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Freehold VS Leasehold

Posted by Ugo Arinzeh on 31st May 2019
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Hi everyone and thanks for watching, in today’s video we are going to be talking about the differences between Leasehold versus Freehold and we’re getting started on the other side.

Hi everyone, Ugo Arinzeh with from Onyx Property Consultants, powered by Keller Williams, thanks for watching my YouTube channel, I am a London-based property agent and I put out weekly videos talking about the London property market and why this is such a fabulous place to live to own property in and in today’s video we are going to be talking about Freehold vs Leasehold.

This is something that many international buyers might not be familiar with, because as a concept, especially if you are buying from America you might not have ever heard about. The closest thing it might come to is perhaps, owning a condo building, homeowners association fees. So, the primary difference in ownership in the UK, is a leasehold property versus a freehold, while freehold might be more common since I am London-based, we see a lot of leasehold properties and it is something buyers should be aware of, the fundamental difference is in a freehold you own the land as well as the building.

In a leasehold situation you own the unit itself but you don’t own the underlying land. Where you typically find that is in a block of flats,

or a converted terraced property, where you might own a flat but you are also one of other flat owners and the reason why the concept has come about is basically recognising that there’s still common areas that you are going to share. Whether that’s just the lobby when you come into the property, or the roof, or the front steps, or the exterior of the building, you are sharing that with other property owners, and so the idea is that, basically, as a leaseholder you are going to have a lease which is the underlying term in which you have bought that property.

Typically, leases go from 99 years to up to 999 years, but what we find is once a lease starts getting below 80 years, a lot of banks or mortgage lenders won’t lend against that property, so it is something that, as a buyer, you want to make sure you understand if it is a leasehold or a freehold and then the term of the lease that’s remaining.

The other key component is, that when it is a leasehold, you’re going to be responsible for service charges. Service charges are the cost of maintaining that building. While there is a management company there may be a management company that’s looking after it, they are going to pass on the costs to you as a leaseholder. Given that I am a buying agent, I work with buyers and sellers where that can really become problematic.

I recently just sold a flat where the service charges were very high, and it really was a detriment to the amount of buyers that were going to look at that property. Why? Because service charges are not something you can mortgage, it’s a cost that you are going to have to incur typically twice a year the statement comes out but it is not something you can roll into the cost of your mortgage, it is going to be on top of your mortgage. But in that situation, service charges are technically going to be a pass-through cost for the actual cost of the property, although they might be forecasting for the year ahead. So, it should include things like building insurance, if there’s communal cleaning that’s happening, if there’s gardening for communal areas, if there’s a garden, if there’s a porter the costs of the porter and maintaining and paying for that service – those are all the things that come into it and then when we talk about say a modern development or a purpose-built block that’s got all of the bells and whistles such as a gym, there might be a cinema room, 24-hour portage, then you are probably going to be talking about service charges that are a lot higher, and the way that we can help buyers compare that sometimes is on a price per square foot, so the service charges on a square footage basis can kind of see what’s normal for the sort of level of services that they’re getting.

 

When you are a freeholder, again, you are more often going to find yourself in a situation where you own the entire property, so it’s a single home, then you’re going to be the freeholder and then you are going to be responsible for all those things such as building insurance, and looking after the maintenance of it, but there’s not going to be any real restrictions to it.

The other thing that happens with a leasehold is that you’ve got a leasehold agreement that’s going to dictate what you and the other leaseholders can do. A lot of times that can be as restrictive as your ability to own a pet in your flat or one of the things I’ve seen in a situation is that leases may dictate that you may have carpeting if you are on the first floor or above, because if you have, say, hardwood floors it might be very disruptive to the unit below you. Or if on a balcony, you might not be able to hang out your washing or your laundry.

So, there’s definitely going to be more restrictions, but the issue is in London that’s more often going to be the type of property that you find.

The third hybrid is a “shared freehold” and we often see that in a converted terraced property where they might be two or three flats you might own a share of the freehold so you still have an underlying lease that dictates what you can and cannot do, but you are the freeholder along with your other leaseholder. In that situation, you may or may not decide to hire a third-party management company to look after things, or you might just agree to get quotes when it comes time to getting building insurance and things like that.

So, I hope that helps you get a little bit of taste of some of the restrictions and benefits of or the differences of being a leasehold versus freehold so these are some of the things you need to think about including if you do have a shorter lease, looking into extending that lease, and I am going to leave links below to help you to give you a lease calculator lease extension calculator, and what the costs might be

they’re pretty substantial so you want to make sure you understand that, and I am going to have a follow-on video that’s going to talk about that a bit more.

That’s Ugo Arinzeh with Onyx Property Consultants, powered by Keller Williams. Bye for now.

 

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