Freehold vs leasehold property
When buying a business, the sale may include commercial property that is freehold, meaning the business exclusively owns the property, or leasehold property, which means the business leases the property. Whether the property is freehold or leasehold will ultimately determine your rights to the property, including any restrictions and ongoing financial obligations.
When buying a business, understand the key differences between freehold and leasehold property, as this influences the overall value of the business, the sale price, ongoing operating costs, and your management responsibilities.
What’s the difference between freehold and leasehold?
Freehold and leasehold are titles that define how a property is owned. When the term freehold business is used, this refers to a business with freehold property, and a leasehold business means a business with leasehold property.
The key difference between freehold and leasehold property is that freehold property is fully owned by the business, and therefore, there are usually no restrictions in place, as the asset is yours.
Leasehold property is leased by the business from the true owner (freeholder), so there are restrictions in place that you are contractually bound by. During the term of the lease, you are free to occupy the property, however, you are not the legal owner.
Leasing a property is similar to renting, however, a lease is typically long-term and common with commercial property, while renting is short-term and common with residential property.
Here are the key differences between buying a business with freehold property and buying a business with leasehold commercial property.
Buying a business with freehold property
When buying a business with freehold property, you are buying the business and any commercial property the business owns. We look at how buying a freehold property is different to buying a business with leasehold property.
- You exclusively own the property
- There are no restrictions on the rights of use
- You are the permanent owner
- If you no longer require the property, you can sell it
- You are responsible for maintaining the property
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
Buying a business with leasehold property
When buying a business with leasehold property, you are inheriting the lease, which means you have the right to occupy the property for a given period. We look at how buying a business with leasehold property is different to buying a business with freehold property.
- You have the right to occupy the property for your lease term
- There are restrictions on the rights of use
- The landlord may terminate the lease with notice or choose not to renew
- If you no longer require the property or your circumstances change, you may exit the lease early with or without a break clause
- The landlord is responsible for maintaining the property
Whether a freehold or leasehold property is suitable for you will ultimately be determined by your long-term vision for the business and financial capabilities. To help understand the pros and cons of buying a business with freehold vs leasehold property, read our dedicated guide. Our highly experienced team can also advise you on what to look for in a commercial property when buying a business.
How can Selling My Business help?
If you are looking for a freehold business for sale or a leasehold business for sale, search our online directory of businesses for sale and filter by tenure type. The Selling My Business team are experienced in selling businesses across a range of sectors, including freeholds and leaseholds. For more information, get in touch with a member of the Selling My Business team today.
