Freehold vs Leasehold vs Share of Freehold: The Main Differences?
When purchasing a property in England or Wales, understanding the type of ownership is just as important as understanding the condition of the building.
Freehold vs Leasehold vs Share of Freehold: The Main Differences? These three terms are commonly encountered by buyers in England and Wales.
Although these arrangements may sound similar, they can involve significantly different legal rights, financial commitments and responsibilities for maintaining the property.
The differences become particularly important when purchasing flats, converted Victorian houses or properties containing shared roofs, walls, gardens and communal areas.
At Dunham Hale Chartered Surveyors, we regularly inspect properties where the physical condition of the building is only part of the consideration. Establishing who is responsible for repairs can be equally important.
What Is a Freehold Property?
Freehold ownership generally means that you own the property and the land on which it stands without a fixed time limit.
Most traditional houses in England and Wales are sold on a freehold basis.
As a freeholder, you will normally be responsible for maintaining and insuring your property, including its roof, external walls, windows, drainage and structural elements.
For example, if the roof of a freehold house requires replacing, the cost would ordinarily fall to the owner, subject to any shared ownership arrangements or obligations involving neighbouring properties.
What Are the Advantages of Freehold Ownership?
Freehold ownership generally offers greater independence.
You do not have a lease that reduces in length, and you do not normally need permission from a separate landlord to undertake repairs or improvements.
However, alterations must still comply with applicable planning requirements, building regulations and other legal restrictions.
Does Freehold Mean There Are No Restrictions?
No.
A freehold property may still be affected by restrictive covenants, rights of way, easements or shared maintenance obligations.
Some modern freehold developments also require homeowners to contribute towards the maintenance of private roads, landscaped areas or communal facilities through estate management charges.
Your conveyancer should establish whether any such arrangements affect the property.
What Is a Leasehold Property?
Leasehold ownership means that you acquire the legal right to occupy and use a property for a specified period under the terms of a lease.
Leasehold arrangements are particularly common with flats, although some houses are also leasehold.
A lease may originally have been granted for 99, 125, 250 or 999 years, but what matters when purchasing is the number of years remaining.
Unlike freehold ownership, leasehold interests have a fixed term, although statutory or contractual rights to extend the lease may be available.
Who Is Responsible for Repairs?
This is one of the most important considerations when purchasing a leasehold property.
In many blocks of flats, the freeholder or management company arranges repairs to the main structure, roof, communal areas and external walls.
However, the individual leaseholders normally contribute towards these costs through service charges.
The precise division of responsibility depends on the wording of the lease.
For example, the lease might make the freeholder responsible for maintaining the main roof but require individual leaseholders to maintain their own windows.
Other leases may place responsibility for window replacement with the freeholder or management company.
It is therefore essential that your conveyancer confirms who is responsible for each element.
What Are Service Charges?
Service charges are payments collected to cover the management, maintenance and repair of the building and its shared facilities.
Depending on the property, these may include:
Roof and external wall repairs.
Buildings insurance.
Communal cleaning and lighting.
Lift maintenance.
External decorations.
Landscaping and gardening.
Management fees.
Contributions towards future major repairs.
The amount payable can vary considerably between buildings.
A flat with relatively low annual service charges may appear attractive, but this does not necessarily mean that the building is being adequately maintained.
If insufficient funds have been collected for future repairs, leaseholders may face substantial additional demands when major works become necessary.
Why Does the Remaining Lease Length Matter?
A lease becomes shorter over time.
As the remaining term reduces, extending the lease can become more expensive, and mortgage lending or future resale may become more difficult.
Buyers should ask their conveyancer to confirm the remaining lease length, any extension rights, the potential cost of extending it and any implications for mortgage lending.
Ground rent provisions and restrictions on alterations, subletting or other uses should also be reviewed.
What Is Share of Freehold?
Share of freehold is an arrangement commonly encountered with flats, particularly in smaller converted houses and residential blocks.
It usually means that the flat owner holds two separate interests:
A leasehold interest in their individual flat.
A share in the company or joint ownership arrangement that owns the freehold of the building.
For example, a Victorian house converted into three flats may have a freehold-owning company in which the three flat owners hold shares.
Together, the owners have a degree of control over the freehold and the management of the building.
However, an important point is often misunderstood.
Owning a share of the freehold does not normally mean that you no longer have a lease.
The lease remains important because it establishes the rights and obligations of individual flat owners.
What Are the Advantages of Share of Freehold?
One of the main advantages is increased involvement in the management of the building.
Depending on the ownership and management arrangements, the flat owners may have greater influence over decisions involving maintenance, insurance and the appointment of contractors.
It may also be more straightforward to arrange lease extensions, although this will depend on the particular circumstances and the cooperation of the other owners.
