Freehold vs Leasehold

You may have seen these words listed on the property details or on forms from conveyancers, our guide helps you understand the differences.

What’s the difference?

A freehold property is owned outright including the land on which it is built on, leasehold is a method of owning a property (quite often a flat) for a fixed period of time (known as the term/lease term) but not the land on which it stands. When you own a leasehold property, you are likely to pay a yearly ground rent and normally a service/maintenance charge to the landowner (called the freeholder/landlord).

Leasehold key facts

Here are a few useful facts about leasehold properties:

• Lease lengths vary, the most common ones are 99 or 125 years
• Mortgage lenders normally require at least 50 years remaining on the lease at the end of the mortgage term - for example a 25-year mortgage would require 75 years minimum lease at the start
• Leases usually include an obligation to pay service charges. These charges are either collected by the freeholder, a management company or a managing agent.
• Managing agents are professional managers who manage blocks, including common areas and collect service charges.
• Some leaseholds are sold with a shared of the freehold.
• Under the terms of the lease, the freeholder can collect a consent fee if you make alternations to a leasehold property.
• The length of the lease can be extended with the consent of the freeholder for an agreed cost, if this is needed conveyancing fees are paid.

Lease pack

Leasehold information should be supplied in a standard form, using the Leasehold Information Pack (LPE1). You may hear this called Management or Freeholder pack. It contains information about the management arrangements, service charges and ground rent, who collects them, service charge accounts, the amount held in a sinking fund (money ready for future expenses) and buildings insurance. The replies given in this pack will also confirm if any service charge payments are overdue and if any major works are planned in the next 12 months.

Service charge

Service charges are normally an annual charge, which you may be permitted to pay monthly. What can be charged is covered in the lease, but it usually covers the cost of general property repairs, buildings insurance, ground maintenance, management fees and covers all communal area costs for example roof repairs or maintaining a shared entrance.

The lease will set out how service charges are calculated, often they are split between the individual leasehold properties. There is usually a set amount put aside to fund any major repairs as and when they are required. If you are buying a leasehold property you should always find out how much the service charge is, when it is payable and how much money is in the service charge fund, as this will act as a buffer if any significant repairs are due.

Ground rent

Ground rent is the rent payable for the land on which your leasehold property stands. If you own a share of the freehold, then you probably won’t pay this. The lease will confirm the amount, if and how will go up over time and when it has to be paid, annually, quarterly or half yearly.