Understanding the difference between freehold and leasehold

If you look at online or print listings of properties for sale, you will likely have come across the terms freehold and leasehold. Understanding the difference between the two terms is crucial when you are contemplating about buying a property, especially when it involves homeowners who are looking for fast house sale. Otherwise, you may end up paying an annual rent for the property you just purchased!



What is leasehold?


Leasehold is a type of property ownership which is valid over a limited period of time. It is not an outright ownership. The final ownership of the land or property will revert back to the freeholder at the end of the lease period, which theoretically ranges from 1 year to 125 years.


The concept of leasehold has been around for thousands of years, but it gained popularity and mass adoption in England about a thousand years ago. At the time, ownership of land holdings was a sign of wealth and status symbol. As such, most nobles and wealthy families would never consider selling their land for any reason.


However, they do want to monetise their vast landholding. This led to the official formulation of the leasehold concept, where landowners transfer the ownership of their land for a short period of time in return for payment of cash or in kind. The concept proved popular since it provided a source of income and food both for the leaseholder (tenant) and freeholder.


In modern times, leasehold serves one very useful function: they facilitate the building and sales of flats and condos. Since the majority of flats are located above ground, dividing the land title is almost impossible. However, with a leasehold, the ownership of the land where the building is built on can be temporarily assigned to a management company for the duration of the lease.


It is worth remembering that leaseholders are required to pay an annual lease (rent) to the freeholder.




A freehold title gives the owner absolute ownership of the land or property for perpetuity. In addition, a freeholder also owns the airspace above the ground (maximum 500 feet, subject to local ordnances) and the ground underneath (which could have been lucrative if only UK has a lot of mineral and fossil fuel deposits).


Unlike leaseholders, it is the responsibility of freeholders to maintain their property and pay any regulatory fees or taxes.