Lease versus freehold for practices

Freehold and leasehold: the key differences

A practice can either lease its premises from a landlord or own the freehold. The key difference between freehold and leasehold is ownership: with a freehold you own the building and the land outright; with a leasehold you hold the right to occupy commercial property for a fixed term under a lease, paying rent to the landlord. That single distinction drives most of the trade-offs that follow.

Leasing keeps capital free and passes much of the responsibility for the building to the landlord, but the practice builds no property equity and is exposed to rent reviews, service charges and the lease coming to an end. Owning the freehold ties up capital and brings full maintenance responsibility, but it builds an asset, removes rent and gives you control of your own premises. There is no universally right answer; the decision depends on your capital, your plans and the premises available.

Costs, charges and obligations

Leasehold commercial property carries ongoing costs beyond rent. Service charges, repairing obligations and the terms of the lease all affect what occupying the building really costs, and a full repairing lease can leave a tenant responsible for far more than the rent suggests. Rent reviews can lift the cost over time, and a short remaining term can weaken your security of tenure and your position when the lease ends.

Freehold ownership removes the rent and the landlord, but the practice picks up all the maintenance and the cost of the building, and ties up capital in the property. Both routes carry legal and transaction costs, including solicitors' fees and, on a purchase, stamp duty. Weighing the differences between freehold and leasehold properly means looking at the whole cost over the years you expect to occupy, not just the headline rent or price.

Financing each form of property ownership

The two forms of property ownership are financed differently. Buying a freehold property is financed with an owner-occupier commercial mortgage, serviced from the practice. Taking on or assigning a lease on a leasehold property is not a property purchase, though you may finance fit-out, goodwill or a premium, and commercial mortgages are not generally available on a short lease. If you already lease and an opportunity arises to buy the freehold, that is a common and often attractive move, because it converts rent into mortgage payments that build equity in commercial property you own.

We arrange finance for both routes and can talk through which suits your situation. The right answer often turns on how long you plan to stay, whether the freehold is available, the length of any leasehold interest, and how much capital you want to commit to property alongside running the practice. Managing the property, whether as freeholder or leaseholder, is part of the ownership decision too.

Security, control and the long view

Beyond the numbers, the choice is about security and control. A freehold gives long-term security of occupation and full control of the building, so you can adapt the premises, sublet space or extend without a landlord's consent. A leasehold gives flexibility and a lower upfront commitment, but your security depends on the lease term and renewal rights, and disputes over service charges, repairs or alterations can arise with a landlord over the life of the lease.

For a practice planning many years in one place, the long view often favours the freehold, because rent paid over decades buys nothing while mortgage payments build an asset. For a practice that is unsure of its location, growing quickly, or short of capital, a lease keeps options open. Property law and the protections available differ between England and Wales and elsewhere in the United Kingdom, so the precise rights attaching to a lease are a matter for a solicitor in the relevant jurisdiction.

Considerations before you decide

Several considerations feed into the decision between a leasehold property and freehold ownership. Consider the length and terms of any lease, the rent review provisions, the service charges and repairing obligations, the legal title, and how the choice fits your succession plans. The key differences between freehold and leasehold, set out above, all carry legal as well as financial weight, so a solicitor should review the title and the lease.

For partnerships, owning the freehold raises questions about how incoming and outgoing partners deal with the property, which the partnership agreement should address. Take legal advice on any lease or purchase before you commit, because the terms of the commercial property and the form of ownership shape your costs and your security for years.

Commercial finance of this kind is not regulated by the Financial Conduct Authority. Any rates or terms are indicative and subject to status, valuation and full lender approval. This is general information, not financial advice; take independent professional advice before borrowing.