Leasehold vs freehold? As a business or home owner do you know whether a leasehold option on your property is best for you?
There are many different reasons why either may be best but understanding the ins and outs of different models of property ownership is important from a legal perspective, as the different types carry with them various rights and obligations.
It also matters from an investment and operational point of view. Depending on what you wish to do with your property, certain ownership models will have benefits over others in terms of the decisions you can make and the returns they make possible.
Here, the team of Chartered Surveyors at Stockport based Fairhurst Estates are taking a look at look at the advantages and disadvantages of different property ownership types for commercial investors, starting with freehold and leasehold.
Leasehold vs Freehold
Freehold – in short: where the rights to the land/property are held outright by named parties
Leasehold – in short: where rights of ownership or occupancy are let from a freehold owner
Freehold affords much greater control over a property, for instance where purchased for redevelopment.
A leasehold property has many anomalies. For instance, the freeholder can still retain rights over repair and maintenance, which can suit some people, but also introduces the risk of disputes. Where three different parties are involved– the freeholder, leaseholder and tenant – who pays for and does what can be a common cause for headaches.
Leasehold may include an occupancy agreement made between a landlord and a tenant but in the case of long leases – 999 years is not uncommon – leaseholds operate more like an alternative ownership model to freehold, providing the holder with virtually the same rights and responsibilities as an outright owner in return for a (often nominal) ‘ground rent’.
Leasehold is considered a type of ownership because, for the length of its duration, the lease gives the holder rights to the property as stipulated in the contract.
One word of warning, the owner of a leasehold property, retains the right to sell the freehold on, regardless of the situation with the lease. It is not unknown for freeholds to be sold without the leaseholder having any knowledge, and then the new owners immediately looking to renegotiate the terms of the lease.