If you own the freehold of your home, it means that you own the building and the land it rests on. If your residential or commercial property is leasehold, you own the residential or commercial property however not the building or land and need to pay ground rent to the freeholder.

Freehold vs leasehold: the essential distinctions

Do you comprehend what is indicated by a freehold or leasehold residential or commercial property? Experienced estate agent, Ian Harris helps describe the crucial distinctions.

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What does leasehold mean?

You are acquiring a lease from the freeholder for the right to live in the residential or commercial property for a set number of years. You will not technically own the residential or commercial property outright, the freeholder (or landlord) will continue to own the residential or commercial property and the ground it sits on. Leasehold is commonplace when buying a flat or apartment as it sits within a bigger building.

The number of leasehold homes has actually however grown over the last few years, especially with new builds that are sold directly through the designer.

Recent modifications to the law

The Leasehold and Freehold Act 2024 is now law, however specific parts of the Act are being executed one at a time so not whatever has actually been done yet. You can see the progress of the modifications here. Eventually there will be a restriction on the sale of brand-new leasehold flats, making Commonhold the new default period instead, where each unit-holder owns the freehold of their home.

Find out more about what's changing for leasehold

Main things to understand that have been executed up until now are:

- If you own a flat, you can now extend your lease without waiting 2 years first (as of January 2025).
- This implies that more leaseholders in mixed-use structures can make an application for the right to manage; and to limit the costs they can be made liable for.

If you're purchasing in Scotland, this is not a problem as leaseholds were abolished in 2004.

What is Right to Manage?

In flats or homes the freeholder or residential or commercial property management company handles all the communal locations, services and the building to make certain it's in a great state of repair work. If you feel your structure isn't being managed appropriately, you can exercise your 'Right to Manage' and leaseholders can come together to handle their building as an alternative. Other options include taking your freeholder to tribunal to set up appointment of a brand-new management business.

Leasehold: A Life Sentence?

Countless homeowners are stuck in leasehold houses they can not pay for to continue living in and can not sell. We surveyed over 1,000 individuals who bought a leasehold home to check out the extent of the scandal which has left countless Brits caught in leases with 3rd parties.

What is ground rent?

This is an amount of money paid every year to the freeholder, it can be either at a fixed rate or intensifying rate. Fixed rates stay the exact same for the duration of a lease, whilst escalating rates can see costs double after a repaired period-sometimes as often as every 5 years.

Our research into leasehold houses found that ground lease was one of the main dissatisfactions amongst leaseholders, Almost half of the leaseholders we surveyed were unaware that their ground lease could increase when they bought the residential or commercial property.

You must get all the details about the ground lease to prevent any unanticipated costs in the future. Your agent, conveyancer or solicitor need to have the ability to advise if there is a lease review provision in your lease and detail what it would imply to you. The expenses of the ground lease might be flexible so make sure to inspect this with your agent or the developer if you are purchasing a new develop.

Since 2022 ground rent remains legal for existing leases unless otherwise renegotiated. However, for brand-new leases approved after 30 June 2022, ground lease is effectively eliminated, set at a peppercorn rate.

Maintenance and service charges

This assists to spend for the maintenance and maintenance of communal locations. Within a block of flats, they would pay for the internal and external maintenance of communal areas such as gardens, corridors, elevators and structure insurance coverage.

The fee payable is generally repaired however can alter year on year. Make certain you ask your conveyancer or lawyer to totally describe all charges, and ask as to whether the lease administrator has any prepare for works that you will be accountable for paying for. Since January 2025 you now deserve to challenge the management of your building if you're dissatisfied, referred to as the Right to Manage.

Leaseholder limitations

Check the terms on your lease for any limitations about what you can do in the residential or commercial property. For example, in a flat, you may not be permitted to have animals or hang your cleaning out over the balcony.

There might likewise be things that you need to ask the freeholder's permission for, such as developing tasks like an extension or loft conversion. When requesting approval, a freeholder should not unreasonably decline the request but you might have to pay them a fee before work can be carried out.

What does freehold suggest?

If you own the freehold to a residential or commercial property, it suggests you own everything-the bricks, mortar and the land-so as long as it abides by Government legislation, you're pretty much totally free to do whatever you want with the residential or commercial property and garden. However, it likewise means that you are solely responsible for the maintenance of the structure and the grounds.

Most homes on the marketplace are freehold, and the benefit of the period includes being able to sell the residential or commercial property whenever you want, and not having to ask permission to make small modifications or pay for the advantage to do so.

Can I purchase the freehold?

Before you dedicate to buying a leasehold residential or commercial property, check out who owns the freehold and discover whether it is likely to be sold on and who too. If you are purchasing a new construct, ask the sales workplace to quote you a cost for buying the freehold. If you own a flat, you can read this guide about buying the freehold for your flat.

For how long is left on the lease?

Lease lengths can vary however normally a new lease will begin at around 99-125 years but can run for as long as 999 years. You must discover the length of time is on the lease you are purchasing, especially if you're purchasing an existing lease that has actually already started to run down. A short lease (under 80 years) might affect your ability to get a mortgage, and to extend a lease you should have lived in the residential or commercial property for 2 years.

The number you should keep in mind is 80 years

Once a lease drops below 80 years the expense to extend it rises significantly. Ideally, you desire a residential or commercial property with a minimum of 83 years left on the lease, this will give you adequate time to reside in the residential or commercial property for 2 years if you then wish to extend the lease.

Coming quickly: Changes proposed to rent extension term

Still to come the new Leasehold Reform Act 2024 plans to increase the standard lease extension term to 990 years - up from 50 years for houses and 90 years for flats - with ground lease decreased to absolutely no. We're waiting for this change to come into impact.

Leasehold residential or commercial property guidance

Developers have actually been understood to sell the freeholds of entire developments to third-party business who then charge intensified fees to the property owner when they come to purchase the freehold. Spiralling fees and burdensome clauses have actually resulted in some building societies and banks refusing mortgages on leasehold properties-making them very difficult to offer.

Some leases have stipulations that obstruct your use of the residential or commercial property and some limitations are not always that obvious. Read your lease carefully and if you are uncertain of anything, speak with your solicitor right away. Ensure you have a clear understanding of what you are entering into, just how much you will be anticipated to pay on a yearly basis and if any boost are due.

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