So, you’re looking to buy a property? Deciding what sort of house or flat to buy can be an exciting process. Whether you’ve started looking or are gathering more information before you start, it’s good to have an awareness of the differences between buying a freehold and a leasehold property.
Difference between freehold and leasehold property
Let’s first explore the fundamental difference between freehold and leasehold properties. Essentially, if you buy a freehold house or flat, you will own the property outright, including the land beneath it.
A leasehold purchase, on the other hand, gives you ownership over the property for a fixed term only. You won’t own the land the property stands upon – the freeholder will generally own this. When you buy a leasehold property, you have to agree to terms and conditions set by the freeholder.
Buying a leasehold property: what you need to know
When you’re considering buying a leasehold property, there are a few things to take into account. Understanding what leasehold ownership entails can help you find the perfect property and feel confident as a new homeowner.
When buying a leasehold property, the first thing you need to do is make sure you understand how a lease works. A lease is a contract between you (the leaseholder) and the freeholder who owns the building and land.
The contract grants you ownership of the property for a set amount of time. Lease lengths may vary, and it’s a good idea to check how long is remaining on the lease before you buy.
A lease also sets out your responsibilities and obligations as a leaseholder and those of the freeholder. For a more in-depth look at leases, you can always take a look at our guide on how to read and understand a lease.
What is ground rent?
When you own a leasehold property, you pay an annual fee to the freeholder so you can rent the land from them. Ground rent varies depending on the property, so it’s important to check the lease details before buying so you are sure you can afford it.
What are service charges?
As well as ground rent, leaseholders must pay towards the upkeep of any communal areas, such as hallways, gardens and courtyards. Sometimes, you’ll pay this annual fee directly to the freeholder. However, some buildings may be managed by a Right to Manage (RTM) company set up by other leaseholders or a property management company.
Because you don’t own the property freehold, there may be certain restrictions you must adhere to. For example, you may not be allowed pets in your property or might need to ensure your flat has carpets to reduce noise disturbance in other apartments. Your lease agreement will detail any restrictions.
A sinking fund is a reserve of money set aside for any emergency repairs or maintenance in the building. Each leaseholder contributes to the sinking fund, and it is usually collected by the freehold landlord or RTM company.
It’s worth noting that other costs may arise when buying a leasehold property. For example, you may need to pay for a notice of transfer or notice of charge when adding a new owner or mortgage lender. A landlord may also charge a fee for providing a management pack containing information on your property’s service charges, insurance, and other documents.
It’s best to be aware of any other fees that may come up so you can be sure of your financial obligations.
If you ever have any queries about leasehold matters, you can always contact property management experts for advice. Whether you’re looking for lease support or are a landlord considering exercising your Right to Manage, why not get in touch with our friendly team and see how we can help?