You’re considering buying a property. Determining what type of home or flat to buy could be an exciting process. If you’ve already started your search or are gathering more information prior to starting making your decision, you should be aware of the difference between purchasing leasehold or freehold property.

What is the difference between leasehold and freehold property

Let’s look at the main differences between freehold and leasehold properties. If you buy a freehold property, such as a house or flat then you’ll become the owner of the entire property including the land beneath it.

A leasehold purchase, on the other hand, gives you ownership over the property for a specific time period. You won’t own the land the property stands upon The freeholder will typically be the owner of this. If you purchase leasehold property, it is important to must accept the specific terms and conditions established by the freeholder.

Leasehold properties: what you need to be aware of

If you’re thinking of purchasing leasehold property there are some points to be considered. Knowing the nuances of leasehold ownership can help you find the perfect property , and you’ll feel confident as a new homeowner.

Understanding leases

It is important to know the fundamentals of a lease prior to buying a leasehold property. A lease is a legal agreement between you (the leaseholder) and the freeholder who owns property and the building.

You are granted the right to use your property for a specified duration of time under the contract. The length of lease may differ and it is advisable to know the duration remaining on your lease prior to you purchase.

The lease also defines your obligations and responsibilities as a leaseholder as well as the freeholder. To get a deeper look at leases, you can always take a look at our guide on how to read and understand a lease.

What is the term ground rent?

Leasehold properties are subject to an annual charge. This fee permits you to rent the land from the freeholder. The amount of ground rent is contingent upon the property, therefore it is important to verify the lease terms prior to purchasing so you are sure you’ll be able to pay for the cost.

What are service costs?

Along with the ground rent, leaseholders are required to be responsible for the maintenance of any communal areas, such as hallways, gardens and courtyards. The annual fee can be paid directly to the freeholder. Some buildings can be controlled through Right to Manage (RTM) which is a firm that was set up by other leaseholders, or a property management company.

Leasehold services allow businesses to lease space or property for a set amount of time and renew or end the lease at any time at their discretion. The residential lease service could be beneficial to businesses who require an exact amount of space for a particular period of time , but do not want to take on the long-term rental. They can be beneficial for companies that require temporary space but do not have the funds or desire to build or purchase their own.

Leaseholder restrictions for leaseholders

Because you don’t own the freehold to your property there could be restrictions you must adhere to. For example, you may not be permitted to keep pets inside your property or might need to make sure your apartment is carpeted to minimize noise disturbance in other apartment. There are all the restrictions in your lease agreement.

Funds for sinking

A sinking fund is a sum of money that is set aside for emergencies repairs and maintenance. Every leaseholder contributes to the sinking fund, and is usually refunded by the freehold landlord or RTM company.

Other costs

You should also consider other costs when purchasing leasehold properties. There may be a need to pay a fee for a notice or charge, or notice of transfer in the event that you are adding a new owner or mortgage lender. A landlord, for instance, might charge a fee to provide a management package that contains information about your property’s insurance and service charges. It is important to be aware of any other charges that might be incurred to ensure you are aware of your obligations to the financial institution.