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Know the Difference Between Freehold and Leasehold

By John Parkinson

While a leasehold purchase is not the norm for businesses looking to purchase new properties, such purchases are still possible. Therefore, it is important for buyers to understand the difference between freehold and leasehold before a deal is made. I can work with you on this as well as offer you advice on buying commercial property in the UK.

Note that none of what you read here applies to leasing situations. Leasing property is completely separate from purchasing.

Freehold vs Leasehold

Purchasing a freehold property means purchasing the land, buildings, and everything else left on site when the transaction is completed. Furthermore, the purchaser owns the land and its buildings in perpetuity. The property can belong to the business or the business owners, depending on how the business is set up.

A leasehold purchase is entirely different. Rather than purchasing the property and its buildings, the buyer is only purchasing the right to use the property and buildings for the term of the lease. Freehold ownership remains with the landlord. In essence, the buyer becomes a tenant.

As a business owner, you could purchase a freehold property that is larger than your company needs, then lease out the unused portions. I’ve worked with multiple companies who have done just that. They buy property larger than they need in anticipation of eventual expansion. In the interim, they offer unused property to tenants.

Buying Leased Properties

Some of my clients have asked advice on buying commercial property that is already leased to some extent. For example, what are the rights of new owners when leases are involved? In short, the new owner cannot unilaterally change the terms of any existing lease. Existing leases must be honoured until their conclusion. A new owner can attempt to negotiate lease changes with willing tenants.

At the conclusion of any existing leases, a new owner has the opportunity to write a new lease with new terms. Tenants then have the choice to continue with the new lease or vacate the property. All of this must be taken into consideration before buying a commercial property with existing tenants.

Buying a Freehold Property

It has been my experience that most companies do not want to deal with leases in any way. They prefer to buy a freehold property and be done with it. That’s a very good choice, albeit one with its own challenges to consider.

I’m a commercial property adviser with extensive experience in helping UK companies relocate and expand. I also work with foreign companies looking to set up operations here. If you need any advice on buying commercial property, I would be more than happy to assist you. I can walk you through every step of the process, from start to finish.

If you prefer to go it alone, that’s fine. Just be sure that you understand the implications of what you are doing before you agree to any purchase.
Do not ever sign a deal you’re not sure about.

By John Parkinson.

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