Leasehold vs Freehold: Complete Guide to Property Ownership Types in 2025

Understanding whether a property is leasehold or freehold is crucial when buying a home, yet many buyers don't fully grasp the implications until after they've completed their purchase. The type of ownership affects everything from your monthly costs to your ability to renovate, and can significantly impact the property's value over time.

Recent changes to leasehold laws have improved protection for leaseholders, but significant differences remain between the two ownership types. Making the wrong choice - or not understanding what you're buying - can cost you thousands of pounds and limit your enjoyment of your new home.

This comprehensive guide explains everything you need to know about leasehold and freehold ownership, helping you make an informed decision and avoid the common pitfalls that catch out many property buyers.

What is Freehold Ownership?

Freehold ownership means you own both the property and the land it sits on indefinitely. You have complete control over your home, subject only to planning laws and other statutory restrictions that apply to all property owners.

As a freeholder, you're responsible for all maintenance and repairs to your property, but you also have the freedom to alter, extend, or improve it as you wish (subject to obtaining any necessary planning permissions).

Freehold ownership is the most straightforward and generally preferred form of property ownership in England and Wales. Most houses are sold freehold, giving buyers complete ownership and control over their property investment.

There are no ongoing fees to third parties for the privilege of owning your home, and you don't need permission from anyone else to carry out most alterations or improvements to your property.

What is Leasehold Ownership?

Leasehold ownership means you own the property for a fixed period (the lease term) but not the land it sits on. The land remains owned by the freeholder (also called the landlord), who grants you the right to occupy the property for the duration of the lease.

Most flats in England and Wales are sold leasehold because the building contains multiple properties that share common areas like corridors, lifts, and gardens. The freeholder manages these shared areas and charges leaseholders for their maintenance through service charges.

Leasehold ownership comes with ongoing obligations including ground rent payments to the freeholder, service charges for building maintenance and management, and restrictions on what alterations you can make to your property.

The lease is a legal document that sets out your rights and responsibilities as a leaseholder, along with those of the freeholder. Understanding these terms is crucial before committing to a leasehold purchase.

Key Differences Between Leasehold and Freehold

Ownership Duration

Freehold: You own the property forever, and ownership can be passed down through generations without time restrictions.

Leasehold: You own the property for a fixed period, typically 99, 125, or 999 years when new. As the lease term reduces, the property's value can be affected.

Ongoing Costs

Freehold: No ongoing fees to third parties, though you're responsible for all maintenance and repairs.

Leasehold: Regular ground rent payments and service charges, plus potential additional costs for major works or improvements to the building.

Control and Restrictions

Freehold: Complete control over your property, subject only to planning laws and statutory restrictions.

Leasehold: Restrictions on alterations, pet ownership, subletting, and other aspects of property use as set out in the lease agreement.

Maintenance Responsibilities

Freehold: You're responsible for all maintenance and repairs to your property and any associated land.

Leasehold: The freeholder typically maintains the building's structure and common areas, funded through service charges paid by leaseholders.

Understanding Lease Terms

Lease Length and Value

Properties with longer leases (80+ years) generally hold their value better and are easier to sell and mortgage. Leases under 80 years can become problematic as they approach the threshold where lease extension costs increase significantly.

Very short leases (under 60 years) can be difficult to mortgage and may lose value rapidly as the lease term reduces further.

Ground Rent

Ground rent is an annual payment to the freeholder for the right to occupy the land. Traditional ground rents were typically small (£10-£100 per year), but some modern developments have much higher ground rents that increase over time.

Recent legislation has banned ground rents on new residential leases, but existing leases with ground rent clauses remain valid.

Service Charges

Service charges cover the cost of maintaining and managing the building and common areas. This includes cleaning, lighting, lift maintenance, building insurance, and major repairs.

Service charges can vary significantly and are a crucial factor to consider when buying leasehold property. Well-managed buildings with reasonable service charges protect property values, while poorly managed properties with high charges can be problematic.

Major Works and Section 20 Notices

When significant works costing more than £250 per leaseholder are required, freeholders must follow formal consultation procedures under Section 20 of the Landlord and Tenant Act.

Leaseholders have rights to be consulted on major works and to challenge unreasonable costs, but you may still face substantial bills for necessary building repairs or improvements.

"We bought our flat without fully understanding the service charges. Within two years, we received a Section 20 notice for £8,000 per flat for roof repairs. Always budget for potential major works when buying leasehold." - Mark Stevens, leaseholder

Advantages and Disadvantages

Freehold Advantages

Complete ownership gives you total control over your property and investment.

No ongoing fees to third parties means lower monthly costs and no unexpected service charge bills.

Freedom to alter your property as you wish, subject only to planning requirements.

Easier to sell as many buyers prefer freehold ownership and there are no lease-related complications.

Better mortgage availability with most lenders happy to offer competitive rates on freehold properties.

Freehold Disadvantages

Full maintenance responsibility means you bear all costs for repairs and upkeep without shared responsibility.

Higher insurance costs as you need to arrange your own buildings insurance rather than benefiting from block policies.

Limited availability for flats and apartments, as most are sold leasehold.

Leasehold Advantages

Shared maintenance costs for building upkeep can be more affordable than maintaining an entire building alone.

Professional management of common areas and building maintenance by experienced managing agents.

Building insurance included in service charges, often at better rates than individual policies.

Access to communal facilities like gardens, gyms, or concierge services in some developments.

Leasehold Disadvantages

Ongoing costs including ground rent, service charges, and potential major works contributions.

Restrictions on use including limitations on pets, alterations, subletting, and other activities.

Declining lease value as the term reduces, potentially affecting saleability and mortgage availability.

