The Difference Between Freehold and Leasehold

If you are considering owning a property in England and Wales you need to consider the two different types of property ownership that exist; freehold and leasehold.

The majority of properties in England and Wales are freehold which means technically the owner owns their property for an unlimited period.

Leasehold is a temporary right to occupy property or land and will usually involve a lengthy legal document called a lease.  Most flats in England and Wales are leasehold properties and involve lease agreements between landlords and tenants.  The lease document based on contractual and property law sets out the obligations and rights of both the landlord and the tenant.

Leases can apply for a fixed term and historically most flats have leases of 99 years.  More recently, leases have been applied to properties that are valid for 125 years.  You may also see lease agreements citing a period of 999 years although these are quite rare.

Whilst a lease document might be quite complex, the basic premise is that the tenant has the right to live in the property for the lease period stated.  Usually, the lease document will state that the landlord will be obligated to allow the tenant ‘quiet enjoyment’ of the property as long as the tenant meets the obligations of the lease.    The main obligation is that they meet the rent payments on time.

So, what happens when the lease period expires?  If you find that you are occupying your property when your lease expires it could mean that your landlord will ask you to leave.  At this stage you no longer have the right to own the property and the lease will usually include a clause that says the tenant must ‘quietly yield up possession’ upon expiration of the lease.  The good news is, this rarely happens.  The landlord will usually extend the lease well before the current period expires.

When looking for a new property it’s important to know the difference between freehold and leasehold as both interests in land and property vary greatly.  The value of a freehold property will remain maintained when the property market is stable whilst a leasehold property is known as a diminishing asset.  As the lease period gets shorter, the property will start to decrease in value.  The reduction at first is minimal, but over time the value will start to fall rapidly.