When you’re looking at commercial property, you’re generally caught between two very different options: leasehold or freehold. The choice can have long-term implications on how you manage your business’s property and your overall financial situation, so understanding the difference between these two types of ownership is crucial. What works for one company may not work for another, and the best decision for you depends on your goals, budget, and plans for the future.
What is freehold ownership?
Owning the freehold of a commercial property means you own both the building and the land it sits on, without any time limitations. As a freeholder, you have full control over the property, meaning you can make any changes you want, provided they’re within local laws and regulations. This also means you won’t have to pay ground rent, which can be an ongoing financial burden for leaseholders.
One of the biggest advantages of owning the freehold is the potential for capital appreciation. As property values increase, so too does the value of your business’s property. However, there are responsibilities. As a freeholder, you’re in charge of the property’s maintenance and repairs, which can sometimes involve significant costs.
If you're planning to hold on to the property for the long term and have the budget to maintain it, freehold could be the better option for you.
What does leasehold mean?
In a leasehold arrangement, you lease the property from the freeholder for a set period, often 99 years or more, but the land remains theirs. The lease gives you the right to occupy the property, but it comes with restrictions. Typically, you’ll need to pay ground rent and follow certain rules on how the property is used. Leasehold agreements can also include terms about who is responsible for repairs and maintenance.
While this type of contract offers less control than freehold, it can also be a more affordable way for businesses to access commercial property, especially if you're not looking to stay in one location permanently. However, leasehold arrangements can be more complicated, particularly when it comes to negotiating lease extensions or buying the freehold. If your lease is coming to an end, you may face costly negotiations with the freeholder to extend it, or it may simply expire, forcing you to leave the property.
In some cases, businesses may choose this option because they don’t want the financial commitment of purchasing property, or they only plan to stay in a location for a short period.
How has legislation affected leasehold properties?
The introduction of the Leasehold and Freehold Reform Act 2024 has shifted the playing field for leasehold properties. The new laws have made it easier for leaseholders to extend their leases and purchase the freehold. For example, the law now abolishes the concept of "marriage value" in lease extensions, making it more affordable to extend. This change can have a major impact if you're already in a leasehold property or if you're considering entering into an agreement.
With these reforms, businesses that are already in leasehold properties may find themselves with better options for staying in their space for longer or securing more favourable lease terms. It's worth considering how these changes could impact you, especially if your current lease is nearing its end.
For more details on the recent changes, it’s a good idea to consult with a real estate legal expert or check official updates from government sources.
Could commonhold be the future for businesses?
The UK government is exploring commonhold as an alternative to both freehold and leasehold ownership. While it’s traditionally been used for residential properties, it’s slowly being considered for commercial ones as well. Commonhold allows owners to collectively manage the building, including shared areas, without relying on a separate freeholder. It may be an option worth considering, particularly if you’re looking for a more community-oriented approach to property ownership.
If you want to stay ahead of emerging trends, keeping an eye on commonhold developments could benefit your business, especially as more reforms are expected in the coming years.
