Freehold or Leasehold? What’s the Difference?
When buying property in England and Wales, you’ll encounter two main types of ownership: freehold and leasehold. Understanding the difference is crucial, as it affects your rights, costs, and what you can do with the property. This guide explains both types and recent legal reforms.
The basics: what’s the difference?
Freehold
When you own a freehold property:
- You own the building AND the land it stands on outright
- There’s no time limit on your ownership
- You’re responsible for maintaining all aspects of the building and land
- You don’t pay ground rent or service charges
- You don’t need permission for alterations (though planning laws still apply)
Most houses are sold as freehold properties.
Leasehold
When you own a leasehold property:
- You own the property for a fixed term (the “lease”) but not the land
- The land is owned by the “freeholder” (or “landlord”)
- You must pay ground rent and service charges to the freeholder
- You may need permission for certain alterations
- The lease will contain restrictions on how you can use the property
Most flats and some houses (especially in cities) are sold as leasehold.
Leasehold explained further
Key terms in a lease
- Term: The length of the lease (originally often 99 or 125 years)
- Ground rent: A regular payment to the freeholder
- Service charge: Payment for maintaining common areas and services
- Reserve fund: Money set aside for major works
- Restrictive covenants: Rules about how you can use the property
Issues to check in a lease
- Remaining years: Less than 80 years can affect value and mortgage options
- Ground rent terms: Particularly any escalation clauses
- Service charge history: Look for stable, reasonable charges
- Major works planned: Could lead to high one-off charges
- Restrictions: On pets, subletting, alterations, etc.
Recent leasehold reforms
Leasehold Reform (Ground Rent) Act 2022
- Banned ground rents for most new residential leases
- New leases can only set a “peppercorn” (zero) ground rent
Leasehold and Freehold Reform Act 2024
- Makes lease extensions cheaper and easier
- Extended standard lease extension from 90 to 990 years
- Caps the costs freeholders can charge for information
- Increased transparency for service charges
- Created a new right-to-manage regime
Extending a lease or buying the freehold
Lease extension
If your lease is running short, you can extend it. Qualifying leaseholders have a legal right to:
- Add 990 years to the remaining term
- Reduce ground rent to zero
The cost depends on:
- The value of the property
- The number of years remaining on the lease
- The current ground rent
- Other terms in the lease
Collective enfranchisement
Flat owners can join together to buy the freehold of their building if:
- At least 50% of flats in the building participate
- The building qualifies (primarily residential, not too much commercial space)
This gives leaseholders control over the building and service charges.
Right to manage
As an alternative to buying the freehold, leaseholders can take over management of their building through the Right to Manage process, which:
- Doesn’t require buying the freehold
- Gives leaseholders control over service charges and maintenance
- Requires participation from at least 50% of flats
Commonhold – an alternative
Commonhold is a third form of property ownership in England and Wales:
- Similar to freehold but designed for flats and shared buildings
- Owners have full ownership of their individual units
- Common areas owned and managed collectively through a commonhold association
- No lease expiration concerns
- No ground rent
Despite being available since 2002, commonhold remains rare, but the government has committed to reinvigorating this option through recent reforms.
Which is right for you?
Consider freehold if:
- You want complete control of your property
- You’re comfortable with all maintenance responsibilities
- You’re buying a house (most are freehold)
- You want to avoid ground rent and service charges
Consider leasehold if:
- You’re buying a flat (most are leasehold)
- The lease is long (ideally 90+ years)
- Service charges and ground rent are reasonable
- You’re comfortable with the restrictions in the lease
Watch out for:
- Houses sold as leasehold (increasingly seen as problematic)
- Short leases (below 80 years)
- Escalating ground rents
- Excessive service charges
- Very restrictive covenants
Questions to ask before buying
For leasehold properties:
- How many years are left on the lease?
- What’s the ground rent and does it increase?
- How much is the service charge and what does it cover?
- Is there a reserve fund for major works?
- Are any major works planned?
- Are there restrictions on pets, subletting, or alterations?
- Is lease extension or freehold purchase being considered?
For freehold properties:
- Are there any restrictive covenants?
- Are you responsible for any shared areas?
- Are there any ongoing disputes with neighbours over boundaries?
Disclaimer
This article provides general information about property ownership in England and Wales as of April 2025. It is not legal advice, and laws can change. Your individual circumstances may affect how the law applies to your situation.
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