What Is The Difference Between Leasehold And Freehold?

Buying a property for the first time can be an exciting period in your life but it can also be fraught with stress and confusion.

Not least when it comes to understanding the difference between leasehold and freehold properties. Indeed, it is fair to say some first-time buyers will never have heard the terms leasehold and freehold until exploring purchasing a property.

But fear not, the explanations when broken down are reasonably simple. 

In essence, the key difference is that a freehold property is owned by you and you own the property outright, whereas a leasehold – of which there were roughly 4.86 million such homes in the United Kingdom in the period 2020-2021 – means you own the property for a specific term.

What does freehold mean?

As stated above, the majority of properties in the United Kingdom are freehold.

Freehold ownership is also known as “title absolute” – for example, you are responsible for all repairs and all building insurance. Indeed, with a freehold property, the only maintenance charges you will encounter is if you share services with neighbors, for example, a communal garden.

Most people find the autonomy of freehold ownership more beneficial but that is not to say you should avoid leasehold properties at all costs.

What does leasehold mean?

The difference with a leasehold property is that you own it for a set length of time, i.e. the term of the lease. Once this time has expired, ownership of the property will return to the person (or entity) who owns the land, which is the freeholder.

Most flats for instance are sold as leaseholds, particularly those houses converted into multiple flats. As a leaseholder, you will also pay ground rent.

In theory, this means the value of your leasehold property will decrease the closer you get to the expiry date so recouping your money the nearer you are to that point could be tricky.

That being said, leases can range from 99 to 125 years, to as much as 999 years. If you have a 999-year lease, then in reality that is as good as having freehold ownership due to the length of time remaining.

What you would need to consider with a leasehold, is that even leases with fewer than 80 years become trickier to sell or re-mortgage.

Can you rent out a leasehold property?

If you are thinking of sub-letting your property, then it is important to know the legalities of doing so.

As a freehold property owner, you have no issues as you own the home, and providing you take out all the relevant insurances, you are free to rent out the property.

With leaseholder ownership, it is a little trickier as many leases do not permit subletting. So, before renting out your owned house or flat check over the lease. If there is no mention or any obvious restriction you are likely fine to go ahead, but just to be sure have the documents checked over by a conveyancer.

If it states that sub-letting is prohibited, then you are not legally allowed to do so without written permission from the landlord (although most landlords will grant permission).