Leasehold vs freehold: what's the difference?

When you buy a property freehold, you own the building and the land it’s on until you decide to sell it.

But if you buy a property leasehold, you own only the building (not the land it’s on) and only for a set number of years.

When the term of the lease expires, the property will belong to the landowner unless you can extend the lease.

Find out more about the differences between freehold and leasehold properties, and the things you need to be aware of if you buy your home leasehold.

What does leasehold mean?

When you buy a property that is leasehold, you own it for a set length of time, which is the term of the lease. Once the term of the lease runs out, ownership of the property transfers to the person (or entity) that owns the land.

In theory, the closer you are to the lease expiry date, the less valuable the lease becomes, so if you are looking to sell your lease to a new holder, you’ll find it more difficult to recoup your money.

It could be a good idea to extend your lease before looking to sell it to make sure you are getting the best possible price.

How long can a lease be?

Newly-created leases can be anything from 99 or 125 years to 999 years.

A 999 year lease is effectively as good as freehold, and there can even be some advantages to owning some properties this way rather than under freehold.

However, shorter leases become problematic sooner than you may think. If a lease has less than 80 years left to run, it may make the property hard to sell, and it may even be difficult to remortgage.

What else is different about a leasehold property?

Most flats are leaseholds, although houses can be leaseholds – especially if they were bought through a shared ownership scheme.

With leasehold you do not own the land the property is on, and if it’s a flat you don’t own communal areas such as stairs or hall, nor the structure of the building itself.

Normally, leaseholders pay fees to the freeholder. But government legislation coming into force on the 30th June 2022 means that ground rent charges will be banned on most new residential leases, which will put an end to annual ground rent increases.

Many freeholders moved their ground rents to zero, which made day-to-day costs more affordable for individuals looking to buy.

The legislation was reinforced in April 2023 when ground rents of retirement properties were also moved to zero.

A new lease now tends to include certain restrictions; for example, you may not be allowed pets, and you may need to ask permission to make changes to the property.

If you break any conditions, you could be taken to court and may risk losing your lease. The freeholder is usually responsible for buildings insurance, but not contents insurance.

The freeholder should consult you on certain maintenance costs and charges, which you can challenge if you disagree with them.

What does freehold mean?

If you buy a property freehold, it means you completely own the property and the land it sits on, although your mortgage lender could repossess it if you don’t keep up repayments.

This kind of total ownership is known as ‘title absolute’ and sometimes by the term ‘fee simple.’

You are responsible for all costs relating to the property, including repairs and buildings insurance. Usually, there are no maintenance charges unless you share any services, such as communal gardens, with neighbours.

Most houses are freehold, but you should always check this. With some flats, you may be able to share the freehold with your neighbours as part of a management company.

What are the pros and cons of leasehold properties?

When getting a leasehold, there are likely more disadvantages than advantages.

What are the disadvantages of a leasehold property?

• You pay service charges and ground rent (for current leases, not new ones) to the freeholder, which can increase.
• You need written permission from the freeholder to change the property, and there may be large fees involved.
• You may not be allowed pets.
• You might not be able to run a business from home.
• You may not be able to sub-let.
• The fewer years are left on the lease, the harder it will be to sell the property (so you may not benefit from increasing property prices).
• Conveyancing fees are typically higher when buying a leasehold.
• You’re effectively renting and at the mercy of the freeholder.

The biggest issue facing leaseholders is they don’t have independence when deciding what to do with the property. From sub-letting to having pets to needing an address to register a business, a leasehold can sometimes seem like a more expensive rental agreement.

What are the advantages of a leasehold property?

If you are in a shared block of flats, there are some advantages to the property being leasehold.

• A leasehold property may be cheaper due to the risks involved.
• The freeholder is normally responsible for building maintenance in the communal area.
• The freeholder is responsible for the structure and maintenance of the building.
• The freeholder arranges buildings insurance.

There can also be specific advantages for flat owners to continue owning their flats under a leasehold structure.

For example, flat owners can work together to buy the freehold on their block and grant themselves 999-year leases.

The long lease offers the same security as freehold but also sets out the rights and responsibilities of residents, such as funding the maintenance of the building and placing restrictions on antisocial behaviour .

This kind of arrangement combines the advantages of freehold with the few perks of leasehold.

How can I find out how many years are left on the lease?

If you’re considering buying a leasehold property, the first thing you should do is check how much of the lease is left.

Your lease document should show how many years are left on your leasehold and help you find out when the lease started and the length of the lease term.

If you don’t have a copy of your lease, you should get one from your solicitor or mortgage lender, or you can order one from the Land Registry.

Can I extend or renew my lease?

You have the right to extend your lease if you have owned the property for two years or more.

It’s best to extend sooner rather than later, as the shorter the remaining lease, the more costly it may be to extend.

Usually, when you extend a lease, you extend it by 90 years. So, for example, if you have 70 years left to run, and you extend the lease, the new lease term would be 160 years.

The cost of extending a lease can include 50% of what is known as the ‘marriage value’ of the property (if the lease has less than 80 years left on it). This is defined as the extra value the property would gain by having a longer lease.

In other words, you will be paying half the extra resale value you would (theoretically) gain when you sell. The cost of extending may also depend on any improvements you’ve made to the property and how much it is worth.

The cost of extending may also depend on:

• Any improvements you’ve made to the property and how much your property is worth
• How much ground rent you currently pay

Costs will also include

• Legal fees
• Property valuation
• Land Registry update fees
• Stamp duty (but only if the leasehold extension costs over £125,000).

Can you buy the freehold on a leasehold property?

You have the right to buy the freehold on your leasehold home if you have owned the property for two years or more.

It’s best to do this formally with the help of a solicitor via a first-tier tribunal (or a leasehold valuation tribunal in Wales).

If you can’t come to an agreement with the freeholder, the tribunal will establish the purchase price and terms.

Buying the freehold is more straightforward if your property is a house since you are the only owner. 

If you are in a block of flats, you can’t own the freehold on the property unless all residents buy the freehold jointly. This can be trickier to arrange, but in many cases, it’s worth trying.

Can leasehold rights be transferred?

As a leaseholder you also have the right to demand the freeholder’s management of the lease be transferred to a ‘right to manage’ company set up by you and other leaseholders.

By managing the leasehold yourselves, you may be able to cut costs such as insurance considerably (but this won’t extend your lease).

Get expert financial advice

Understanding the differences between freehold and leasehold properties is essential if you are looking to invest in real estate in the UK.

It enables you to make informed decisions regarding property ownership and ensures your property investments and associated expenses align with your long-term financial goals.

Let Unbiased connect you with an expert financial adviser who can help you navigate the advantages and risks of freehold and leasehold properties and make the best decision for your needs.