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Leasehold v Freehold explained

 

It can be easy to dismiss some legal terms as being jargon and ultimately not that important when it comes to the impact it has on your life, but this isn’t always the case. There are some times when it is crucial to know exactly what a term means and this is definitely the case when it comes to the difference between a leasehold and a freehold. This can ultimately be the difference between owning your property outright and having a landlord.

When you have a leasehold agreement, it means that you have the right to lease the property for a number of years. You obtain this right from the freeholder, who will sometimes be the landlord, and the length of time for the leasehold can vary significantly, depending on the agreement. Leaseholds can be for as short a period as 40 years while the more common length of time is 90 to 120 years. There are even instances of leaseholds lasting 999 years, so it is important that you know how long your lease is valid for.

Leaseholders will hold a contract with freeholders

The leaseholder will hold a contract with the freeholder, with the freeholder generally being responsible for maintaining the condition of the common parts of the property but there will likely be some responsibilities handed over to the leaseholder. It is also common for leaseholders to have to pay maintenance fees or service charges. There is also likely to be an annual rental fee and there could be restrictions placed on the leaseholder such as not being able to sublet the property or own pets.

A freeholding is when the person owns the building and the land. When a freeholder is listed in the land registry, they will be regarded as owning the “title absolute”. Given the two options there is no doubt that the freehold option is the better option of the two.

If you are looking to buy property, you should be very wary of buying a property with less than 90 years with respect to a leasehold. Properties that hold a short lease can decrease in value dramatically, even though the general price of properties in the local area may be rising. This can provide difficulties for the owner. A leaseholder will find that there is likely to be a lower level of demand for the property when they come to sell it and there may be difficulties in obtaining a mortgage for a leasehold property.

While you may know these terms, you may not think that there is too much of a difference between the terms. This isn’t the case and many homeowners have found this out to their cost. If you know what you are getting into, a lease holding can be a viable and suitable option for many people, but you need to make sure that you are aware of the potential difficulties that you could face.

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