Are you looking to buy a property but struggling to decide whether it is worth it if you have a freehold? If so, you’re not alone. With so many factors to consider, it can be difficult to determine which option is best for you.
That’s where this article comes in. We’ll delve into the key differences between freehold and leasehold ownership, focusing on whether it’s worth purchasing the freehold of a flat or house.
We’ll discuss the benefits of owning the freehold, such as greater control over costs and decision-making, but also highlight the potential drawbacks, including additional responsibilities and potential disputes.
Furthermore, we’ll address the complexities involved in purchasing the freehold of a leasehold property and provide guidance on overcoming potential obstacles.
Is it worth buying the freehold of my flat?
In general, buying the freehold of a house is usually a good investment in the long term. However, it may not be the right thing to do for all people at all times.
Benefits may include being able to control the property to a greater extent because you would then be able to decide on things like deciding on what kind of contracting costs and ground rent costs should be charged to leaseholders.
In general, all costs will be managed by the person or group of people who own the freehold so you will be independent and able to make all of your decisions without a third party having the final say.
Having said this, there is a good chance that you will be deterred from buying the freehold at the same time because in order to own it you have to take on an additional sense of responsibility and the contract in place that gives everyone a share of the freehold may be hard to manufacture.
This responsibility is not for everyone as a lot of people would much rather only own and be responsible for the building they are living in. And this suits the mindset of a typical home owner so you should certainly find out if your property is freehold or leasehold beforehand.
In addition, while you are in control of costs, additional costs will crop up too.
For instance, the freehold of a property will be expected to pay for things like insurance and maintenance and collect payments towards this from leaseholders as well as resolving issues if there is a flying freehold conflict.
This can prove difficult and lead to issues and disputes alter down the line because a lot can go wrong if you don’t know what you are doing, rack up extreme costs or don’t know how to negotiate with leaseholders.
If everything goes to plan and you are able to group together and buy the freehold of a property, this will be known as a shared freehold.
Here, you will be able to extend your leasehold agreement for up to 999 years which may also increase the value of leaseholds in the future if the leasehold is quite short.
For instance, if you have a freeholder who has 70 years left on their freehold agreement and the leaseholders buy the freehold and extend it for 999 years then the leaseholds will in turn become more valuable.
What is the difference between freehold and leasehold?
When you own a property, there are two types of ownership that you can have which are a freehold ownership or a leasehold ownership. Freehold ownership means that you own the property and the land which gives you complete control over what you do with it.
On the other hand, leasehold ownership means that you own the property for a set period of time, usually for a number of years or decades. However, the land on which the property is built is actually owned by someone else, usually the freeholder.
So, when you buy a leasehold property, you are essentially buying the right to use the property for the length of the lease.
For example, if you buy a leasehold property with a 99-year lease using a freehold flat mortgage, you have the right to use and occupy the property for 99 years. After that time period is up, the property and the land it’s on will revert back to the freeholder.
Is it possible to buy the freehold of a leasehold house?
It is possible to buy the freehold of a leasehold house as well as it being possible in a block of flats as mentioned above. However, the process is slightly different and if you are buying the freehold of a house you will not need to collectively own it.
In some cases, buying the freehold of a property is extremely straightforward whereas other times it requires a bit more work from the leaseholder and there could be some obstacles in the process.
So, follow the steps below to learn how you can overcome the problems that may crop up as you buy the freehold of your house and learn how to go through the process smoothly.
Ask the freeholder
The first step in the process and the easiest way to go about things is to ask the freeholder if the property is a freehold and if they are interested in ever selling their property on and at what time scale they expect to do it. This is where you would reach out and contact the freeholder without any legal documents.
If the freeholder agrees to this, then you would start the legal process of buying a house and start to apply for a mortgage, bring in a solicitor to oversee the transaction and things like this.
Raise a legal dispute
If the above step doesn’t work, then you have the right to open a legal dispute with your landlord which is where you are able to argue for your right to buy the freehold if you meet a certain criteria. This criteria includes the following points.
You must have the leasehold of the entire property
If you do not have the leasehold or are leasing the entire property that is owned by the freeholder then you will not be eligible to open up a legal dispute. This is because your property will then qualify as a flat and you will have to follow the above steps on buying a leasehold as a flat.
You need a long-term lease
On top of this you will need to have signed to own the leasehold for a long period of time that is at least 21 years and you must also have the right to extend the lease which should be given to you by the freeholder when you first bought the leasehold.
How to know if you can buy the freehold
In order to be the rightful freeholder of a property, you will need to be able to be 21 years of age or more and also not have a current commercial lease, your lease must be residential.
As well as this, the building that you are attempting to buy the freehold of must contain at least two flats if it is a group of flats and the flats must be majority owned by leaseholders and at least two-thirds of the leaseholds must come forward and say they want to buy the freehold.
In this sense, it is impossible under the law to buy the freehold of a property as an individual owner and you will have to form a limited company a collective with your neighbours and only then will you have the right to make changes to the land.
For instance, if you are able to own the freehold you could start installing shops and other amenities on the grounds which add to the quality of the space.
How much will it cost to buy the freehold of a house?
Freehold prices vary quite a bit because there are a few factors that go into the valuation of a freehold and there are also factors that are unique to freeholds that make it very different to buying a house.
First of all, the current value of the property must be looked at in the same way as if you were valuing a house in general. Things like the build quality of the house, the number of bedrooms there are and the advantages if the property are taken into consideration.
As well as this, the cost of the annual ground rent on the freehold is taken into consideration as the higher this is, the more valuable the freehold will be because there is more cash flow attached to the property.
Finally, the amount of time that is left on the current lease is a big factor that is taken into consideration as if there are less than 50 years on the lease then the freehold will decline in value by quite a bit.
This is because no one wants to buy land they cannot sell on in the future and companies who own freehold reversions, lenders and buyers in general experienced in freeholds understand this very well. For more on this click here.
To conclude
To wrap things up, whether you should buy a freehold or not will mainly come down to whether it is worth the money you are able to get from the deal and if you are willing to take on the additional responsibility too.
This is something that will come down to the individual deal and the person looking to buy as everyone has their own tolerance for risk and expectations of their time.
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