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Jargon explained! What do freehold, leases, service charges and ground rent mean for you?

 

Freehold

With a freehold property, you own the house (the whole building) and the land it’s built on including all outdoor space or gardens. There are no third parties to consider, and you will only have to pay maintenance on what you decide to have repaired or upgraded. Freehold is the most common way to buy a house in the UK.


Leasehold

A leasehold property is where you own the property, but not the land it sits on. The land is still owned by the freeholder, who is selling the property for a set period of time (up to 999 years). It’s more common with flats, but there are some leasehold houses too.

The freeholder owns the land a leasehold building sits on. Usually shared spaces, like gardens, hallways, car parks, communal storage like bike stores, or basements, and sometimes a roof and windows, are the responsibility of the freeholder. Insurance for the building is arranged by the freeholder, as well as arranging maintenance of safety (fire safety, electrical safety etc) in communal areas.

This means if there’s any damage or work that needs doing, they will usually sort it out. You’ll pay them a service charge to cover this. You may also pay an annual ground rent to ‘rent’ the space your building sits on. This can range from £0 to £1000 per year.


Share of freehold

Buying a property with a share of freehold means you own the leasehold of your property, and all the responsibilities of the lease are yours, plus you also own a share of the freehold (for the land and communal spaces).

Sometimes the freehold is owned in a company and each leaseholder has a share in (and is usually a director in) that company, sometime the freehold is simply listed with all leaseholders’ names (knows as ‘joint management’)

Share of Freehold is most associated with the purchase of flats, where owners own the leasehold for their individual flat and hold a share of the freehold for the entire building and the land it is built on, collectively owning the whole freehold.


Key differences between freehold and leasehold properties

Property ownership – With freehold, you own the property and the land it’s built on. With leasehold, you own the property for a set period but not the land.

Gardens – With a freehold property, you own the gardens. It’s your responsibility to maintain them. With leasehold, you do not own the shared gardens. The landlord is responsible for maintenance.

Charges – With freehold properties there are usually no set charges, but you are responsible for the property’s insurance and upkeep. With leasehold, you’ll pay service charges and potentially ground rent, but responsibility lies with the freeholder either directly or via a management company.


Service charges

A service charge is a regular payment (usually monthly, bi-annually or annually) for maintaining shared areas of a building. For example, lighting, heating, gardening, cleaning, building insurance, safety checks and maintenance work. A freeholder will provide leaseholders with estimates for coming years and should be able to provide accounts so you can see what has been spent in the years previously.

Service charges are common for leasehold properties. Some freehold properties may also have service charges is there is, for example, communally maintained driveways, unadopted roads or shared vehicle/pedestrian gates.


Ground rent

Ground rent is a payment made by the leaseholder to ‘rent’ the space a property sits on as defined under the terms of a lease on a regular basis.

Ground rent may increase over time based on the review period and terms of the lease. The cost can vary from a few pounds per year to several hundred pounds or more. Technically, if you're unable to pay the ground rent, the freeholder could take you to court and repossess the property. However, new laws that have recently come into force will cap ground rents for most new-build homes, lease extensions and variations of leases in England and Wales to £0.


Lease length

This is the number of years you have the right to live in this property. After this time, ownership technically reverts to the freeholder. Leaseholds last up to 999 years and new leases are usually issued with either 99, 125, 250 or 999 years on the lease.

Properties with short lease lengths (70 years or less) can decline in value as they are less appealing and there are some mortgage companies who are less willing to lend on it. You can extend the lease at a cost which gets more expensive the shorter a lease is. You should always confirm the length of the lease before offering on a leasehold property.


Council Tax Band (England and Wales)

Council tax is payable on all domestic properties. The amount you pay depends on the tax band. You can check the charges for each tax bands in England and Wales online via the website below. Council tax bands are different in Scotland.

England and Wales - https://www.gov.uk/council-tax-bands

You may have personal circumstances which mean that you pay a reduced rate. You can get more information from the local council.

Harrow - https://www.harrow.gov.uk/council-tax

Hertsmere - https://www.hertsmere.gov.uk/Council-tax/Council-Tax.aspx

Barnet - https://www.barnet.gov.uk/council-tax


If you have any questions about some of the jargon you're experincing in your property search, any of our team will be happy to help.