Do You Know the Difference Between Freehold and Leasehold Purchases?
Below, John Parkinson, Thames Valley Business Advisors member and a leading commercial property advisor, construction and development expert with four decades of experience, explains about freehold and leasehold purchases.
Leasehold is not normally the preferable option for businesses wishing to purchase new properties, but this option is available. It is essential that leasehold and freehold are fully understood before any deal is done. A commercial property advisor is a key ally during the process for peace of mind and efficiency. Seeking advice when buying any commercial property is also recommended.
None of the following information applies to leasing.
Freehold and leasehold purchases
A freehold purchase entails buying the land, buildings and everything else on site. Ownership is in perpetuity and can belong to the business or the business owners depending on the set up.
In contrast, a leasehold is the purchase of the right to use the property and buildings for the term on the lease.
Freehold ownership is retained by the landlord, not the de facto tenant.
A business owner can purchase a freehold property which is larger than they require and lease the spaces they don’t use to other businesses. Why is this sensible? Many companies purchase with expansion in mind but in the interim period they can make revenue from tenants for the otherwise unused portions through leases.
Buying a leased property
Clients often ask me, as their commercial property advisor, about buying a property which is leased to some extent.
What are the rights of new owners when leases are involved? This is a common query. The owner cannot change the terms of the existing lease, they must be honoured until their conclusion. However, a new owner can attempt to renegotiate with willing tenants.
When a lease ends the owner has the right to draw up a new lease containing new terms. Tenants may sign or elect to move on.
The above must be taken in to consideration when planning commercial property purchases with existing tenants holding a lease. This can be a complicated situation so please do not hesitate to obtain commercial property advice.
Purchasing a freehold property
Commercial property advisors appreciate that many clients do not wish to get involved with leases in any form so buying a freehold property is the most attractive solution. The freehold option carries its own challenges which should be borne in mind.
Never sign a deal that you are not confident about. Know the ramifications and responsibilities of your freehold or leasehold purchase and ensure that they sit well alongside your business goals. A commercial property advisor guides their clients through every step which makes the process smoother and any issues can be worked on with expert assistance. Choosing to complete a transaction alone can be a daunting prospect.
John’s focus is on guiding entrepreneurs, SME’s and corporations across the Thames Valley, London and the south east of England with commercial property advice. Find his contact details on www.tvba.co.uk.