LEGAL
The difference between leasehold and freehold
The Leasehold and Freehold Reform Act has now become law. Coralie Phelan, Partner and Head of Resales and Staircasing at Prince Evans Solicitors LLP, explores the difference between leasehold and freehold
WHAT IS THE DIFFERENCE BETWEEN LEASEHOLD AND FREEHOLD?
9 Leasehold – often a flat or apartment, you own the property as set out in the lease but not the land itself 9 Freehold – usually a house.You own the land and the property 9 A shared ownership house would be held on a leasehold basis with the option to purchase 100%. Generally, with a flat you will own everything internally from the floor coverings to the ceiling but not the structural parts such as roof or foundations which will be owned by the freehold. This has the advantage that you will not be responsible for the cost of all the maintenance as with freehold but you will responsible for your proportionate part. WHAT DOES LEASEHOLD MEAN? Leasehold means you own the property as set out in the lease for a set period of time, being the term of the lease.You should bear in mind that the value of the property will decrease in line with the decreasing lease term. Once the lease term ends the flat will be transferred back into the ownership of the freeholder. You should always ask what the remaining lease term is before making an offer on a property, as if it is close to 80 years you might want to consider asking the seller to extend the lease at the same time as the sale. WHAT ELSE IS DIFFERENT ABOUT LEASEHOLD? 9 You own the parts that form part of the demise 9 You will not own communal areas such as the stairways, hallways, paths or the structure of the building such as the roof or foundations 9 You will usually pay a ground rent
(unless a new lease granted pursuant to legislation which came into force on 30 June 2022) 9 The lease will contain covenants which will restrict your use and enjoyment 9 You pay ground rent and service charges to the freeholder 9 You may not be allowed pets 9 You might not be able to run a business from home. WHAT ARE THE FINANCIAL DISADVANTAGES TO LEASEHOLD? 9 Service charges will vary from year to year and may increase 9 Unexpected major works may increase service charges 9 You may not be able to sublet, particularly if the lease is a shared ownership lease 9 Conveyancing fees are higher for leasehold purchases 9 Rent may rise 9 As you don’t own the land you won’t benefit from increases in land value and could end up paying higher rent.
rather than a freehold house 9 Costs of maintenance of the structure and communal areas are shared 9 The freeholder is responsible for organising repairs and maintenance of the structure and communal areas 9 The freeholder will arrange the buildings insurance 9 You are free to make home improvements subject to receiving the landlord’s consent 9 You can take advantage of shared ownership schemes 9 The new Leasehold and Freehold Reform Act makes it easier and cheaper to extend a lease 9 The new act also provides more consumer rights for homeowners. The new Leasehold and Freehold Reform Act provides greater protections for leaseholders. As a result leasehold is a very attractive option for first time buyers. There are definitely benefits to purchasing leasehold rather than freehold. It is important to obtain specialist advice. If you are interested in a quotation for leasehold or shared ownership conveyancing, the resale and staircasing team at Prince Evans are on hand to provide a friendly no- obligation quotation at 020 8567 3477 or email coralie.phelan@prince-evans.co.uk
ADVANTAGES OF LEASEHOLD
9 It costs less to purchase a leasehold flat
98 First Time Buyer December 2024/January 2025
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