Leasehold vs freehold – what's the difference?

What is a leasehold property?

A leasehold property is one that you own for a fixed period of time. However, you don’t own the land it’s built on. This is under a legal agreement with a landlord called a lease. The lease tells you how many years you’ll own the property for before ownership returns to the freeholder.

The freeholder, who is named as such in the Land Registry, is usually responsible for the repair and maintenance of the building’s outside and common areas.

In May 2024, legislation was passed to increase the standard lease for new properties to 990 years, up from 50 years for houses and 90 years for flats in England. However, dates haven’t yet been set for the changes to come into force. And the change won’t affect the length of any existing lease.

Are leasehold properties common?

Around 19% of English property is leasehold – that adds up to some 4.7 million homes, according to official government statistics for 2022-23. Just 7% of houses were leasehold.

Around 72% of the leasehold homes in England (3.4 million) were flats. The other 28% (1.3 million) were houses. Most of England’s leasehold property is in London, where 36% of housing stock is leasehold, and the North West with 27%. The East Midlands has the lowest proportion of leasehold at 8% – just 180,000 homes.

What is a freehold property?

If you own a freehold home, you own both the property and the land outright on a permanent basis.

Most houses in England and Wales are owned on a freehold basis, but the majority of flats in England (58%) are leasehold. In England in 2022-23, 1.33 million of leasehold properties were houses, compared with 3.44 million flats.

Leasehold is more common if you bought a new home from a developer or through a shared-ownership scheme. However, the sale of new leasehold houses has now been banned other than in exceptional circumstances. Every new house in England and Wales is now likely to be freehold from the outset.

Scotland has its own version of freehold, called ‘feuhold’, and leasehold property is rare. Also, the rules around leasehold properties are different in Northern Ireland.

What are the pros and cons of leasehold vs freehold?

Leasehold pros:

• Leasehold properties are often cheaper to buy.

• You can share responsibility for repairs and maintenance with the freeholder.

• When the new legislation comes into force, you’ll be able to extend your lease for a further 990 years. Currently, it’s 50 years for a house and 90 years for a flat.

• You may be able to buy your lease, buy a share of the lease or take over management of the building more easily under the leasehold reforms. But the extension of the lease to 990 years may make this less important once it’s in force.

Leasehold cons:

• Leaseholders usually have to pay ground rent, maintenance fees and annual service charges. These can be steep, so make sure you find out exactly what they are – and how much they’re set to rise by each year.

• If you want to alter or extend your home, you’ll need to get permission from the landlord. That said, your landlord cannot unreasonably withhold consent.

• You may also need permission from the landlord if you want to rent out the property.

• If your lease is for less than 70 years, it may be harder to get a mortgage. The shorter the lease, the more difficult it may be.

• You might not be able to keep a pet (or you may have to pay a fee to do so).

Freehold pros:

• You’ll have full ownership of your home.

• There’s no annual ground rent to pay.

Freehold cons:

• Freeholds are often more expensive, as you own both the land and property.

• You’re responsible for the building’s upkeep and buildings insurance.

• If you’re looking for a freehold flat, fewer properties are available.

What disputes could arise between a leaseholder and a freeholder?

Disagreements between leaseholders and freeholders are common. There’s lots of room for conflict: for instance, if a leaseholder does building work that the lease doesn’t allow.

On the other hand, leaseholders often complain that they’re made to pay excessive service charges, which they then can’t challenge. Another frequent allegation is that freeholders don’t properly deal with maintenance issues.

Resolving these disputes can be very expensive, as you may have to pay solicitors’ and court fees, or even pay for further building works. It’s important you understand the terms of any freeholder or leaseholder agreement before signing up to it.

What is the Right to Manage and when can it be used?

If you’re unhappy with the way your building is being managed and you live in a leasehold flat, you may be able to:

• Ask a housing tribunal to appoint a new manager. You’ll have to be able to prove bad management and have given the manager a chance to fix the problems.

• Take over the management responsibilities, known as your ‘Right to Manage’ (RTM).

With Right to Manage, you don’t have to prove that the leaseholder is a bad manager and you don’t need a court order. Essentially, the rules were put in place to allow homeowners to take responsibility for their block in the form of a Right to Manage company. There are rules about which leaseholders are eligible to take the decision and more than half of the qualifying tenants need to agree to the plan.

If you want to do this, a notice will have to be served on the landlord and, after a set time, the management transfers to the new RTM company. While this sounds simple, in practice it can be far more complicated. So take advice before deciding whether to go ahead.

The leaseholders will have to decide whether to do the day-to-day management or employ a managing agent to do it on their behalf. The property will have to be maintained, and all the obligations and legal requirements relating to company law, housing law, and health and safety will pass over to the RTM.

But it will also mean that the leaseholders will be able to run things their way and have control over the decisions for their block.

See more on the process, and the rights and obligations that go with the Right to Manage.

Where can I get help on leasehold and freehold agreements?

If you have any concerns about leases, freehold agreements or being a homeowner, you should seek professional legal advice.

Read our guide to buying the house you rent from your landlord, if you’re considering that. Then take further legal advice as needed.

Citizens Advice offers practical advice both for current homeowners and people who want to be. Housing charity Shelter also has useful advice on leaseholders’ rights and lease agreements.

The government-funded, independent organisation LEASE - The Leasehold Advisory Service has lots of advice for residential leaseholders in houses and flats.

Who’s responsible for maintaining communal areas? The leaseholder or the freeholder?

When it comes to common areas, like the roof, stairwell or outside walls, the freeholder is usually responsible for maintaining them. But, as a leaseholder, you’ll have to pay an annual service charge, which goes towards paying the maintenance bills.

Are leasehold properties harder to sell than freehold?

Leasehold properties have more potential pitfalls than freehold homes, which some buyers may find off-putting. For example:

• The lease may not be long enough.

• There’s usually more paperwork involved, as the buyer and their legal adviser need to study the lease and make sure the terms are acceptable.

• Leases can be extremely complicated, particularly when it comes to shared for example. It can be hard to prove exactly what you do and don’t own.

How do I extend the lease on my flat?

If you’re a leaseholder and want to extend your lease, you can ask your landlord to do so at any time

Assuming that you meet the criteria, you have a legal right to extend the lease.

Your first step should be to contact your landlord. You’ll also need to speak to a conveyancing solicitor, who can put the wheels in motion for you. And it’s advised that you have your property valued too.

See the LEASE Guide to Leasehold Extension.

Is it worth waiting to extend the lease until the new laws come into force?

Because it’s not known when all the legal changes around leasehold will come into force, it’s difficult to know what’s the best thing to do for any individual and their particular circumstances.

Look at the advice being offered by LEASE, as it may well depend on how many years your lease has left to run. You could also contact LEASE to speak to one of its advisers about your individual situation.

How much does it cost to extend the lease on a flat?

That very much depends on, among other things, where you live and how long the lease has left to run. If the lease has less than 80 years left to run, you’ll have to pay a premium (sometimes known as the marriage value), which can considerably ramp up the cost.

Essentially, this premium reflects the increased value of the home following the lease extension. And because the landlord has granted the new lease, the legislation requires that this increase in value is shared equally between the landlord and the leaseholder.

The government has set out a new standard valuation method to determine the market value for leases and extensions in certain situations. This should be used where it applies, once the provisions in the Leasehold and Freehold Reform Act 2024 come into force.

As these costs can be substantial, make sure you get estimates from everyone involved – such as solicitors, or conveyancers and surveyors – before you decide to go ahead.

You can use the LEASE extension calculator for flats to give you a rough idea of how much an extension might cost.

You may also need to pay stamp duty.