While you’ve been scrolling through dream houses, you’ve probably seen the words freehold, leasehold or commonhold pop up.
Like most jargon in the homebuying process, these small words can have a massive impact on the type of property you buy.
So here’s what you — a first-time home buyer — need to know about freehold vs leasehold vs commonhold properties.
What’s a freehold?
When you buy a freehold property, you own the building and the land that it’s on for as long as you like. You can sell it yourself or pass it down the generations until your great-great-great grandson decides to sell it and buy a spaceship instead 🛸
What are the pros of a freehold?
- It’s all yours to do what you want.
- You don’t have to pay for ground rent, admin fees or service charges.
- There’s no time limit (lease) to consider.
What are the cons of a freehold?
- Freeholds can be more expensive to buy.
- Every repair. Every crack in the wall. Every plumbing emergency. It’s all on you to organise and pay for *gulp*.
What’s a leasehold?
With a leasehold, you own the building , but not the land that it’s built on.
Instead, you own your property for a set amount of time. Once the lease runs out, ownership of both the land and the building goes back to the freeholder, who can either be a person or an organisation.
These leases tend to be very long (some up to 999 years) and transfer from seller to buyer. When you buy the house, it might have something like 125 years left on the lease.
Leasehold properties are seen as investments — you want to sell them before the lease ends (obvs).
What are the pros of a leasehold?
- You’re not responsible for maintaining or managing the communal areas and the land — that’s the freeholder’s job.
- Because of this ^ you won’t have to pay out for big things like structural plumbing, or a leaky roof.
- Leaseholds can be cheaper to buy than a freehold property.
- You have the right to ask your landlord for a lease extension. Recently, there were some new laws introduced around lease extensions that make things easier for leaseholders.
- Some first-time home buyers opt for a leasehold because they know they aren’t going to stay in that home for a long time. It’s a (typically) more affordable first step on the property ladder.
What are the cons of a leasehold?
- You typically have to pay services and factor fees for maintenance, plus admin fees and ground rent.
- The freeholder can decide to increase the ground rent whenever they like.
- You have to give the property back once the lease ends.
- The freeholder can deny your request for a lease extension.
- It can be more difficult to get a mortgage on a property with a lease that’s under 80 years.
- It can also be harder to sell a property with a lease that’s under 80 years.
- As the lease gets shorter, the value of the property can go down too.
- There can sometimes be restrictions around things like subletting, running a business on site, or making structural changes.
What’s a commonhold?
Commonhold properties are typically flats. In the past, flats were almost always leasehold, but now, with a commonhold, you own the freehold of your flat and a percentage of the common areas of the building (e.g. the hallways) and the land it’s built on.
What are the pros of a commonhold?
- You can own a flat, without leaseholds being your only option.
- You can split the costs for building and land maintenance with your neighbours.
What are the cons of a commonhold?
- You have additional costs to maintain your flat, plus the common areas.
- Sometimes neighbours can’t afford to pay for joint expenses (e.g. structural repairs) and that can put you in a difficult position.
- Even if your flat isn’t affected by any damage (e.g. leaks from an issue with the building’s plumbing) you still have to pay to fix them.
The bottom line? Buying a freehold can be more straightforward since you’re the only owner. The land (and the responsibility to keep it up) is all yours, but you also have full control of everything.
Buying a leasehold can be beneficial for first-time buyers — just more sure to read the fine print before you put in an offer.
Commonhold properties are all about shared responsibility — everyone relies on each other and each person has their part to play.