If you own a property in Wales, you’ll either be a freeholder or a leaseholder. This dual system of ownership is almost unique to England and Wales and is not without criticism. If you are buying a house, flat or any other kind of property then your solicitor will advise you on the type of title (freehold or leasehold) you are acquiring. It’s essential though to familiarise yourself with the differences between freehold and leasehold because the title you purchase will affect the way you can use the property, the ongoing costs of owning it and the resale value. The best type of tenure for you depends on your personal circumstances and the nature of the property. Be aware you usually won’t have a choice: whether a property is freehold or leasehold is down to how it has been registered at the Land Registry. Here we look at the key differences between freehold and leasehold ownership, and we examine some of the advantages and disadvantages of each type of tenure. We also highlight recent criticism of leaseholds and how the government has suggested revamping the system. Finally we suggest some factors buyers should consider ahead of their purchase a freehold or leasehold interest.
At Gamlins Solicitors LLP we have offices across North Wales. We offer expert, cost-effective advice on all aspects of conveyancing and property law. Call us on 01492 860420 or contact the team online.
Freehold v Leasehold: What’s the difference?
In short, freehold ownership gives the buyer complete control over both the property and the land it’s built on with no time limit attached. In contrast buying a leasehold property gives you ownership of the property for a set period of years – the lease term. You don’t own the land beneath the building, and you will have certain ongoing obligations as regards insurance and maintenance. When the term of the lease expires ownership of the property goes back to the freeholder although there is a legal mechanism known as ‘enfranchisement’ which enables qualifying leaseholders to acquire the freehold interest.
In Wales most houses are freehold. Flats tend to be sold with a leasehold interest with communal areas such as staircases, landings and gardens being managed by either a property management company or the leaseholders themselves.
Pros and Cons of Owing A Freehold or Leasehold
| Pros of Freehold | Pros of Leasehold |
| More straightforward sale and purchase | Often less initial outlay than freehold |
| Greater control over the property | Responsibility for repairs to building and common parts is shared |
| More attractive to buyers | Freeholder or managing agent will take long term view of repairs and maintenance so cost evenly spread |
| No time limit on ownership period | Legislation enables leaseholders to take over running of building from freeholder (Right to Manage) or acquire freehold between themselves (Enfranchisement) |
| Freedom to renovate, extend without requiring third party consent | Reform to law likely that will further protect leaseholders |
| Cons of Freehold | Cons of Leasehold |
| Can be more expensive to purchase | Lease term reduces from moment of purchase. If lease term is less than 80 years (‘the marriage value’) it becomes more expensive to extend or remortgage and more difficult to sell |
| Fully responsible for refurbishment and structural problems when they arise | Ongoing expense of service charges, ground rent |
| Cost of extending lease or acquiring freehold is substantial | |
| Freeholder can prevent you altering property and restrict how you use it |
Why Is Leasehold Law Changing?
In recent years there has been growing criticism of the dual freehold/leasehold ownership system in England and Wales. This was fuelled by several factors, including:
· High service charges imposed on purchasers of new leasehold properties
· Punitive ground rents which doubled at set periods, and which would have the effect of making affected leasehold properties unsellable
· A trend for developers to sell leasehold houses
· A general feeling that the leasehold system itself was outdated and had echoes of the historical, feudal system of land ownership
The Leasehold and Freehold Reform Act 2024 has now passed through parliament and is being finalised by the Labour government. The legislation seeks to radically reform the law relating to leasehold property. Some of the measures included are:
- Reducing the cost of extending leases by abolishing the ‘marriage value’ of leases below 80 years
- Banning the sale of leasehold houses
- Ending the current two-year period whichbuyers of leasehold property must wait before being able to extend a lease or buy the freehold
- Requiring freeholders to be more transparent about service charges and commissions paid to contractors and insurance companies
- Making buying or selling a leasehold property quicker and easier by setting a maximum time and fee for home buying and selling information.
Freehold v Leasehold: How does a Buyer decide?
In practice you should bear in mind the following:
- The length of the lease you are buying
- Charges and fees associated with leasehold properties can be considerable
- If you are buying a leasehold property, for example a flat – find out how it is managed day to day. Have there been disputes among the flat owners about paying for building repairs or other issues?
- Think about when it comes time to sell. While freehold properties may hold their value better, leasehold flats can still be profitable investments over the long term
Comment
Ultimately you may have little choice over whether the property you purchase is freehold or leasehold. Many buyers prefer the reassurance of sharing the management of their properties with others while others prioritise having personal control over their building. It may in some cases be worth waiting for the reforms we have discussed to fully come into effect before buying a leasehold property
Contact Us
Gamlins Solicitors LLP has a network of offices across North Wales, and we can arrange an in-person appointment at the office that’s most convenient for you or a remote appointment if you prefer. Please call us on 01492 860420 or contact the team online
