Selling a freehold property or the freehold interest in a building is a major financial decision, and understanding its true value is key. Unlike leasehold properties, freeholds come with full ownership rights, which often make them more desirable - but their value can vary depending on several factors. In this guide, we’ll explain what a freehold is, what affects its sale price, and whether there are any limits on how much you can sell it for.
What is a freehold property?
A freehold property refers to a property where the owner has outright ownership of both the building and the land it’s built on. Unlike leasehold properties, where ownership is limited to a specific lease term, freehold ownership is indefinite.
Key features of freehold properties:
Full ownership: You own both the property and the land.
No ground rent or service charges: Unlike leasehold properties, there are no ongoing fees to pay to a freeholder.
Maintenance responsibility: The freeholder is solely responsible for maintaining and repairing the property.
Is there a limit on how much you can sell a freehold for?
No, there isn’t a strict limit on how much you can sell a freehold for. The sale price of a freehold is ultimately determined by market demand, the property’s location, and other contributing factors. However, the value must be justifiable based on the market conditions, as unrealistic pricing could deter buyers or lead to disputes.
What affects the price of a freehold?
The value of a freehold property depends on several factors, all of which contribute to how desirable the property is to potential buyers. These factors range from physical characteristics like the property’s condition to broader market trends. Below are some key aspects that can impact the price of a freehold:
1. Property location
Location is one of the most influential factors in determining the price of a freehold. Properties in desirable areas, like those with excellent transport links, reputable schools, or attractive amenities, tend to sell for higher prices. Properties in less sought-after locations or areas with high crime rates may attract lower offers.
2. Property size and type
The size of the property and the amount of land included in the freehold also significantly affect its value. Larger properties with more bedrooms or additional features, such as garages, gardens, or annexes, are typically more valuable than smaller ones. Similarly, detached houses are often worth more than terraced or semi-detached homes due to the privacy and space they offer.
3. Condition of the property
The condition of a freehold property is another critical factor. A well-maintained property that requires minimal work is likely to fetch a higher price than one needing significant repairs or renovation. Buyers may lower their offers to account for the cost of addressing issues like outdated kitchens, damp, or structural repairs.
4. Potential for expansion or improvement
Freehold properties with scope for expansion or improvement are often more attractive to buyers. These include properties where buyers can add loft conversions, extensions, or outdoor features like a home office. Having planning permission in place for these upgrades can further increase the property’s value.
5. Local housing market conditions
The state of the local property market plays a significant role in determining how much a freehold property is worth. In a seller's market, where demand outweighs supply, freehold properties may sell quickly and at a premium. In contrast, in a buyer's market, where supply exceeds demand, sellers may need to price their properties more competitively.
6. Economic factors
Broader economic factors, such as interest rates, inflation, and employment levels, can impact freehold property prices. For example, when interest rates are low, mortgages become more affordable, increasing buyer demand and property prices. On the other hand, economic uncertainty or rising interest rates can lead to reduced demand and downward pressure on prices.
7. Nearby amenities
The availability of nearby amenities, such as parks, shops, restaurants, and healthcare facilities, can influence the price of a freehold property. Homes located close to these conveniences often appeal to a broader range of buyers and attract higher prices.
8. School catchment areas
For families, being close to highly-rated schools can boost a freehold property’s value. Properties within the catchment areas of top-performing schools are often in high demand. These properties are popular among parents looking to secure the best education for their children.
Is there a limit on how much you can sell a leasehold for?
The value of a leasehold property is tied to the length of the remaining lease. Properties with longer leases (e.g. 80 years or more) tend to sell for higher prices than those with shorter leases. While there isn’t a formal limit on how much you can sell a leasehold property for, its value is significantly influenced by:
The length of the remaining lease term
The service charges and ground rent obligations
The condition of the property
💡Editor’s insight: “Short leases (less than 80 years) may reduce the value considerably. This is because buyers are often deterred by the potential cost of extending the lease, which can be expensive once the lease falls below 80 years. If in doubt, seek help from an experienced lease extension solicitor for advice.”
Can a landlord sell their freehold?
Yes, a landlord can sell the freehold of a property, but there are specific rules they must follow, especially if the property includes leasehold flats. In many cases, leaseholders have the Right of First Refusal, which means the landlord must offer them the chance to buy the freehold before selling to someone else. This process is governed by a Section 5 notice under the Landlord and Tenant Act 1987.
Selling a freehold can be straightforward for houses, but for blocks of flats, landlords need to ensure they follow the correct legal process to avoid disputes or legal challenges from leaseholders.
What is a Section 5 notice?
A Section 5 notice is a legal notice that a landlord must serve to leaseholders before selling the freehold of a block of flats. It gives leaseholders the Right of First Refusal, meaning they have the opportunity to buy the freehold before it is sold to another party.
Key points about a Section 5 notice:
Leaseholders must be given formal written notice of the sale.
The notice must include the price and terms of the proposed sale.
Leaseholders have a set time (usually two months) to decide whether they want to buy the freehold.
If leaseholders accept the offer, they must follow the legal process to complete the purchase.
If leaseholders don’t respond within the timeframe, the landlord is then free to sell the freehold to someone else on the same terms.
FAQs
Can you sell part of a freehold?
Yes, you can sell part of a freehold. This typically happens when a property owner decides to split a parcel of land or convert a large house into separate units. Selling part of a freehold may involve creating new leases or shared ownership agreements to manage the rights and responsibilities of different owners.
What does ‘rights of first refusal’ mean?
Under the Landlord and Tenant Act 1987, leaseholders in a building have the right of first refusal when the freehold is being sold. This means the freeholder must offer the leaseholders the opportunity to buy the freehold before it’s sold to a third party. This law applies to buildings with two or more flats, provided certain conditions are met.
The cost of a freehold varies widely depending on its type and location. For example:
The freehold of a standard residential house could sell for the same value as the property itself.
The freehold interest in a block of flats is typically calculated based on the ground rent and the lease terms of the flats within the building.
On average, leaseholders may pay several thousand pounds to collectively buy their building’s freehold. The cost can increase significantly for properties in high-demand areas or with high ground rents.
Final thoughts
The value of a freehold depends on many factors, including the property’s location, lease terms (if applicable), and market demand. While there’s no set limit on how much you can sell a freehold for, pricing it correctly is crucial to attract buyers and complete the sale efficiently. Whether you’re selling a freehold property or the freehold interest in a building, understanding the legal and market considerations is essential.
If you’re unsure about the process or need help determining the value of your freehold, consider getting advice from a property solicitor or legal expert to ensure a smooth transaction.
