The short answer
With a freehold, you own the building and the land it stands on, with no end date. With a leasehold, you own the right to live in the property for a fixed number of years under a lease from the freeholder. Most houses are freehold and almost all flats are leasehold. A leasehold usually comes with ground rent, service charges and rules about what you can do.
What freehold means
Freehold is the simplest kind of ownership. You own the building and the land outright, for as long as you choose to keep it. You're responsible for looking after all of it, from the roof to the drains, and you don't pay anyone else for the privilege of living there.
That doesn't mean there are no rules at all. Some freehold homes come with covenants, which are promises in the title deeds, such as not running a business from the house. Some new estates also charge an estate fee for looking after shared roads and green spaces. Your conveyancer checks the title for anything like this.
What leasehold means
With a leasehold, someone else owns the building and the land. That's the freeholder, sometimes called the landlord. You buy a lease, a legal agreement that lets you live in the property for a set number of years. When people say they own a flat, they usually own a long lease on it.
Flats are almost always leasehold, because several people share one building and someone has to own and look after the structure, the roof and the shared areas. Some houses are leasehold too, especially some new builds sold in recent years. If you're buying a house, never assume it's freehold. Ask.
The costs that come with a lease
Ground rent
Ground rent is a yearly payment to the freeholder, written into the lease. Older leases can have ground rent that rises over time, sometimes doubling every so often, and a high or fast-rising ground rent can make a property hard to sell or mortgage.
For most new long leases of homes granted from 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 set ground rent at a peppercorn, which in practice means nothing. It doesn't change leases granted before then, so the amount you'd pay depends on when your lease was granted.
Service charges and reserve funds
A service charge pays for looking after the building: insurance, cleaning the shared areas, gardening, repairs and the managing agent's fees. It can go up and down from year to year.
Many buildings also collect money into a reserve fund, sometimes called a sinking fund. It's a savings pot for big jobs like a new roof or redecorating the outside. A healthy reserve fund means fewer nasty surprises. A building with no reserve and a big job coming can mean a large bill soon after you move in.
The management pack
When you buy a leasehold property, your conveyancer needs information that only the freeholder or managing agent has. It comes in a management pack, usually answered on a standard form called the LPE1. It covers service charge accounts and budgets, the reserve fund, planned major works, building insurance, any disputes and any arrears the seller owes.
The seller has to order the pack, and the freeholder or managing agent charges for it. It can take a few weeks to come back, which is one reason leasehold moves often take longer than freehold ones. Our guide to how long conveyancing takes explains where this fits.
Why lease length is so important
A lease runs down every year. When it was granted it might have been 99, 125 or 999 years long. What counts is how many years are left now.
Once a lease drops below about 80 years, two things happen. First, extending it gets noticeably more expensive, because the freeholder becomes entitled to a share of the extra value the extension adds, known as marriage value. Second, many lenders become wary, and some won't lend on a short lease at all. That affects you now and whoever buys from you later.
The good news is that a lease can be extended. Most flat owners have a legal right to a longer lease, and your conveyancer can check whether you qualify. You can also try to agree an extension with the freeholder informally. If the lease you're buying is getting short, your conveyancer can talk you through asking the seller to start the extension before you buy.
Share of freehold and commonhold
Share of freehold means the flat owners in a building have bought the freehold together, usually through a company they all own. You still have a lease on your own flat, but you're also part owner of the building, so you and your neighbours make the decisions and can usually extend your leases on good terms.
Commonhold is a different way of owning a flat with no lease and no landlord. Each owner owns their flat outright, and an association of owners runs the shared parts. It's been around for years, but very few buildings use it.
Leasehold law is also changing. Reforms are being phased in over time, and your conveyancer will explain what applies to the property you're buying.
What your conveyancer checks in a lease
A lease can run to dozens of pages. We read all of it and report back on the parts that affect you, including:
- The term. How many years are left, and whether that will cause trouble with a mortgage or a future sale.
- Ground rent. How much it is, and whether and how it can go up.
- Service charges. What you'll pay for, how it's worked out, and what the accounts and reserve fund look like.
- Restrictions. Rules on pets, subletting, holiday lets, flooring, alterations and parking.
- Repairs. Who's responsible for what: your windows, the roof, the shared hallway, the pipes between floors.
- Consents. Whether the freeholder has to approve the sale or be told about it, and what they charge.
This runs alongside the usual checks on any purchase. Our guide to conveyancing searches covers those.
How we help with leasehold
You get a named conveyancer from day one who reads the lease and the management pack and tells you in plain English what you're signing up to. We keep you updated on WhatsApp as the answers come in. We're regulated by the Council for Licensed Conveyancers.
