In this article we explain the difference between freehold and leasehold properties, as well as outlining the pros and cons of each and defining the term ‘lease extension’.
A freehold is when you own a building and the land it stands on outright forever i.e. you own the ‘title absolute’ in perpetuity. This is the case for most detached houses.
The advantages are that you own the property forever, you don’t pay any ground rent, you aren’t answerable to any superior landlord and you can lease the property out. The downside is that you are responsible for maintaining the property.
A leasehold, by contrast, is the right to occupy land for a period of time. The freeholder has a superior interest in this land for a longer period of time, and at the end of the lease term the property reverts to the freeholder. Most flats are sold as leasehold properties.
The downsides of this are that you pay maintenance fees, service charges, ground rent and buildings insurance, plus you must obtain permission for works to the property and you may face restrictions in the lease e.g. you might not be allowed to sub-let.
Furthermore you will lose the flat when the lease expires and the closer the lease gets towards zero years, the lower the market value of your leasehold property and the more expensive it becomes to extend your lease.
A lease extension is when you add years to the terms of the lease on your property. This can be achieved by statutory or non-statutory means.