Leasehold vs freehold

Depending on whether you buy a freehold or a leasehold property, there may be limits on what you can do to your own home.

In this guide, we explain everything you need to know about leasehold and freehold ownership, plus the changes the government is making to the leasehold system.

What is leasehold?

If you buy a leasehold property, you'll have the right to live in the home for a set amount of years (specified on the lease), but you won't own the land it stands on. In this arrangement, you're known as a 'leaseholder'.

In England, Northern Ireland and Wales, flats are most commonly owned on a leasehold basis, while houses are normally sold as freehold properties. In Scotland, very few properties are sold as leaseholds.

With leasehold properties, the land is owned by the landlord, who is called the 'freeholder'. Once the lease runs out, ownership of the entire property will revert back to them.

Leaseholders have to get permission from the freeholder to make certain alterations to the property. They will also have to pay rent each year - known as 'ground rent' - and will often have to pay an annual fee to a managing agent.

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What is freehold?

When you buy a freehold property, you become the sole owner of both the building and the land it stands on.

As a freeholder, you won't need to pay ground rent, service charges or permission fees, but you will be responsible for the maintenance of the building.

What is share of freehold?

Some properties, typically flats, can be purchased with a share of freehold. This means you own the property leasehold plus a share of the freehold for the building. 

This type of ownership can give you greater control over the property and the costs of service charges but there can also be downsides, such as more admin for the management of the building (i.e. getting buildings insurance).

Video: leasehold and freehold explained

How long should a lease be when buying a flat?

Your lease is a legal document, which will tell you how long you're allowed to live in the building as well as what you need to pay towards insurance and upkeep.

When first drawn up, residential leases usually last for up to 125 years, although it's possible to have a lease for up to 999 years.

As a general rule, the longer left on your lease the better, as properties with short leases can be difficult to sell.

A lease with fewer than 80 years remaining can seriously affect both the value of your property and the amount it will cost you to extend the lease. Many mortgage providers will also refuse to lend on a property with fewer than 80 years left.

When buying a leasehold property, check how many years are currently left on the lease and how many will likely remain by the time you come to sell.

Should you extend the lease when you buy the property?

New rules introduced in 2024 will allow leaseholders the legal right to extend their lease at any time. Previously, you were required to have lived in the property for at least two years. 

Service charges and sinking funds

Your Mortgage repayment calculator won't be the only ongoing cost you'll need to factor in if you're purchasing a leasehold property - you'll also need to pay service charges, and these can add a significant sum to your monthly bills.

When you own a leasehold flat, you'll usually pay a service charge to your landlord or management company to maintain any common areas of the building.

This charge generally covers the cost of supplying important services to the building, or for employing a managing agent to do so on the freeholder's behalf.

While some older leases have fixed service charges that must be paid every year, most newer agreements instead include 'variable service charges', which allow the freeholder to estimate the cost for each year. This allows freeholders to raise fees to finance major one-off expenses, for example refurbishing a lift or updating a fire alarm system.

What is ground rent and does it still exist?

In England and Wales, ground rent is traditionally a token fee paid annually to the freeholder in exchange for renting the land the property sits on. Ground rent can either be fixed or escalate over time.

Ground rent was banned on new leases in 2022. This means buyers will never have to pay ground rent on either a brand-new leasehold property, or an existing one where a new lease is taking effect.

What about ground rent for existing leaseholders?

While ground rent has been removed for new leases, existing leaseholders are still having to fork out on fees.

A ground rent cap was mooted as part of the Leasehold and Freehold Reform Bill, but wasn't included when it passed into law in May 2024. 

However, if you Lease extension and buying a freehold, your ground rent is reduced to zero, or what is known as a 'peppercorn rent'. While you could, in theory, pay your freeholder a peppercorn, the term is generally used figuratively. In the past, the terms of a lease couldn't be enforced unless there was a set ground rent, however tiny.

Leasehold 'scandal' and 2024 reforms

In recent years various issues with leasehold and new-build homes have emerged, leading many people to talk about a leasehold scandal.

Back in 2018, Which? published an investigation into issues surrounding leasehold homes, including ground rent doubling clauses, punitive permission fees, freehold purchasing problems and issues buying and selling leasehold homes. 

Our full investigation can be read here: To have or to leasehold? Inside the scandal rocking the new homes industry

In May 2024, the government introduced a suite of new reforms in 2024 under the Leasehold and Freehold Reform Act. The main changes are as follows:

• It will be made easier and cheaper for leaseholders to buy their freehold. Leaseholders will no longer need to live in a property for two years before they can extend their lease or buy the freehold.
• The standard lease extension term will be increased to 990 years, from 50 years (houses) or 90 years (flats). 
• Leaseholders will be given greater transparency about service charges, with freeholders and managing agents required to issue Bills in a standardised format. 
• It will be made easier for leaseholders to challenge unreasonable charges at a tribunal.
• It will be made easier and cheaper for leaseholders to take over the management of their building.