When considering buying a property, it’s vital to find out whether it is being sold as a freehold, with a share of the freehold, or as a leasehold. Here, we take you through these different forms of home ownership and the implications they may have on your overall investment in the short- and the long-term.
If you own the freehold, you own the building and the land it stands on outright. You hold what is called the ‘title absolute’.
The benefits of investing in a freehold property are attractive to most investors: first of all, you will not have to pay any annual ground rent, and secondly, you will not need to pay any extra (and often inflated) fees to the freeholder for looking after the building.
The downside? You will be responsible for maintaining the property, and covering the costs where necessary.
Whole houses are usually sold freehold.
Share of freehold explained
If a property is sold with a share of the freehold, this means that it shares the same plot of land as other homes. For example, this arrangement would apply if a large house has been converted into smaller flats or apartments.
Sharing the freehold in this way means that the responsibility for looking after the property is split amongst all of the people that live there; the group of freeholders will usually task one of the owners with looking after the building’s maintenance, although in many cases all parties will decide to hire an external managing agent instead.
A leaseholder has the right to use the property for a set period of time. Once this term runs out, ownership will return back to the freeholder. Traditionally, a lease would last for 90 or 125 years, although in the case of many newer developments, this has been extended to 999 years.
Throughout the term, the leaseholder will have a contract with the freeholder, which will outline the legal rights and responsibilities of each party. As the lease nears completion, the value of the property will typically decline. There is a cost involved in extending the lease (and therefore retaining rights over the property). If the lease has naturally been reduced to less than 80 years, this could prove to be problematic when it comes to selling on the property, or even securing a mortgage against it.
Leaseholders face a number of other difficulties in that they will normally need to pay maintenance fees, service charges, ground rent, and a certain percentage of the buildings insurance. They will also need to obtain permission for any major redevelopment works carried out on the property.
Flats and apartments are normally sold with a leasehold.