Buying a freehold: a step-by-step guide
Buying the freehold to your home can be a complicated and expensive process, but it might simplify life in the long run. If you’re thinking of buying the freehold for your house or flat, read our step-by-step guide to see if it’s the right decision for you.
Buying the freehold to your home can be a complicated and expensive process, but it might simplify life in the long run. If you’re thinking of buying the freehold for your house or flat, read our step-by-step guide to see if it’s the right decision for you.
What does buying a freehold mean?
If you own a property in the UK, it will be either freehold or leasehold. It’s less common for houses, but if you own a flat it’s likely to be leasehold.
If your home is a leasehold property, it means another person – the freeholder – owns the land your property is built on. Essentially, they also own the building’s bricks and mortar, and they lease the property to you – the leaseholder – for a fixed period. Leases normally last a significant length of time, sometimes hundreds of years, but they can be expensive to renew.
The freeholder is responsible for the maintenance and upkeep of your property. Ultimately, they have control over any significant work done to your home and who does it. But it’s you, the leaseholder, who foots the bill through sometimes eye-watering maintenance and service fees.
If you own a leasehold house, after two years of holding the lease you can buy the freehold and own your home outright. If you own a flat, you can buy a share of the freehold with your neighbours through a process called collective enfranchisement.
As a leasehold flat owner, you also have the first right to buy the property freehold if the freeholder decides to sell – this is known as your right of first refusal.
Should I buy my freehold?
It can be unnerving to think that your home – probably the most expensive thing you’ll ever buy – effectively belongs to someone else. Although you have rights as a leaseholder, you could potentially have your property repossessed if you break the agreements of your lease.
There are some important things to consider, though, when deciding whether to buy your freehold.
Do you own a house or flat?
If you own a leasehold house, it makes sense to buy the freehold if you can afford it. That way, you have full control of the property, including the maintenance of it. You won’t have to worry about paying to extend the lease in the future and you could add value to your home.
It’s more complicated if you own a leasehold flat, as you’ll need to get your neighbours involved. And you’ll only be buying a share of the freehold, so you’ll still have a lease but you won’t have to pay to renew it (you’ll just need to pay the legal fees). You’ll also still need to pay service and maintenance charges, but you’ll have more control over any work that’s done to the property - so you can clearly see where your money’s going.
How long is left on your lease?
It could be a good idea to buy the freehold if there’s not long left on the lease. You may even struggle to find a mortgage if you have less than 70 years remaining. Many mortgage providers require you to have around 25-30 years left to run on a lease at the end of your mortgage term.
Having a short lease can also make your home harder to sell since buyers have to factor in the costs and hassle of renewing it, as well as any ongoing charges.
For more information, read our guide to the pros and cons of leasehold and freehold properties.
How do I buy the freehold on my house?
It’s possible to reach an informal agreement with your freeholder and avoid the legal route (and all the associated fees), but it’s a big risk. It’s always safer to get the help of a qualified solicitor.
To buy the freehold on your house, follow these steps:
- Check your eligibility
In general, you’ll be eligible to buy your freehold if:- you’ve owned the house for two years or more
- the lease covers the whole building
- the lease was originally granted as a ‘long lease’, for a period of 21 years or more.
Other conditions may apply, depending on your home or where you live in the UK.
2. Hire a chartered surveyor
To get an accurate estimate of how much the freehold is worth.
3. Work out if you can afford it
You’ll need to factor in legal fees and valuation fees for you and the freeholder. You might be able to arrange an extension on your mortgage, though, in order to buy your freehold.
4. Hire a solicitor
They’ll serve a tenant’s notice on the landlord, which is the official request to buy the freehold. It’s important to get this right or you may have to wait 12 months to try again. The landlord should send a notice in reply within two months, to say if they agree to the sale or to give reasons why not.
5. Negotiate the sale
Once the landlord has agreed to sell, you can negotiate the price and draw up the legal documents.
If you can’t agree on a price or the freeholder refuses to sell, you can take your case to the First Tier Tribunal. It handles this kind of dispute and can decide on a cost for you.
How do I buy the freehold on my flat?
It’s easier than it once was to buy the freehold of your flat, thanks to a process called collective enfranchisement. To buy the freehold for your flat, you should follow these steps:
- Check your eligibility
You may be eligible to buy the freehold for your flat if:- the building contains at least two flats
- the building is primarily residential (only a quarter of the building at most can be offices or used for commercial purposes)
- the lease was originally granted as a ‘long lease’, for a period of 21 years or more.
- Speak to your neighbours
At least half of the flat owners in your building will need to be on board for you to be able to buy your share of the freehold. - Find out how much it should cost
Hire a chartered surveyor to get an accurate estimate of the value of the freehold, before you decide to go ahead. - Make sure you can afford it
You’ll need to factor in legal fees and the freeholders’ valuation fees. Weigh up whether it’s worthwhile buying the lease based on how much it would cost you to renew your lease, and how much you could expect to save on service and maintenance fees. - Hire a solicitor
It’s worth choosing one that specialises in property freehold purchases. They should draw up a participation agreement, which is essentially a contract between the neighbours who want to buy the freehold. - Set up a company
You’ll either need to set up a company or designate one leaseholder to act as the buyer. - Give notice
Your solicitor can draw up and send off the official tenant’s notice to the freeholder, which you’ll all need to sign. - Negotiate with the freeholder
They should send a ‘reply to notice’ within two months of receiving the tenant’s notice, either agreeing to the sale or explaining their reasons for not wanting to sell. Once you have this agreement in place, you can start price negotiations.
Again, you can take any disagreements about the price or a sale refusal to the First Tier Tribunal, which will decide on a fair course of action.
How much does it cost to buy the freehold?
The cost of buying the freehold of your house or flat depends on several factors, such as the value of your property, how long you have left on your lease and how much the ground rent is.
It’s only a rule of thumb, but often the cost of buying your freehold works out similar to the cost of extending the lease for 90 years. Ultimately, the price will depend on the surveyor’s evaluation and on negotiations with the freeholder.
When you’re deciding if it’s cost-effective to buy your freehold, you should also factor in the following costs:
- Legal fees – you’ll need to hire a solicitor to get advice and draw up the legal documents.
- Valuation costs – you’ll need to pay for a chartered surveyor to give an official valuation of the freehold.
- The freeholder’s costs – you’ll also have to pay the legal fees and valuation costs for the freeholder.
- Court fees – if you have to take a dispute to the First Tier Tribunal, you’ll have to pay extra legal fees.
- Stamp duty – it’s unlikely to be the case, but if the freehold is worth over £125,000 you’ll have to pay stamp duty.
If you’re a flat owner looking to buy the freehold, it’s worth weighing up whether you’d be better off extending your lease.
The right to manage
When weighing up costs, a big consideration is how much you currently pay in ground rent, maintenance and service fees. If you feel that the costs are excessive but you don’t want to – or can’t – buy the freehold, you could look at applying for the right to manage.
One of the benefits of right to manage is that you’re in control of the service charges and you can get involved in managing the maintenance. It’s also a much quicker process than buying the freehold and you should only have to pay legal fees.
The downside is that you’ll still have to pay to extend the lease and, depending on the terms, you’ll still have to get the permission of the freeholder for certain things. You also won’t see the result of any maintenance work reflected in the value of your property.
Alex Hasty - Insurance comparison and finance expert
At Compare the Market, Alex has had roles as Commercial Associate Director, Director of Trading and Director of Growth. He’s currently responsible for the development and execution of Comparethemarket’s longer-term strategic options, ensuring the right breadth of products and services that meet customer needs.