Leasehold vs. freehold - The differences & which is better for Indian buyers?

As a property investor, one of the most important yet misunderstood aspects of homeownership in London is understanding whether a property is freehold or leasehold. These terms can sound confusing at first; however, freehold or leasehold can significantly impact the duration for which you will own the property, the kind of control you have over it and what additional charges you may incur.

This blog is drafted to help you understand what a freehold property is, what a leasehold property is and the difference between freehold and leasehold. In the end, you will be able to make informed, confident decisions about your UK property investments.

Why Indian buyers need to understand property ownership terms in the UK

As an Indian investor looking for property in London, you should know that ownership models in the UK are different from those in India. Most Indian buyers are used to purchasing a property with outright and permanent ownership; however, the UK law distinguishes between freehold and leasehold, especially in urban centres like London.

Ensure you stay abreast with the differences between these ownership models as it will be a critical factor for long-term investment planning, especially if the end goal is capital growth, rental yield, inheritance or resale value.

What is freehold property?

Freehold property is when the investor owns both – the building and the land it stands on, indefinitely. There are several advantages of investing in a freehold; the buyers benefit from full ownership of the property (no end date), they are not required to pay any annual service charge or ground rent. For renovations, they are not required to take permissions from the landlord and lastly, a freehold property is a convenient option to sell or pass on to the next generation.

However, there are a few factors you need to consider before proceeding with a freehold property:

- Remember, you are solely responsible for maintenance and repair

- Typically, freehold homes cost more upfront

- Freehold is primarily applicable to houses & not apartments

What is leasehold property?

A leasehold property implies you own the property for a specific fixed number of years, but not the land it stands on. In this case, a separate entity owns the land and the building and the freeholder is whom you will need to pay ongoing fees to. A leasehold system is quite common in London and other major UK cities and is mainly used for deals involving apartments and flats.

There are certain key terms in a leasehold that you need to stay abreast with:

- The lease duration is typically for 90 to 999 years

- The ground rent is an annual fee that needs to be paid to the freeholder

- Service charges are payable and typically cover building maintenance and communal areas

- You may need permissions for renovations, pets or subletting

Before you enter a leasehold contract, ensure you review the following:

- The number of years left on the lease

- The annual charges

- Any restrictive clauses

Insider tip: A lease with less than 80 years remaining can negatively affect the property value and mortgage eligibility. After owning a property for two years, as an investor, you are legally allowed to get a lease extension - usually by 90 years.

This process needs you to pay a premium to the freeholder, consider legal and valuation fees and be prepared for negotiation.

Note: The UK government is currently working to make leasehold rules more favourable. Proposed reforms include 990-year lease extensions and the elimination of ground rent. This reform can benefit Indian buyers.

Freehold vs leasehold property: The differences

Can I Convert Leasehold into Freehold Ownership in London?

Yes, you can in certain situations.

For instance:

• If you own a leasehold house, you can buy the freehold directly
• If you own a flat, you and other leaseholders can collectively buy the freehold. This process is known as collective enfranchisement.

The freedom to convert leasehold to freehold allows greater control and long-term security; however, it also requires legal advice, coordination among flat owners and additional costs (valuation fees, stamp duty and legal charges).

Here’s Why Benham and Reeves India is your trusted partner

At Benham and Reeves India, we have helped numerous discerning Indian property buyers navigate the UK property landscape for over six decades. Right from understanding the differences between these two ownership structures to securing the best investment in London’s high-growth zones, our agents assist buyers with personalised investment guidance, expert legal and conveyancing support, comprehensive property management services and real-time updates from the UK offices.

If you’d like a private consultation on freehold vs leasehold opportunities in London, speak to our Benham and Reeves India team today.