What’s the Difference Between Freehold vs Leasehold?

The difference between leasehold and freehold is quite simple. With leasehold, you own the property itself for a certain period of time agreed with the freeholder, but not the land it stands on. Whereas, with freehold, you have outright ownership of both the property and its land.

Whether you’re more likely to encounter a leasehold vs freehold ownership often depends on the type of property you purchase. Flats, for example, are normally leasehold as you will only own one property in a building of many. Houses, on the other hand, especially detached or semi-detached, are more likely to come with freehold ownership.

Freehold vs Leasehold: What Is a Freehold Property?

So what is a freehold? As mentioned above, the meaning of freehold is complete outright ownership of a property and its grounds. Those who buy a freehold property will have the responsibility of maintaining the property and its land.

So what are the benefits of freehold compared to leasehold? Read on our Definitive Guide

You Don’t Have to Worry About Your Lease Running Out

The main benefit of freehold property when comparing freehold vs leasehold is the fact that you won’t need to worry about the length of your lease.

With leasehold properties, a shorter lease can be problematic as it causes issues when it comes to selling the property.

Because the definition of a freehold property is that you own the property entirely, you won’t encounter any problems selling the property and can do so whenever you like.

For many homeowners or investors, this peace of mind and level of security that comes with a freehold tenure is important.

You Don’t Need to Pay Ground Rent

Unlike leasehold tenure, you don’t need to pay ground rent for the land your property is built on since you own it yourself.

This means you’re also responsible for the upkeep of the grounds and have the freedom to do with it as you please.

If you wanted to redesign the garden of the property by adding some artificial grass, for example, you would be free to do so without having to check with someone else.

Disadvantages of Freehold Tenure

Higher Purchase Prices

One of the biggest cons of freehold properties is that they’re usually more expensive to purchase than leaseholds.

For investors who want to benefit from the highest yields possible, the cost of buying the property is essential.

This is why a lot of buy-to-let investors tend to focus on purchasing leasehold apartments with long lease lengths in order to get the most out of their investment.

More Responsibilities

While some people may favour having more responsibility, for many, such as those who want a hands-off buy to let investment, this is a huge downside of freehold tenure.

If work needed doing on the outside of the property or its communal areas, it would be down to the freeholder to pay for and arrange any repairs or maintenance.

While leaseholders will still have to pay for certain things, many works will be subsidised by the freeholder of the property.

What Does Share of Freehold Mean?

Share of freehold is when a buyer acquires a shared ownership of a property’s freehold title. Unlike having complete freehold ownership, you would only have freehold tenure for a portion of the property.

Many buyers find this beneficial, as it allows them to have more of a direct say on the property and help make any major decisions, particularly if buying a share of freehold on a block of flats.

What Does Freehold Land Mean?

Freehold land is the grounds that a property is built on, and owned by the freeholder of the property.

If you have freehold ownership, you’ll be responsible for maintaining the land of the property, whether this is for a leaseholder, a tenant, or yourself.

If you’re unsure what leasehold means, it’s a property which is only partly owned by those who purchase it.

A leaseholder owns the property for the period of time their leasehold lasts up until, but doesn’t own the ground or land that the property is built on.

Leasehold properties are normally flats/apartments, but can also be houses, especially if purchased under a shared ownership scheme.

Here are the pros and cons of leasehold ownership.

Reduced Initial Costs

When you purchase a property with leasehold ownership, the initial purchase costs are normally lower.

This is partly due to the fact that apartments are more commonly leasehold, and these are typically priced lower than other property types.

If you’re an investor buying an apartment with leasehold tenure, you can benefit from the chance to make a larger return on your investment.

This is especially true if you purchase a buy-to-let apartment in areas like Liverpool or Wales, where property prices are low and rental demand is high, resulting in some impressive rental yields.

By purchasing an off-plan apartment, you also benefit from an even more significant discount on your purchase price.

They’re Easy to Manage

In many cases, owning a leasehold property can be easier to manage than a property purchased with freehold ownership.

While you would definitely still have a level of responsibility when owning a leasehold property, you may be able to pass certain costs and maintenance requirements over to the freeholder.

If some work needed doing to structural elements of the property, for instance, such as building repair for the outside walls, this would be taken care of by the freeholder.

This is ideal for property investors with leasehold ownership, as it allows for a more hands-off investment while still keeping a good level of responsibility.

Short Lease Lengths Can be Tricky

One of the biggest downsides of leasehold ownership is that you need to avoid a leasehold agreement which permits ownership for a limited number of years.

The less time you have on your lease, the more problems you can encounter.

For one thing, short leaseholds may make it difficult to secure a mortgage – for a 25-year mortgage, the lease needs to last for at least 50 to 55 years.

If a lease is less than 80 years, this can also make it difficult to sell the property, which is a major issue for those purchasing a leasehold property for investment purposes.

This is why at RWinvest, all of our leasehold properties come with long leases to ensure as smooth an investment as possible.

You Need to Pay Service Charges

All owners of a leasehold property are required to pay for certain service charges.

The main charge is ground rent, which pays for the upkeep of the land the property is based on.

Some other charges that leasehold ownership may involve include electricity bills for communal areas and administration charges.

While paying these charges may be a negative for some, you need to assess the bigger picture when it comes to costs as a whole, especially on an investment level.

Despite charges that come with a leasehold property, the initial cost is likely to be much lower for leasehold vs freehold, while having the potential to generate some fantastic returns, which will more than likely cover the cost of leasehold fees.