Management disputes where leaseholders disagree with freeholder decisions or service charge costs.

Less control over building management decisions and potential for poor management affecting property values.

Lease Extensions and Enfranchisement

When to Extend Your Lease

Consider extending your lease when it falls below 90 years, as mortgage availability becomes more limited and extension costs increase significantly once the lease drops below 80 years.

Lease extensions become more expensive as the remaining term reduces, so acting early can save thousands of pounds in premium costs.

The Lease Extension Process

Leaseholders have statutory rights to extend their lease by 90 years for flats or 50 years for houses, though the process and costs differ between property types.

You must have owned the property for at least two years before being eligible for statutory lease extension rights, and the process typically takes 6-12 months to complete.

Costs Involved

Lease extension costs include your own legal and surveyor fees, the freeholder's reasonable legal and surveyor costs, and the premium for extending the lease calculated using statutory valuation methods.

Total costs can range from £5,000 for straightforward cases to £20,000+ for properties with short leases or high values.

Collective Enfranchisement

Leaseholders in buildings with multiple flats can potentially buy the freehold collectively, giving them control over building management and eliminating ground rents.

This process requires agreement from a majority of leaseholders and can be complex and expensive, but provides long-term benefits for participating leaseholders.

Service Charges and Management

Understanding Service Charges

Service charges should be reasonable and properly accounted for, with annual statements showing how money has been spent on building maintenance and management.

Leaseholders have rights to request detailed information about service charges and to challenge unreasonable costs through the First-tier Tribunal.

Reserve Funds

Well-managed buildings maintain reserve funds for future major works, spreading costs over time rather than requiring large one-off payments from leaseholders.

Check whether the building has adequate reserves for anticipated future works when buying leasehold property.

Right to Manage

Leaseholders can take over management of their building through Right to Manage (RTM) procedures, giving them direct control over service provision and costs.

RTM requires support from a majority of qualifying leaseholders and involves setting up a management company to take over from the existing management arrangement.

Managing Agents

The quality of managing agents significantly affects leaseholder satisfaction and property values. Good agents provide transparent accounting, responsive maintenance, and fair cost management.

Research the managing agent's reputation and speak to existing leaseholders about their experience before buying in a managed building.

Buying Leasehold Property: What to Check

Lease Review

Have your solicitor review the lease carefully, paying particular attention to ground rent clauses, service charge provisions, restrictions on use and alterations, and procedures for major works and consultation.

Check for any unusual or onerous clauses that could affect your enjoyment of the property or its future saleability.

Financial Information

Request recent service charge accounts and budgets to understand ongoing costs and financial management of the building.

Ask about any planned major works or significant expenditure that could result in additional charges after you complete your purchase.

Building Management

Research the freeholder and managing agent, including their reputation, financial stability, and approach to building management.

Speak to existing leaseholders about their experience and any ongoing issues with building management or service provision.

Lease Length Assessment

Ensure the remaining lease term is sufficient for your needs and mortgage requirements, considering the cost and practicality of future lease extension if necessary.

Properties with leases below 80 years require careful financial assessment of extension costs and their impact on the overall purchase value.

Recent Legal Changes

Ground Rent Restrictions

The Leasehold Reform (Ground Rent) Act 2022 banned ground rents on most new residential leases in England and Wales, though existing leases remain unaffected.

This change benefits buyers of new leasehold properties but doesn't help existing leaseholders with ground rent obligations.

Building Safety and Cladding

Recent building safety legislation affects leaseholders in buildings with safety defects, potentially creating significant costs for remedial works.

Government funding schemes provide some protection, but leaseholders may still face substantial bills for building safety improvements in certain circumstances.

Leasehold Reform Programme

The government continues to review leasehold laws with proposals for further reforms including commonhold promotion, enhanced leaseholder rights, and restrictions on leasehold house sales.

These changes may improve the position for future leaseholders but are unlikely to significantly benefit existing leaseholders in the short term.

Commonhold: The Alternative

What is Commonhold?

Commonhold is an alternative form of ownership for flats where each unit owner has freehold ownership of their property plus a share in the common areas through a commonhold association.

This system eliminates ground rents, gives unit owners direct control over building management, and avoids the problems associated with declining lease terms.

Why Commonhold Isn't Popular

Despite its theoretical advantages, commonhold has been rarely used in England and Wales due to lender reluctance, developer preferences for leasehold, and lack of awareness among buyers and professionals.

The government is considering reforms to promote commonhold as an alternative to leasehold for new developments.

Future Prospects

Proposed reforms may make commonhold more attractive and accessible, potentially providing a better ownership model for flat buyers in the future.

However, existing leasehold properties cannot easily convert to commonhold, so this remains primarily relevant for new developments.

Making the Right Choice

When choosing between leasehold and freehold properties, consider your long-term plans, risk tolerance, and budget for ongoing costs. Freehold ownership offers simplicity and control but may come with higher purchase prices and full maintenance responsibility.

Leasehold can provide access to properties and locations that might otherwise be unaffordable, but comes with ongoing costs and restrictions that you must factor into your decision. Always review lease terms carefully and budget for service charges, ground rent, and potential major works.

If buying leasehold, ensure the lease term is adequate for your needs and investigate the building's management and financial position thoroughly. Consider the total cost of ownership including service charges and potential future costs, not just the purchase price.

Work with experienced professionals who understand leasehold complexities and can guide you through the legal and financial implications of your chosen ownership type. The right choice depends on your individual circumstances, but understanding these ownership types fully will help you make an informed decision that serves your long-term interests.

Remember that both ownership types can be good investments when chosen appropriately, but the key is understanding what you're buying and planning accordingly for the responsibilities and costs involved.