Key Difference: The main difference between Freehold and Leasehold property is that the owner of a Freehold property owns the land on which it is built, whereas the owner of a Leasehold property only leases the land from somebody else.
This means that the owner of a Freehold property can sell, rent out or redevelop their property as they please, whereas the owner of a Leasehold property may need the consent of the landlord in order to do any of these things.
Another important distinction is that the Freeholder is responsible for maintaining the property and its grounds, whereas the Leaseholder is usually only responsible for maintaining their own property and any shared areas within the development.
You should always check the terms of your lease to see what is and isn’t included in your maintenance responsibilities.
What does freehold property mean?
Freehold property is a type of ownership in which the owner has exclusive use of the property and can sell, lease, or borrow against it.
The owner also has the right to pass the property on to heirs.
In contrast, leased or rented property belongs to someone else and must be returned at the end of the lease.
The property in a freehold estate can be an entire parcel of land or a single building on it.
The owner has the right to use the property in any way they want, including subdividing it into smaller parcels.
Freehold property is generally considered an asset as it represents a valuable piece of real estate that the owner can use, sell, or borrow against.
You are more likely to find freehold property in rural areas, as it is more difficult to subdivide land in urban areas.
Most importantly, freehold property is a safe investment.
While freehold property can be subject to zoning restrictions, these are typically less onerous than those for leased or rented property.
What is a leasehold property?
A leasehold property is a structure that is rented from a landlord for a specific amount of time.
The tenant has the right to use and occupy the property during the lease period but does not own it. At the end of the lease, the tenant must either renew the lease or move out.
Leasehold properties are common in Europe and Asia but are less common in the United States.
However, they are becoming more popular as the cost of homeownership increases.
One of the biggest advantages of leasehold properties is that the tenant has a much lower up-front cost.
The monthly rent is typically lower than the monthly mortgage payment on a traditional home, and there are often no closing costs. This can make it easier for people to get into homeownership.
However, there are some disadvantages to leasehold properties.
The most significant is that the tenant does not own the property and, therefore, does not have any control over what happens to it.
If the landlord decides to sell the property or terminate the lease, the tenant may have to move out.
Additionally, if there are any major repairs or upgrades required, it is the landlord’s responsibility to pay for them, not the tenant’s.
A number of factors, including your budget, the location of the property, how long you plan to stay there, etc decide whether it’s best or worst to buy a leasehold property.
Leasehold properties can be a good option for people who are not able to afford a traditional home or who do not want to commit to one location for a long period of time.
However, it is important to be aware of the potential disadvantages before you buy.
Freehold vs Leasehold Property
One of the major differences between freehold and leasehold property is the length of time the owner has exclusive possession of the property.
With freehold, the owner has an indefinite right to occupy and use the property.
With leasehold, the tenant has a specific period of time in which they are allowed to occupy and use the property, after which the property reverts back to the landlord.
So, for example, a lease might be for 30 years.
Another big difference is the level of control the owner has over the property.
With freehold, the owner can do whatever they want with the property, including selling it or developing it.
With leasehold, however, the tenant usually has to get permission from the landlord before making any changes to the property.
Main Differences
Important differences between Freehold and Leasehold properties include –
Type of Ownership
One of the main differences between freehold and leasehold property is the type of ownership.
Freehold property is owned outright, while leasehold property is held on a lease from the freeholder.
The leaseholder has to pay rent to the freeholder in order to live in the property.
Length of Ownership
Leasehold ownership usually lasts for a set period of time, often 99 years.
After this period the leaseholder has the right to renew the lease or sell the property. Freehold ownership is for life and can be passed down through generations.
This makes it a more desirable form of ownership for some people.
Restrictions on Use
Leaseholders may be restricted in how they can use their property.
For example, they may not be allowed to make any structural changes without the freeholder’s permission.
Freeholders do not usually have these restrictions placed on them. Because of this, freehold property is often seen as more desirable.
However, leaseholders may be able to negotiate certain restrictions with the freeholder.
Responsibility for Maintenance
The leaseholder is usually responsible for the maintenance of the property, while the freeholder is responsible for maintaining the common areas.
This can include things like the roof, exterior walls, and gardens.
On the other hand, the leaseholder is usually not responsible for any repairs that are needed in the common areas.
Freehold property is more desirable for people who want to be responsible for all the maintenance of their property whereas leasehold property is more desirable for people who want someone else to be responsible for maintenance.
Cost
Leaseholders often have to pay ground rent to the freeholder, as well as service charges for things like building insurance and repairs.
This can be quite costly over time. Freeholders do not usually have to pay any such charges.
In the case of a leasehold property that is sold, the new leaseholder will have to take on these charges.
In the case of a freehold property, the owner will not have to pay any new charges.
If sold, the new owner will just be responsible for the property.
Inheritance
Leaseholders do not usually have the right to pass on their leasehold property to their heirs.
The lease will eventually expire and the property will have to be returned to the freeholder.
Freeholders can pass on their freehold property to their heirs.
This is a major difference between the two types of ownership and is something that many people consider when buying property.
Safekeeping of Title Deeds
The freeholder is responsible for safekeeping the title deeds to the property.
This is not usually the case with leasehold properties.
The leaseholder will usually be responsible for keeping their own copies of the leasing agreement.
Safe to buy
A leasehold property is not always seen as safe to buy, as the lease may not be renewed after a certain period of time.
