When buying a property, you’ll usually find that they are sold as ‘leasehold’ or ‘freehold’. Knowing the difference can help you understand how it will affect buying, budgeting and selling the property.
What do ‘leasehold’ and ‘freehold’ mean
Freehold means to own a property, including the land it’s built on, with no fixed time limit.
Leasehold means to own a property for a fixed amount of time, leasing it from a landlord who owns the whole building or land it’s built on.
What is a freehold property?
A freehold property is one that you own with no fixed time limit. You will own the building and the land it’s on.
If you buy a freehold, you’re responsible for maintaining your property and land. You should budget for these costs.
Most houses are freehold. There are some that are leasehold – usually through shared-ownership schemes.
It’s also possible to share a freehold with others
Benefits of a freehold property
Owning a freehold property means:
- there’s no time limit on your ownership
- there’s no freeholder (landlord) to deal with
- you won’t pay ground rent or other service charges.
What is a leasehold property?
A leasehold property is one that you own for a fixed length of time. You’ll find them in most parts of the country, but they aren’t very common in Scotland.
Usually, your lease will be between 90 and 999 years. The length of your lease will be in your lease agreement with the freeholder.
When the lease ends, the property goes back to the freeholder. However, you can usually extend the lease
Most flats and maisonettes are leaseholds. This means that while you own your property within the building, you don’t own any part of the building it’s in. But you might need to pay monthly or yearly maintenance charges.
Some houses are sold as leaseholds. In this case, you own the property but not the land it sits on, so you might need to pay ground rent to the freeholder.
Buying a leasehold property
When you buy a leasehold property, you’ll take over the lease from the previous owner.
Before making an offer, think about:
- how many years are left on the lease
- budgeting for service charges, ground rent and any other costs
- any future cost increases in the contract.
If you own a leasehold property, the repairs and maintenance on your property are your responsibility.
But you’ll usually need to get the landlord’s permission to make any significant changes. Check the contract to see which parts of the property you’ll be responsible for.
How important is the length of a lease?
The length of the lease can affect:
- the property resale value
- how easy it is to get a mortgage.
You usually want a lease to have at least 80 years remaining. Anything less can make it more difficult to get a mortgage.
The value of the property will likely fall as you get closer to the end of a lease (within 80 years). This can mean it will be harder to sell.
Extending the lease
You can ask the freeholder to extend the lease at any time.
Once you’ve owned your home for two years, you have the right to extend your lease by 90 years (or up to 125 years in Northern Ireland). You’ll need to be a qualifying tenant – if your original lease was over 21 years, you’ll normally qualify.
The freeholder will charge for extending the lease. The cost will depend on the property, and you might also need to hire a solicitor and surveyor. You might also have to pay the freeholder’s legal and admin fees.
If you and the freeholder can’t agree on the cost of extending the lease:
- In England you can appeal to a first-tier tribunal. Contact the Leasehold Advisory ServiceOpens in a new window for advice.
- In Wales, you can apply to a Leasehold Valuation Tribunal
- In Northern Ireland, you can apply for a Lands TribunalOpens in a new window
Find out more about extending or changing a lease at GOV.UKOpens in a new window
Charges for leasehold properties
When you own a leasehold property, your landlord is normally responsible for the maintenance of the building.
Leaseholders share the cost of this by paying a service charge to the landlord.
You might also be asked to pay into a sinking fund. This is to cover any unexpected repair work needed in the future.
Budget Planner
Use the Budget Planner to check you’ll be able to afford service charges.
Leasehold service charges
Service charges are different for each property, but usually pay for things such as:
- maintaining communal areas and gardens
- electricity bills for communal areas
- repair and maintenance of exterior walls.
Always check the service charges before putting in an offer on a property, as it might affect whether you can afford to live there.
You should check any terms and conditions, as they’ll often show how much service charges could rise in the contract. They might also explain costs you’d be expected to pay for any major building works. Read them carefully to work out if they’re affordable.
Other charges might include:
- ground rent
- administration charges
- buildings insurance (arranged by the landlord).
In Scotland, service charges are known as ‘factoring charges’. These usually exist for properties with communal areasOpens in a new window
Management disputes with a freeholder
As a leaseholder you have rights preventing the landlord from taking advantage of you financially.
For example, you can ask to see:
- a summary of what the service charges are being spent on
- how they’ve been calculated
- any supporting paperwork, and receipts.
The freeholder must tell you:
- about any building work costing more than £250
- before doing any work lasting more than a year
- before doing any work costing you over £100 a year.
If you’re unhappy with the freeholder, you can
- Use the Right to ManageOpens in a new window This lets leaseholders take over some management tasks from the landlord. You won’t need to prove bad management, but you will need to set up a management company with the other leaseholders.
- Apply to appoint a new manager. You’ll need to prove bad management, such as unfair costs or broken agreements.
If you have a leasehold property, you can buy the freehold from the freeholder along with other leaseholders - for example, other people living in a block of flats. This is called ‘collective enfranchisement’.
You can do this if at least half of the leaseholders agree to buy a share. To buy the freehold, you will have to serve a Section 13 Notice on the freeholder.
Owning a share of the freehold gives you more control over your home and the costs you pay out.
It also means it’s easier to extend your lease for up to 990 years.
It might be expensive to buy the freehold. You and the other leaseholders will also need to set up a company to manage the building or find a managing agent to do it for you.
Commonhold properties
Commonholds are an association of freeholders that own parts of a property or piece of land.
They are separate to freehold and leasehold properties, as you’ll pay a service charge towards common areas and building maintenance. However, there’s no landlord who has overall control of the whole property or land.
A commonhold property is an alternative to a long-term leasehold. You’re responsible for your individual flat or house, but there’s no time limit for how long you can own the property.
