Leasehold vs Freehold: What’s the difference?

Understanding the difference between leasehold and freehold homes

No matter if you are selling a flat or a house you will find it useful to know the difference between freehold and leasehold, as these are the two most common types of ownership here in the UK.
Another type of property, commonhold, does exist in the UK, as the Law Society notes. But the vast majority of conventional homeowners will be attempting to sell a house, flat or other building that is freehold or leasehold.

In this guide, you’ll be shown the differences between freehold and leasehold properties, as well as a useful summary of the main pros and cons that buyers often associate with the two categories. There’s also information about your various options for selling your home regardless of whether it’s leasehold or freehold, and how to best attract a speedy and competitive offer.

What is a freehold property?

Freehold refers to a situation where one person has complete unconditional ownership of a house or flat and the land on which it’s situated, without any restrictions.

There are many perks to having a freehold property, not least the fact that you are the outright owner. This means that it’s your name that will be listed as owner with the HM Land Registry, which is the UK government division that oversees the registration of properties in England and Wales.

Unlike leasehold agreements that involve one party paying an annual ground rent to another, because freeholders own the property completely, they don’t have to pay any rent on it.

As a freeholder, you’ll have the responsibility to ensure that the exterior walls and the roof of your property are maintained and kept in decent condition.

Freeholders generally have no time limit on their ownership of the property and its land, unlike leasehold agreements that give you the right to live in a house or flat for a set period.

If you want to sell an entire house then this will typically be a freehold sale, because standalone houses are generally not leasehold. However, this isn’t always the case and there are some detached homes that are leasehold rather than freehold.

What is a leasehold property?

Leasehold properties can be either flats or houses that someone owns for a set amount of time, but they don’t own the land on which the home is located. The person living in the property will pay a landlord an annual ground rent throughout the terms of the leasehold agreement. But once the lease has expired, the ownership of the property will return to the freeholder unless you opt to extend your lease.

The exact duration of leasehold ownership varies and will be set by both the landlord and renter when writing the terms of the agreement. They can last a relatively short time, such as 50 years or less, but they typically have much longer rental terms. Most typical leasehold agreements last for about 90 years to 120 years, and some even extend to almost 1,000 years.

In addition to specifying the duration of the lease, the leasehold agreement will also set out any other conditions, restrictions, rights, responsibilities, and other terms.

Most leasehold agreements will put the responsibility on the freeholder to ensure that the common areas of the building are maintained and kept in good condition. This can include any staircases, the entrance area, the outside walls, the roof and other parts of the building.

Still, there are some agreements where the leaseholder claims a “right to manage”, which means they take on the responsibility to keep the common areas in decent condition.

The terms of the agreements could also put certain limitations on what the tenant can do, such as prohibiting subletting of the home or banning tenants from having pets.

A leaseholder will have to pay several fees to the landlord, including fees for maintenance of the property, a portion of the building’s insurance, yearly service charges, and more. Those charges are all in additional to the annual ground rent that the leaseholder has to pay.

In a leasehold property, tenants typically have to ask permission from the building’s owner to make any significant changes such as extensions or other renovations.

Although leasehold agreements are legally binding, if the tenant breaks any of the terms of the lease then they risk forfeiting the agreement and losing their right to live in the property.

The pros and cons of leasehold versus freehold homes

Whether or not you are currently the owner of a leasehold or freehold property, you might be thinking of making an offer on either type of home as your next dream place to live. And it can be helpful to get a clear sense of the pros and cons of either type.

In previous sections in this guide you’ve been able to read detailed information about exactly what to expect with the ownership of both property categories. Learning these benefits and drawbacks can also be useful for understanding why some buyers might not be interested in your home. For example, a leasehold home may include ground rent and service charges that are too expensive for some buyers, as Unbiased explains.

Leasehold property pros and cons:

• Pro: Freeholder typically responsible for building’s upkeep
• Pro: Overall price can be cheaper and more appealing to buyers
• Pro: Some leases have centuries-long timelines
• Con: Service charges and ground rent can be expensive
• Con: The buyer won’t have outright ownership of the home
• Con: Short lease properties can be more challenging to sell

Freehold property pros and cons:

• Pro: Total ownership of the home and the land on which it was built
• Pro: Not having to pay ground rent or service charges to a freeholder
• Pro: The concern about the duration of a lease doesn’t apply
• Con: The owner has full responsibility to maintain the property
• Con: May deter buyers as these homes can cost more than leasehold
• Con: Owner has the burden of purchasing building insurance

Regardless of which type of property you own, do not be worried that the list of negative factors above will make it difficult or even impossible to sell the flat or house.

You always have options for selling, including contacting a quick home buyer like LDN Properties. These companies make competitive and fast offers to buy almost any age, condition, location, shape, size, or type of leasehold and freehold home, even those that have significant problems. You won’t have to pay any commission, and the sale should be completed within weeks. The next section of this guide has more details on the selling strategies you could use.

Choosing how to find a buyer for your leasehold or freehold home

One of the most crucial choices that you will make when attempting to sell your freehold or leasehold property is selecting how to find a buyer. The typical options are selling at an auction, selling to a quick home buyer, selling via an estate agent or selling without any help.

It might benefit you to think of your top goals with the sale of your house or flat, including the price at which you would like to sell, how fast you want to find a buyer, and whether you are open to paying commission on the sale. Then compare these priorities against the specific facts about the four selling options below to identify the most suitable one for your situation.

