Leasehold vs freehold – what is the difference?

Our guide looks at the pros and cons of owning a leasehold or freehold property.

Mark Gordon

From the Mortgages team

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Posted 9 DECEMBER 2019

What is a leasehold property?

A leasehold property is a home that’s owned for a fixed period of time under a legal agreement with a landlord called a lease. This tells leaseholders how many years they’ll own their home for, before the ownership of a property returns to the freeholder. Leases tend to be long term – and can be anything up to 999 years. In some cases, however, they can be as short as 40 years.

What is a freehold property?

A freehold property is when a home, including its land, is owned outright on a permanent basis. The homeowner is able to lease the property to others. The freeholder, who is named as such in the land registry, is usually responsible for the repair and maintenance of the exterior and common areas of a building.

Most property in England and Wales is owned on a freehold basis, although most flats are leasehold, as are some houses. Leasehold estates are more common if you buy through a shared ownership scheme.

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

What are the pros and cons of leasehold vs freehold?

Pros

Cons

Leasehold

They offer a home for people who need short-term accommodation

You have less responsibility for repairs and maintenance

Under the Leasehold Reform Act 1967, you have the legal right to buy your home outright if you meet certain criteria. So, being a leaseholder can be a stepping stone to taking full ownership of your home. This process, known as enfranchisement, can be a complicated matter for which you should seek legal advice.

Leaseholders usually have to pay ground rent, maintenance fees and annual service charges

You’ll need permission from the landlord for any alterations or works on your property

You may also need permission from a landlord to switch to a new mortgage if, say, you found a deal with a more competitive rate of interest

If your lease is for less than 70 years, you may struggle to get a mortgage

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

Freehold

You’ll have full ownership of your home.

There’s no annual ground rent to pay.

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

You’re responsible for the up-keep of the building

What disputes could arise between a leaseholder and a freeholder?

It’s common for disagreements to occur between a leaseholder and freeholder, one example being if a leaseholder undertook building work on their home which wasn’t permitted by the lease. A common complaint among leaseholders is that they’re being overcharged fees, without having a way to challenge what they view as unfair expenses. Another frequent allegation is that freeholders don’t adequately deal with maintenance issues.

There can be significant costs associated with resolving any disputes that arise, such as through court fees or further building works after a ruling. So, it’s important that you understand the terms of any freeholder or leaseholder agreement before you sign up to it.

Where can I get help on leasehold and freehold agreements?

If you’ve any concerns about being a homeowner then you should seek out professional legal advice.

Read more about buying the house you rent from your landlord. Additionally, the HomeOwners Alliance offers practical advice whether you are buying or selling your home or are an established home owner.