Leasehold vs Freehold: Key Differences Every Buyer Should Know

When you buy a property in England or Wales, you are buying one of two types of ownership: freehold or leasehold. The difference has a significant impact on your rights, your costs, and the long-term value of your investment. This guide explains what each term means and what to watch out for.

What is freehold?

Freehold means you own the property and the land it sits on outright, with no time limit. You have full control over the building and are not required to pay ground rent or service charges to a landlord. Most houses in England and Wales are sold as freehold.

As a freeholder you are responsible for all maintenance and repairs, but you are free to make alterations (subject to planning permission and building regulations) without seeking permission from a third party.

What is leasehold?

Leasehold means you own the property for a fixed period — often 99, 125, or 999 years — but the land beneath it belongs to the freeholder (sometimes called the landlord). You hold a lease that grants you the right to occupy the property for the duration of the term. Most flats in England and Wales are sold as leasehold.

Leaseholders typically pay an annual ground rent to the freeholder plus service charges that cover the maintenance of communal areas, buildings insurance, and management fees.

Key differences at a glance

Lease length and why it matters

The length of a lease is one of the most important factors when buying leasehold property. As the lease gets shorter, the property becomes harder to sell and harder to mortgage. Most lenders will not offer a mortgage on a property with a lease below 70–80 years.

Once a lease drops below 80 years, extending it becomes significantly more expensive because of something called "marriage value" — the freeholder is entitled to a share of the increase in property value that the extension creates. This can add tens of thousands of pounds to the cost of an extension.

As a rule of thumb, if you are buying a leasehold property with fewer than 85 years remaining, factor in the cost of a lease extension before making an offer.

Ground rent and service charges

Ground rent is the annual fee paid to the freeholder for the land your property sits on. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on most new leases in England and Wales is capped at zero (a "peppercorn" rent). However, older leases may still contain escalating ground rent clauses — some double every 10 or 25 years — which can make a property difficult or impossible to mortgage.

Service charges cover the cost of maintaining communal areas, buildings insurance, and management of the building. Always ask to see at least three years of service charge accounts before buying a leasehold property. Look out for large planned expenditures such as roof repairs or lift replacements.

Your rights as a leaseholder

UK law gives leaseholders several important rights:

• Right to extend your lease — after owning for two years, you have a statutory right to extend your lease by 90 years (for flats) at a fair price calculated by a surveyor. The Leasehold and Freehold Reform Act 2024 aims to make extensions cheaper and simpler.
• Right to Manage (RTM) — leaseholders in a building can collectively take over the management of the building without having to prove fault by the current manager. You need at least 50% of the flats to participate.
• Collective enfranchisement — leaseholders can club together to buy the freehold of the building. At least 50% of the qualifying flats must participate, and the building must contain at least two flats.
• Right to be consulted — the freeholder must consult leaseholders before carrying out major works costing more than £250 per leaseholder, or entering into long-term contracts over £100 per leaseholder per year.

Which should you choose?

In practice, you often do not get to choose. Most flats are leasehold because the building has shared structure and communal areas that need collective management. Most houses are freehold. However, there are exceptions — some new-build houses have been sold as leasehold, which has attracted significant criticism.

If you are buying a leasehold property, always check:

• How many years remain on the lease
• The ground rent amount and whether it escalates
• The service charge history for at least three years
• Whether there are any planned major works
• Who the freeholder and managing agent are, and their reputation