What is the difference between Leasehold and Freehold?

It is often said that ‘an Englishman’s home is his castle’. In reality, none of us actually ‘owns’ our home and the land upon which it is built in its entirety. Strictly speaking, The Crown owns all land within the realm and we merely hold a legal interest in that land, the exact rights to which are defined in our Title Deeds.

When someone says they own their home it usually means they own a Freehold Interest in the land and buildings. Freehold (or Fee Simple Absolute in Possession to give it its proper legal definition) is a fairly extensive ownership and, subject to any restrictions or obligations placed upon your Freehold interest, such as rights of way, you are as close as you will ever get to ‘owning’ your very own ‘castle’.

Because of the way English Law works, you cannot properly own the Freehold Interest in a flat. This is because, theoretically, a ‘Freehold’ interest in land includes all the land below and all the air above your property too. This isn’t possible in some cases, for example, in a block of flats. In such instances, a slightly lesser interest is granted to the owner of each flat; namely a long leasehold interest. This could be anything from 99 years to 999 years, or more or less.

A lease is an interest granted out of a superior interest (usually the Freehold) in the same land and so any leaseholder will, by definition, have a Landlord. Long leases are usually very similar to a Freehold Interest in practical terms and a Landlord’s rights to the occupation of the property are very restricted.

Under the terms of the lease each parties rights and responsibilities will be set out and these may include an obligation to insure, maintain and even pay rent. In most cases long leasehold property is only subject to a notional ‘peppercorn’ rent or a small annual charge. For most practical purposes, a long leasehold is the same as a Freehold, subject to the terms of the lease.

There are many technical reasons why a property may be offered for sale on a Freehold or Long Leasehold basis and there is no reason why a Long Leasehold property should be considered any less desirable as an asset than a Freehold property, subject to the terms of the lease.

However, bear in mind that the shorter the lease, the harder it will be to secure a mortgage upon it. In many cases, a lease under 50 years will be difficult to purchase with a mortgage, although there are now various legal rights to buy the Freehold or gain a new long lease under statute should you so wish.