by Innovus on 14 June 2024
Purchasing a property is likely one of the biggest financial decisions you'll make in your lifetime. In the UK, there are three main types of property ownership: freehold, leasehold, and commonhold. This comprehensive guide focuses on the two most common types - leasehold and freehold - helping you understand their key differences and implications for homebuyers in 2024.
Table of Contents
- Understanding Freehold Properties
- Understanding Leasehold Properties
- Key Differences Between Leasehold and Freehold
- Lease Extensions and Buying the Freehold
- Financial Considerations
- Leasehold Reform Updates
- Making Your Decision
- Questions to Ask
- Frequently Asked Questions
- How Innovus Can Help
Understanding Freehold Properties
What is a Freehold Property?
A freehold property means you own both the building and the land it stands on outright, with no time limit. This is the most straightforward type of property ownership and is typically how most houses in the UK are sold.
As a freeholder, you:
- Own the property and land permanently
- Have complete control over property modifications (subject to planning permission)
- Are responsible for all maintenance and repairs
- Don't pay ground rent or service charges
- Can make decisions about the property without consulting others
- Are responsible for building insurance
Flying Freeholds
A flying freehold occurs when part of your freehold property extends over or under another property (such as a room built over a shared passageway). While less common, it's important to note that some mortgage lenders may require additional information before lending on properties with flying freeholds.
Understanding Leasehold Properties
What is a Leasehold Property?
A leasehold property means you own the right to occupy the property for a fixed period, typically between 99 and 999 years when first granted. The land and building belong to the freeholder (or landlord), and you essentially lease these from them for the duration specified in your lease.
Typical Lease Lengths
- New builds: Usually 99-125 years
- Period properties: May have shorter remaining terms
- Extended leases: Can be up to 999 years
Important Lease Considerations
- The 80-year threshold: Leases with less than 80 years remaining can be harder to sell and more expensive to extend
- Mortgage implications: Most lenders require at least 70-80 years remaining on the lease
- Value impact: Property values typically decrease as the lease length shortens
Key Differences Between Leasehold and Freehold
| Aspect | Freehold | Leasehold |
| Ownership | Full ownership of property and land | Temporary right to occupy |
| Duration | Permanent | Fixed term |
| Costs | No ground rent or service charges | Annual ground rent and service charges |
| Maintenance | Full responsibility | Shared responsibility with freeholder |
| Modifications | Greater free (subject to planning) | Usually need freeholder permission |
| Resale value | Generally more stable | Can decrease with shorter lease |
| Insurance | Full responsibility | Building insurance usually handled by freeholder |
Lease Extensions and Buying the Freehold
Extending Your Lease
After owning a leasehold property for two years, you generally have the right to extend your lease by:
- 90 years for flats
- 50 years for houses
View the Government's guide on lease extension here.
The cost of extending depends on:
- Current property value
- Years remaining on the lease
- Ground rent amounts
- Property location
Collective Enfranchisement
Leaseholders can join together to buy the freehold of their building, known as collective enfranchisement. This requires:
- At least 50% of leaseholders to participate
- Formation of a management company
- Legal and surveyor fees
- Agreement on purchase price with the freeholder
View LEASE's collective enfranchisement guide here.
Financial Considerations
Ground Rent
- Traditional ground rents were typically nominal (£50-£100 annually)
- Recent issues with escalating ground rents have led to reforms
- New leases from June 2022 must have zero ground rent
Service Charges
Service charges typically cover:
- Building maintenance
- Communal area cleaning
- Building insurance
- Exterior repairs
- Garden maintenance
- Lift maintenance
- Building management fees
View the government's service charge guidance here.
Sinking Funds
Many leasehold properties require contributions to a sinking fund for:
- Major repairs
- Roof replacement
- External decorating
- Other significant building works
2024 Leasehold Reform Updates
Recent government reforms include
- Ban on new leasehold houses
- Zero ground rent on new leases
- Easier and cheaper lease extensions
- Reformed enfranchisement process
- Increased transparency in service charges
Making Your Decision
Factors to Consider
- Budget for ongoing costs
- Desired level of control
- Property type preference
- Long-term investment goals
- Maintenance responsibilities
- Mortgage options
View the Land Registry property search service here.
Questions to Ask
- Length of remaining lease
- Service charge history
- Ground rent terms
- Major works planned
- Management company details
- Possibility of buying freehold
How Innovus Can Help
At Innovus, we provide expert leaseholder asset management services. We act as an informed, professional point of contact for leaseholders in managing their property investments.
Our team has extensive experience and knowledge across both leasehold and freehold properties. We can advise on negotiating fair lease extensions, purchasing freeholds, service charge consultations and more.
With a transparent, honest approach and competitive pricing structure, Innovus is a trusted partner for leaseholders in optimising and protecting their assets.
Get in touch today to discuss your requirements.