Are There Any Disadvantages?
Yes.
Share of freehold ownership can become complicated where owners disagree about maintenance, spending or the management of the property.
For example, one flat owner may consider roof repairs essential, while another may be unwilling or unable to contribute.
Even where all owners hold a share of the freehold, the building still requires insurance, maintenance and financial planning.
A poorly managed share of freehold building can develop significant repair liabilities.
The condition of the building, the adequacy of reserve funds and the willingness of owners to undertake necessary works should therefore be considered carefully.
Freehold, Leasehold and Share of Freehold: The Main Differences
Consideration | Freehold | Leasehold | Share of Freehold |
Ownership | Freehold interest in the property and usually the land | Leasehold interest for a fixed term | Leasehold interest plus a share in the freehold |
Typical property | Houses | Flats and some houses | Flats, particularly converted buildings |
Lease expiry | None | Yes | Individual flat lease usually still exists |
Roof and structure | Normally owner's responsibility | As specified in the lease | As specified in the lease |
Service charges | Usually none, but estate charges may apply | Common | Often payable or collected under shared arrangements |
Management control | Generally direct | Usually limited by lease arrangements | Greater collective involvement |
Main concern | Repair costs and title restrictions | Lease terms, charges and maintenance liabilities | Management, lease terms and shared decisions |
Why Do These Differences Matter When Buying a Property?
The legal ownership arrangement can have a significant impact on future expenditure.
Consider three properties, each with a roof requiring substantial repairs.
Property A — Freehold House
The owner would ordinarily arrange and fund the roof repairs, subject to any shared obligations involving adjoining properties.
Property B — Leasehold Flat
The freeholder or management company may arrange the repairs, but the leaseholder could be responsible for a proportion of the cost through service charges.
Property C — Share of Freehold Flat
The flat owners may collectively decide how and when to undertake the work, but they will still need to fund the repairs in accordance with the leases and management arrangements.
The physical defect may be identical in all three properties, yet the process for arranging repairs and determining financial responsibility can be very different.
What Should You Check Before Buying?
Regardless of the ownership arrangement, your conveyancer should investigate the relevant legal documentation.
For freehold properties, important considerations include title restrictions, rights of way, shared structures and any estate management obligations.
For leasehold properties, particular attention should be given to the remaining lease term, service charges, ground rent, repairing obligations and planned major works.
Where a property is sold with a share of freehold, buyers should also establish how the freehold is owned, who manages the building, whether adequate maintenance funds exist and whether any disputes are ongoing.
It is also important to establish whether the legal documentation clearly allocates responsibility for roofs, external walls, windows, foundations and shared drainage.
These matters can have significant implications where defects are identified during a survey.
How Does a Building Survey Help?
A building survey and the conveyancing process perform different but complementary functions.
A building surveyor assesses the physical condition of the property and identifies visible defects, maintenance requirements and matters requiring further investigation.
For example, a survey may identify defective roof coverings, deteriorating external walls, damaged windows or concerns involving shared structural elements.
However, a building surveyor cannot determine the legal responsibility for repairs simply from inspecting the property.
Where ownership or repairing obligations are unclear, these matters must be referred to the purchaser's conveyancer.
This is particularly important for leasehold and share of freehold properties because substantial repair costs may ultimately be shared between several owners.
A RICS Level 2 Home Surveys may be suitable for conventional properties in reasonable condition, while a RICS Level 3 Building Surveys provides a more detailed assessment of older, altered or complex buildings.
Arrange an Independent Property Survey
Whether you're purchasing a freehold house, leasehold flat or share of freehold property, understanding the condition of the building before exchanging contracts is essential.
Dunham Hale Chartered Surveyors provides independent RICS property surveys across London, Greater Manchester, Cheshire and other areas within our coverage.
Our RICS Level 2 Home Surveys provide professional assessments of conventional residential properties, while our RICS Level 3 Building Surveys offer more detailed advice on construction, defects, repairs and their potential implications.
Freehold, leasehold and share of freehold ownership each have advantages and potential disadvantages.
Freehold ownership generally provides greater independence, but the owner is normally responsible for the full cost of maintaining their property.
Leasehold ownership can provide an established system for managing and maintaining shared buildings, although service charges, lease restrictions and future repair liabilities require careful consideration.
Share of freehold can offer greater involvement in the management of a building, but it also requires cooperation and effective financial planning between owners.
No ownership arrangement automatically guarantees a well-maintained property or freedom from unexpected costs.
The best approach is to understand both the legal arrangements and the physical condition of the building before committing to a purchase.
This article provides general information about property ownership in England and Wales and does not constitute legal advice. Your conveyancer should confirm the specific rights, restrictions and obligations affecting any property you intend to purchase. Advice on this page does not cover Scotland or Northern Ireland.
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