This is not usually an issue with a freehold property. Hence, freehold property is often seen as a safer investment.
Banks are also more likely to offer mortgages on freehold properties than they are on leasehold properties.
Is freehold property safe to buy?
The safety of freehold property depends on a number of factors, including the location and condition of the property.
Some buyers may feel more comfortable purchasing freehold property if they have a good understanding of the legal process and what is involved in owning freehold land.
It is important to consult with a lawyer prior to making any decisions about purchasing freehold property.
In general, freehold property is considered safe to buy as long as the property is in good condition and is located in a desirable area.
Even banks and other lending institutions consider freehold property a relatively safe investment.
The main risk associated with freehold property is the possibility of losing money if the value of the property decreases.
It is important to do your research before purchasing any property, whether it is freehold or leasehold.
It is safe to buy a freehold property when –
- There is no outstanding mortgage or other debt attached to the property
- The title of the property is clear and there are no legal disputes over its ownership
- The condition of the property is good and it is in a desirable location
- You have consulted with a lawyer and are fully aware of the legal process involved in owning freehold land
- You have the financial resources to purchase and maintain the property
- You are comfortable with the risks involved in owning a freehold property
- You have obtained a building survey and property valuation to assess the condition of the property and its value.
These are just a few of the things to consider when buying a freehold property.
It is important to do your own research and consult with professionals such as lawyers, surveyors, and bankers to get their opinion on the safety of freehold property in your area.
Is freehold property an asset?
Yes, freehold property is an asset. It represents an ownership interest in real property that is held by the owner indefinitely.
For example, a homeowner who owns their property outright would have a freehold interest in that property.
He/she would also be considered the legal owner of the property and would have exclusive rights to use, occupy, and dispose of it.
The biggest advantage of owning freehold property is that the owner has complete control over it and can make decisions about its use, sale, or rental without any input from others.
It is always considered an asset since it has value and can be sold, rented out, or used as collateral for a loan.
However, the actual market value of freehold property can vary depending on a number of factors, such as the location and condition of the property.
If you are an owner of a freehold property, it is important to keep track of any changes in its value over time.
This information can help you make more informed decisions about whether to sell, rent out, or use the property as collateral for a loan.
The value of the asset may also affect your ability to obtain a mortgage or other type of loan.
For example, if you need to borrow money against the equity in your freehold property, the lender may require a higher interest rate or more security due to the increased risk associated with this type of asset.
If your asset is valued at more than you owe on it, the difference is called equity.
Equity can be used as a source of wealth and security for loans, and can also provide financial stability in the event that you need to sell your property.
Does freehold mean no mortgage?
Freehold does not mean that there is no mortgage on the property, it just means that the owner has full ownership of the property and doesn’t have to pay rent on it.
It can be explained by this simple example: imagine you own a house, and you let someone else live in it in return for a rent.
You would be the freeholder, because you own the house outright, while your tenant would be the leaseholder because they only have a right to live there for a certain period of time.
Let’s say that you took out a mortgage on your house. Even though you’re still the freeholder, the bank technically owns the property until you’ve paid off your loan.
If there is a loan of around $200,000 on a property you own outright (freehold), then you might say that the property has a $200,000 mortgage.
You can pay down the mortgage to $0 and then own the property outright (freehold). You are technically considered the owner of a mortgaged property.
What are the benefits of buying the freehold?
The benefits of buying the freehold are that you will be the legal owner of the property and will be able to sell, lease or mortgage it as you wish.
You will also be responsible for maintaining and repairing the property.
Other important benefits include –
| Benefit | Explanation |
|---|---|
| Security of tenure | You will be able to live in the property until you die or choose to sell it |
| Control over alterations | You will be able to make any alterations you wish to the property without needing permission from anyone else |
| No need to pay ground rent or service charges | Unlike leaseholders, you will not need to pay any ground rent or service charges |
| No need to renew the lease | Once you own the freehold, you will never have to renew the lease |
| Easier to sell or lease the property | Freeholds are more desirable on the market than leases and so they are easier to sell or lease |
These are just a few of the benefits of buying the freehold.
You should speak to a solicitor to find out more about the specific benefits that apply to you.
Should we buy leasehold property?
The decision to buy a leasehold property comes down to personal preference and what is important to you when purchasing a home.
Some people prefer the security of owning their home outright, while others enjoy the flexibility that comes with leasing.
It is important to remember that when you buy a leasehold property, you are purchasing the lease from the freeholder, and not the property itself.
So, before making a decision, be sure to ask plenty of questions about the lease and what is included in it.
Advantages & disadvantages of buying a leasehold property include –
| Advantages of leasehold | Disadvantages of leasehold |
|---|---|
| Leasehold properties can often be cheaper than freehold properties, due to the fact that you are not purchasing the property itself, but rather the lease | You are not the owner of the property, but rather the leaseholder, so you do not have as much control over the property as you would with a freehold property |
| Leasehold properties offer more flexibility than freehold properties, as you are not locked into one specific property for the duration of your lease. This can be especially helpful if your needs or lifestyle change over time | The leaseholder is responsible for all repairs and maintenance on the property, which can be costly |
| Leasehold properties can be a good investment, as they often appreciate in value more than freehold properties | If you want to sell your leasehold property, you will need the consent of the freeholder, which they are not obligated to give |