Leasehold and freehold are different forms of property ownership in England and Wales – essentially describing how you ‘hold’ the land. If you’re not sure what the difference is and want to understand these terms a little better before proceeding with your property search, our handy guide should help.
What is a freehold property?
When you buy a freehold, you become the legal owner of the entire property including the building and land. This ownership will last until you decide to sell it, at which point the conveyancing sales process will transfer that ownership to the new buyer. You are entirely free to hold the property for as long as you wish.
What is leasehold?
By contrast, a leasehold is a temporary right to hold property. It usually includes the building but not the land on which the building stands. And, instead of owning this portion of the property outright, your ownership will last for a fixed period of time. A typical leasehold term is 99, 125, or 999 years, and this is not reset when the property is sold to another leaseholder. If the leasehold runs out, you can pay to extend the term. For the duration of your ownership, you may also have to pay ground rent and additional fees for the services and maintenance the freeholder provides.
Conveyancing for freehold properties.
The conveyancing process for a freehold property can seem complicated to the uninitiated, but really, it’s quite straightforward. To find out more, read our guide to conveyancing here. Each conveyancing case is different, but typically a freehold case is cheaper and quicker to complete than a leasehold.
Conveyancing for leasehold properties.
Leasehold properties often require more work during the conveyancing process. That means the sales process often takes longer and comes with higher fees. Though not an exhaustive list, here is some of the extra duties that your conveyancing solicitor will carry out.
Reading the lease.
Leases can be complicated documents, but they contain critical information. Your conveyancing solicitor will need to review it in detail to proceed with the case – most importantly, to check the lease is transferrable! They will also need to confirm the length of the unexpired term of the lease, and make sure all the information fulfils your mortgage lender’s criteria.
mortgages for leasehold properties
Contacting the freeholder.
As part of the process, your conveyancer will contact the owner of the freehold title and request information from them about the property and how the terms of the lease manifest. For example, they will need to find out your responsibilities when it comes to communal areas.
Investigating management company.
Often, the owners of leasehold properties come together to buy the freehold. They then form a management company to oversee maintenance and insurance. If this is the case with the property you want to buy, your conveyancer will need to check company documents, accounts, and how the share in the management company will be transferred upon completion.
Checking legal obligations.
In the lease, there will be certain covenants or legal obligations which you as the new leaseholder must carry out. As part of the conveyancing process, your solicitor will find out what these are and provide you with all the information you need to fulfil your responsibilities.
As discussed, owners of leaseholds are liable for certain fees. These service charges are used to cover the cost of maintenance and upkeep for any communal areas. Your conveyancing solicitor will find out what the current charges are and what has already been paid. They will also look into whether or not any major work is planned and what funds are available for this. They might also assess the expenditure of the management company and freeholder over the past few years to check for major transactions or any debts. They do this so you can budget accordingly for any upcoming costs.
Buildings insurance policy.
Your conveyancer will make sure the building has been insured by the freeholder or the management company, and look into what you are legally obliged to pay towards this under the terms of the lease.
If there are any disputes relating to your property with neighbours, the landlord, or the management company, they may cause problems for you in the future. To make sure you’re prepared, your conveyancer will try and found out as much information as possible.
If you’re buying a property with only a short lease remaining, your conveyancer will work to obtain an extension for you, or even a brand new lease.