This guide was last updated 12 July 2022
A common misconception among first-time buyers is that when you buy a house, you naturally own the land the house is on.
This isn’t necessarily so! There are two types of property: those that are being sold on land leased from a landowner and those that include the land with the purchase, known as leasehold and freehold properties, respectively. Agents tend not to dwell on this factor when trying to get you to fork over your money, so it’s important that you know how the difference will affect you and your rights.
A leasehold means you won’t own the land you’re living on and is usually applicable when purchasing a flat. The property is yours, but only for the duration of the lease. At the end of the lease, the land and the property revert to the freeholder (i.e. the owner of the land). A lease for a property can be any duration – even as long as 999 years – but will commonly start at around 90-120 years. This sounds like it won’t be a problem – after all, it’s not likely you’ll live somewhere for 120 years, is it?
Well, hold your horses there because when there are 80 years remaining on a lease the property value could drop and it’ll be more expensive to extend the lease. Buyers may be less likely to want to purchase a property with a shorter lease as they know they will have to pay to extend it. Some mortgage lenders also start to get funny about lease lengths with some, like Halifax for example, refusing to lend on any property with less than 70 years left on the lease as they worry that the property will be harder to sell should the house be repossessed. In other words, those buying your property will have less choice of mortgage lenders.
There are also fees that you will need to pay, such as ground rent, although it’s not usually very much. The ground rent can only go up if you agree to it, or if it says so in the lease agreement, so check the small print! You also have the right to challenge certain charges under particular circumstances. You won’t need to worry much about the landlord ending your lease, though: it is very rare a landlord will be able to do so. You, on the other hand, have the right to end a leasehold with one month’s notice.
The freeholder is responsible for maintenance and repairs for common areas of the building, like stairways and entrances (although this only really applies to flats). You have the responsibility to maintain the property itself but must ask permission if you wish to make any alterations. You can also extend the lease or even buy it from the land owner, although it can be tricky to get them to agree to this. If the landlord does intend to sell the freehold, then they must ask you first as you have Right of First Refusal.
So if you’re buying a property – especially one in a block of flats – make sure you ask the seller/agent how long is left on the lease and think about how you’re going to resell when you move out.
Freehold means you own the property plus the land it is built on. It’s typical for a house to go on sale this way, although not absolute, so be sure to check with whoever you buy from! Once you own the property and land, then it’s yours in perpetuity (or at least until you sell or it is inherited from you after your death).
The immediate advantage of a freehold property is that barring any building regulations, you can do pretty much what you want to it. Build a pool, add an extension, make a doggy door the size of your entire property, add a 30-foot statue of yourself to your roof: it’s all good. In theory, that is. Just try to get all that approved by the council. Of course, having full ownership comes with its own drawbacks since you are therefore completely responsible for maintenance and repairs. However, considering the lack of charges and the freedom from a landlord, many consider this a small price to pay. The large price to pay is, of course, the price of the land, but in some scenarios, this can work out as a cheaper investment in the long run. Moreover, owning the lease yourself means you don’t have to worry about having a limit to how long you can occupy the property.
So make sure you’re prepared and understand the consequences of what the seller is offering. You don’t want to find a bargain, rush into it and then find out there are only a couple of years left on the lease! If you’d like to discuss leaseholds, freeholds or other options such as sharing a freehold, we’d be happy to discuss it with you.
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