Buying a house – leasehold or freehold?

There’s a lot to keep track of when buying a house, including understanding whether you own or rent the land you are buying sits on. In England and Wales, this will either be a freehold or a leasehold.

Things got a little more complicated when the government proposed to ban leasehold titles altogether because of a “ground rent scandal”. This might seem complex, but hopefully, we can help by explaining the key differences between the two, so you can make an informed decision before you buy.

Why are they different, and does it matter?

How you own a property and what obligations or restrictions are placed on you can significantly impact you.

Houses sold as freehold give the purchaser control over the property. Owners can make changes to the property without seeking permission from a ‘superior freeholder’. Purchasers own the property and the land it sits on for an unlimited time.

Under a leasehold arrangement, purchasers own the property. But the land upon which the property sits is leased from the freeholder for a set period. You will need permission from the freeholder to make changes to the property.

Additionally, under a leasehold agreement, you must legally pay an annual ground rent’ and ‘service charge’. The ground rent can increase over time; what might start as a small rent can increase drastically! The service charge is also an annual cost which can be prohibitive and is a constant drain on finances.

Can you extend or change a lease?

Whilst it’s common for a lease to last hundreds of years (typically 999 years), it can be shorter.

You are entitled to ask the landlord to extend your lease at any time. In England and Wales, under the Leasehold Reform Act 1967, you may be entitled to an extension of 50 years on a house or 90 years on a flat. Remember, you need to qualify, and you will have to pay. Sometimes fees can be significant.

If you are considering purchasing a leasehold property, checking how long is left on the lease before proceeding is essential. Some estate agents can gloss over this when selling a property. The cost of extending a lease can run into the thousands and affect your chances of getting a mortgage or selling the property.

Is it possible to buy the freehold from the landlord?

You can ask the landlord, provided specific criteria are met, but this can be expensive, lengthy and combative.

The rules are different for houses and flats in that you may have the right to buy the freehold outright for a house, but you’ll need to buy a share of the freehold if the property is a flat.

Right of first refusal

Importantly, landlords who want to sell the freehold of a building containing flats usually have to offer the leaseholders the first chance to buy it. The right of first refusal is governed by the Landlord and Tenant Act 1987 (the 1987 Act) as amended by the Housing Act 1996. This fact sheet provides a helpful summary.

Pressure for leasehold reform

Buying and selling property on a leasehold basis has been common practice for many years. And, until relatively recently, few issues have arisen for those purchasing leasehold properties.

However, there’s been justifiable outrage at the behaviour of some unscrupulous developers. Seemingly seizing an opportunity to make money, some national new-build builders have knowingly sold properties on a long lease agreement, adding clauses that double the ground rent every ten years. Notably, Taylor Wimpey put aside £130m to sort the issues arising from adopting this approach. Reassuringly, parliament has responded positively to widespread pressure for reform.

Anything else?

As the owner of a freehold property, you will be entirely responsible for maintenance and improvements yourself. This includes the walls (internal and external), the roof and all the land the property sits on.

With leasehold properties, it could be that the leaseholder has responsibility for some maintenance and upkeep, depending on the agreement. In some leaseholds, especially in flats, there may be a management company that fulfils duties and looks after the property’s communal areas. This might include sorting out insurance, gardening, collecting ground rent and cleaning windows.

This service often comes with a service charge on top of the ground rent.

Our advice

Naturally, not all freeholds are perfect. And not all leaseholds come with pitfalls. The most important thing is to research, be aware of the issues you could face and ask the right questions. If you need any further information or would like to discuss your property issues with us, please contact us. We’re here to help.

Please note that all views, comments or opinions expressed are for information only and do not constitute and should not be interpreted as being comprehensive or as giving legal advice. No one should seek to rely or act upon, or refrain from acting upon, the views, comments or opinions expressed herein without first obtaining specialist, professional or independent advice. While every effort has been made to ensure accuracy, Curtis Parkinson cannot be held liable for any errors, omissions or inaccuracies.

Buying a house – leasehold or freehold?