What Does Virtual Freehold Mean? Virtual Freehold Vs Long Leasehold
What Does Virtual Freehold Mean? Virtual Freehold Vs Long Leasehold
A “virtual freehold” is a term used to describe a property that is sold with an exceptionally long lease, typically 999 years. This term is not a legal term but a generic one used in property transactions,
The concept of a virtual freehold emerged as an attractive alternative to traditional leaseholds, allowing developers to sell properties for longer periods while still maintaining some control.
It grants owners a long leasehold interest similar to outright ownership, giving them more control over the property, allowing them to make improvements, and benefit from any potential increase in value.
Compared to other types of leaseholds, virtual freeholds offer stronger protection against eviction, providing peace of mind and uninterrupted use of the property for an extended period.
However, it’s important to note that while the term ‘virtual freehold’ implies that flat owners do not need to be concerned when buying a leasehold property, the reality can be different.
For instance, onerous ground rent schedules and service charges can seriously affect the flat owner’s ability to sell the property in the future.
In some cases, properties marketed as ‘virtual freehold’ with 999-year leases can become unsaleable very quickly due to ground rent schedules that double every 10 or 25 years.
Freeholders can also make profits from service charges, which average more than £1,800 per year for new build properties, as well as controlling utility supplies and buildings’ insurance for residents.
In generally while a virtual freehold can offer many of the benefits of outright ownership, potential buyers should be aware of the potential pitfalls, including onerous ground rent schedules and service charges, which could affect their ability to sell the property in the future.
Virtual Freehold Vs Leasehold or Freehold
A virtual freehold is a long leasehold that functions similarly to a freehold property, but is still technically leasehold. Here’s a more detailed explanation:
- A freehold property means you own the land and building outright indefinitely.
- A leasehold means you have a lease from the freeholder to use the property for a fixed period of time, usually 99-125 years on houses and flats.
- A virtual freehold is a leasehold with an exceptionally long lease, usually 999 years.
- This gives similar security and functionality to a freehold. For example, the property can be mortgaged and sold just like a freehold.
- However, it is still a leasehold, so you must pay ground rent to the freeholder and service charges for maintenance of common areas. These costs are minimal at first but can increase over time.
- When the lease eventually expires in 999 years’ time, the property ownership returns to the freeholder unless the lease is extended.
- So while a virtual freehold gives the experience of ownership for all practical purposes, it is not actually full ownership like a true freehold.
Comparison of Virtual Freehold and Long Leasehold in a table format:
| Aspect | Virtual Freehold | Long Leasehold |
|---|---|---|
| Lease Duration | Typically 999 years (virtually perpetual) | Typically 99 to 125+ years (finite term) |
| Ownership Rights | Almost similar to freehold, extensive rights | Fewer ownership rights, limited control |
| Property Value | Generally retains value well over time | May decrease as lease term shortens |
| Financing and Resale | Easier to finance and more marketable | Can be challenging as lease term shortens |
In short, a virtual freehold gives the buyer security and control close to a freehold, while retaining technical leasehold status with associated ground rents and service charges.