applies to other flat owners who have shares.
This could mean that the entire property is maintained to a high standard, provided all shareholders take their part. It encourages communal responsibility, although there is no guarantee of success. You should also find that any third-party maintenance charges should be lower.
One major advantage is that you have the opportunity to extend your lease at low cost, or even no cost, which can result in significant savings.
However, when it comes to selling your flat, it can be complicated to sell your share of the freehold as you require the agreement of all the other shareholders.
Portico can help
We have a wonderful range of properties throughout London. If you would like to find out more about properties we have for sale or for rent and their freehold or leasehold status, or if you’re interested in one of the properties highlighted in this article, please contact us.