You’ll see that there are clear advantages and disadvantages with all of the methods due to how long they take, if they charge fees, and other considerations. Selling on your own or selling to a zero-commission quick buyer are two ways to avoid paying fees, for example, whereas you will be required to pay an auctioneer or an estate agent commission if they sell your home.

Selling at an auction

At an auction, people can place bids of increasing price on your home, and the top value bid at the moment the auction ends is the winner and person purchasing the property. Yet you might get zero bids, which means that your house or flat remains unsold. This would extend your selling calendar further because you’d have to begin again with looking for a buyer.

Or you could get just one bid at the lowest value at which you accept your home can sell, which is known as the reserve price. Ensure that you choose a reserve price that is calculated to produce some profit from the sale even after you have paid the auctioneer their commission. If you don’t then you might end up selling at loss or only just breaking even with the auction.

The typical auctioneer will charge commission at 2.5 percent of a property’s final sale price, and this fee is taken out of the sale proceeds right away, which will increase your costs. You can always inquire with individual auction houses about the potential for the buyer to pay a share of your expenses, or to reduce the rate of commission, but neither outcome is guaranteed.

Don’t expect a rapid sale when choosing this option, as you will have many weeks or even months to wait between when you select it and when the auction happens. If your home does sell, the buyer then has about a month to sign all of the necessary paperwork and finish the other final steps that are needed in order to official complete the sale.

Selling to a quick home buyer

Quick buyers, like LDN Properties, are so-called because they already have the funds in to place to purchase your home, without having to wait for weeks or months to initially get authorised for a mortgage to cover the cost of the transaction. This cuts the selling timeline to just a few weeks, including the time needed to exchange contracts and pay you the proceeds.

When you sell to a quick buyer, you will also benefit from the fact that they won’t charge you commission on the sale, so this will keep your costs low. That compares to selling through an auctioneer or an estate agent, which are two methods that will charge commission that will be deducted immediately from the sale proceeds, in turn increasing your expenses.

And a quick buyer can be a good choice for owners of properties that might have some type of problem, whether that’s a legal dispute like a fight over access rights, financial complications such as mortgage arrears, or physical flaws including faulty wiring or subsidence. Quick buyers make competitive and fair offers on all homes regardless of any such negative factors.

For example, LDN Properties has been making property purchases throughout the UK for more than 20 years, with a long and always growing list that includes, but is not limited to, homes without a Heating Equipment and Testing Approval Scheme certificate, high-rise flats, houses on a roundabout, properties that have high levels of radon, homes that have a short lease, flats that lack a Leasehold Information Form, houses located on a private road, and other scenarios.

Selling to a quick buyer is also incredibly simple, and it starts when you call them – within he first hour of talking you should get an initial offer on your property. And there is no pressure to make an immediate decision as you’ll have at least a week to consider the offer.

If you accept the initial offer, a representative from the quick buyer will come to your home in order to inspect the interior and exterior before they make a final offer. This is the only such viewing you’ll need to have, compared to dozens or more when selling via other approaches.

And if you then accept the final offer, the quick buyer will move rapidly to work with your solicitor or other legal representative on signing all of the required documents and completing the other steps needed to finalise the sale, with the entire timeline taking only a handful of weeks.

Selling via an estate agent

You will need to pay an estate agent commission if they are able to sell your home, and this fee will be taken out of the sale proceeds immediately. It’s often charged anywhere from 1.15 percent to 1.40 percent of a property’s sale price. But the actual percentage may be higher or lower than this range, as the website Rentround says, and the higher the percentage, the more expensive the fee will be.

Estate agents charge this fee to pay for their work in selling your home, which includes putting together and advertising a listing, organising viewings, hearing offers from potential buyers and ultimately trying to guide a serious offer through to the final exchange of contracts.

All of these tasks can take a long time to complete and it might be many months, or even more than an entire year, before you are able to sell your home. If you are trying to get a speedy sale then you may want to review some other options, such as selling to a quick buyer like LDN Properties where the entire schedule should only be a few weeks from start to finish.

In addition to the slow pace of selling this way and the fee you’ll have to pay, there’s also the chance that someone makes an offer on your home but then later decides against buying it and rescinds the offer. This would make the sale collapse, and require that you then start again with the process of trying to find a buyer, adding possibly many more months to your schedule.

Selling without any help

A fourth strategy for selling your house or flat is to do so on your own, which puts the burden on you to handle every step. You will need to make a listing and advertise it, arrange viewings, hear offers from interested buyers and try to get one through to exchanging contracts.

This can be among the slowest of the options for selling a home, and it may take a number of months or even more than a full year in certain cases. This method also shares the risk of using an estate agent, in that someone can make a true offer but then cancel it, causing the sale of your property to fall apart – and they can do this without penalty if contracts are not yet exchanged. You’d then have to start over with seeking a buyer, slowing a sale even further.

Given the significant time commitment and stress that can be involved with selling on your own, it’s suggested that you only pursue it if you have managed to sell a property in the past, or if you have a suitability qualified family member or friend to help with the sale at zero charge.

One advantage of selling without the help of an auctioneer or an estate agent is that you would not have to pay anybody commission on the sale of your property, which helps you avoid what can be a significant cost. But you could easily discover that the money you need to invest in the various earlier steps of the selling process might eliminate any saving you make that way.