Buying an apartment: Freehold vs leasehold

Wednesday, 16 February 2011 3:39 PM

Owning a flat in Britain can bring distinct advantages over buying a house, but here Anthony Hill asks is it better to purchase your apartment freehold or leasehold?

In recent decades, apartments have proved increasingly popular among young people who either can't afford to buy a whole house or prefer city life despite the decreased living space it brings.

While life in a block of flats is often associated with noisy neighbours, limited storage space and a distinct lack of anywhere to hang the washing, it also boasts a set of advantages over owning a larger, freestanding property.

For starters, the initial outlay is significantly lower, while upkeep and household bills invariably cost far less than those for a detached property.

In addition, apartments tend to provide better security – provided we're not talking a basement or ground-floor flat – and owners are likely to have fewer responsibilities, given that flats often don’t have any outdoor space.

When choosing to purchase rather than rent a flat in the UK, buyers have a big decision to make: freehold or leasehold. Both have their upsides and downsides and weighing up the advantages of each is something for which prospective owners need to allow plenty of time.

Here's a breakdown of the differences between freehold and leasehold and the pros and cons of each.

What does freehold ownership mean and what are the pros and cons?

Most property in the UK is owned freehold, which means that the owner is awarded complete legal ownership of the property and – in the case of a freestanding building – the land on which it stands. The vast majority of houses in Britain are sold this way and freehold apartments are extremely rare by comparison.

However, since the early 1990s, residents within a block of flats have had the right to buy the freehold between them, in what's called a joint freehold arrangement. In fact, a lot of new apartments are now sold with a share of the freehold, as opposed to the conventional lease.

Purchasing a flat freehold is often the more desirable option, though buyers should expect to pay considerably more for the privilege of being fully in charge of their home.

Owners of a joint freehold are generally advised to employ a managing agent to look after the building as a whole, as it helps residents avoid the inevitable disagreements that arise when they make improvement and maintenance decisions 'in-house'.

What does leasehold ownership mean and what are the pros and cons?

Apartments and flats are almost always sold leasehold in Britain. This means that buyers own their property and everything within its walls and floor, but not the actual structure of the building or grounds in which it sits.

In this instance, the landlord or freeholder owns the site and will charge leaseholders an annual ground rent. On top of this, leasehold flat buyers will also be required to pay an annual service charge to cover any maintenance and repair work on the building and its communal areas.

The leasehold flat is owned for a specified number of years, after which ownership will revert to the freeholder. The length of a lease, usually between 80 and 100 years for an older building, diminishes over time and its duration will have a direct impact on the property's value. A new-build apartment building could carry a lease as long as 999 years!

One of the main drawbacks of buying leasehold is that owners often face restrictive rules whereby they could be forbidden from decorating or keeping animals.

In addition, leasehold apartment owners are often heard complaining of abuses by the freeholder, such as landlords charging high 'administration' costs or presenting leaseholders with bogus bills.

Having said all that, the leasehold's main advantage is that it assigns clear responsibilities for upkeep and repairs, protecting individuals against unforeseen problems like a leak from the flat above.

For advice or information on leases, contact the Leasehold Advisory Service.

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