Leasehold vs. freehold: What are the key advantages and disadvantages

Leasehold v Freehold: what are the advantages and disadvantages?

Freehold advantages:

• You own the property outright
• You can use the property as you wish, subject only to any planning or other legal restrictions
• You have greater control over the management of the property, e.g you choose when to carry out works of repair or decoration
• Property may rise in value.

Freehold disadvantages:

• A business with poor, limited or no financial history will find it difficult to obtain commercial mortgages.
• Cash flow will be affected by the payment of any deposit.
• Mortgage costs may increase in line with any rise in bank base rates.

Leasehold advantages:

• Smaller initial outlay, giving the business greater flexibility.
• Less financial exposure for the business than a freehold acquisition.
• Rent and any service charge is a business expense spread over the lease term.

Leasehold disadvantages:

• The lease will usually contain restrictions as to the use of the premises, allowing other parties to use the premises etc.
• Unless there is a break option, you are bound to comply with the lease obligations for the duration of the term.
• Even if you find another party to take over the lease, you will probably be required to stand as guarantor.

Written by law firm Charles Russell - This guide represents only an outline summary of relevant principles and detailed advice should always be sought in particular cases.

More information on leases

• How do I exercise my option to break safely?
• What should I do at lease expiry?
• If I cannot negotiate a reasonable position at rent review what is the court/arbitration procedure I need to follow?
• How should I challenge unreasonable service charges
• What should I know about dilapidations?
• What key terms should be in my leasehold contract with my landlord
• Are there any tips for lease negotiations

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