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Freehold vs Leasehold: What's the Difference?

Zenyx Griffiths

Written by Reviewed by Emma Lunn

27th Oct 2020 (Last updated on 27th Nov 2020) 17 minute read

There are two main types of property ownership in the UK: freehold and leasehold. When you’re purchasing a home, knowing whether you own it in perpetuity or are simply leasing it for a set amount of time is vital.

When you purchase a leasehold property, you do not own it. Leaseholders can live in the property for a fixed period of time which will be outlined in the lease. Using reliable conveyancing solicitors is vital in ensuring your lease is watertight with no hidden clauses.

In this guide, Compare My Move explains leasehold and freehold, highlighting the main differences between the two methods of homeownership. There are a huge amount of legal nuances in owning a leasehold property, and this guide will explain all of the different aspects involved.

This article will cover the following:
  1. What Does Freehold Mean?
  2. Can You Buy the Freehold?
  3. What Does Leasehold Mean?
  4. What Types of Properties are Usually Leasehold?
  5. Solicitor Fees For Buying A Leasehold Property
  6. Leasehold Extensions
  7. Can I Get A Mortgage On A Leasehold Property?
  8. Leaseholder Rights and Responsibilities
  9. Pros and Cons of Buying Leasehold Properties
  10. Difference Between Freehold and Leasehold
  11. What is a Service Charge?
  12. Service Charge Disputes
  13. What is Ground Rent?
  14. What are Administration Fees?
  15. Commonhold Properties
  16. Next Steps of Buying a House

What Does Freehold Mean?

Freehold is the absolute ownership of both the property and the land it stands on. Freehold ownership is “in perpetuity” – that means forever. It’s “free from hold” from any third party. Although the process of buying a house is never truly simple, the idea of freehold is straightforward: you are the owner of the property and land and are responsible for its maintenance.

Most houses are freehold, but it’s still wise to double check before buying.

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Can You Buy the Freehold?

You may ask the landlord to sell you the freehold at any time. However, there are different legal steps and rules depending on whether your property is a flat or house. 

If it’s a flat, you will have to buy a share of the freehold. However, if it’s a house, you have the right to buy the freehold.

What is a share of freehold?

Typically associated with leasehold flats, owning a ‘share of freehold’ is when the leaseholder also owns a share in the freehold. Leaseholders have a legal right under the Leasehold Reform, Housing and Urban Development Act 1993 to buy the freehold of their building if they meet the required criteria.

The share can either be set up where the freehold is held in a company structure and the leaseholder then owns a share in the company, or the freehold is simply divided directly into shares. 

Properties with a share in the freehold are typically easier to sell but there will likely be a fee for acquiring the freehold. It’s also important to keep in mind that you may have to acquire a share with fellow leaseholders, especially when dealing with a block of flats. 

Buying the freehold

If you have a leasehold house, you have the legal right under the Leasehold Reform Act 1967 to buy the freehold. Before you commit to buying the freehold, do your research and find out who owns the freehold and whether it’s likely to be sold on and to who. 

Whether you’re thinking about buying the freehold soon or in the future, start enquiring as soon as possible. You’ll need to be sure that the property is right for you in the long-run and that you’re actually able to buy the freehold. 

You may also require legal advice from a solicitor with experience of lease extensions and freehold purchase. Not all conveyancers or general solicitors have this experience.

What Does Leasehold Mean?

The major difference between freehold and leasehold is that you can only occupy leasehold properties for a fixed period of time. You do not own the building outright. 

When buying a leasehold home, you will sign a legal agreement with the landlord or freeholder. This agreement is known as a lease and will state how long you can occupy the property before ownership returns to the landlord. 

Leases will typically last between 99 to 125 years, but some can extend to as high as 999 years. It’s important to read your lease thoroughly before committing to the move as some leases can be much shorter - sometimes just a few years. 

Once you purchase a leasehold property, it may be possible to purchase the freehold. This will allow you to take ownership of both the property and the land it’s on. This is something you should discuss when reviewing the lease from your landlord

Leasehold Restrictions

As the freeholder owns the property, there may be a few restrictions on what the leaseholder of the property can do. These are called restrictive covenants. When you receive the lease, carefully read it through and ask any questions concerning restrictions on the property.

Some restrictions could impact your lifestyle, such as not being allowed a pet whilst living in the leasehold home. Some may not have any impact but it’s wise to ask as many questions as possible to gain clarity. Think about how they could affect your life within the property, not just now but in the future.

What Types of Properties are Usually Leasehold?

The majority of properties in the UK are sold as freehold, where you can purchase both the property and the land it was built on. However, there has been a growing number of leasehold homes on the market. 

The Ministry of Housing, Communities and Local Government discovered that there were 4.3 million leasehold homes in England between 2017-2018. This equated to 18% of the English housing stock. More than two-thirds of the leasehold properties were flats whilst 31% of them were houses.

In England and Wales, the majority of leasehold properties are flats, even if there’s a share of the freehold owned by the leaseholder. Leasehold flats are usually located in a larger block containing shared facilities or communal spaces. There was a rise in the number of leasehold new-build houses before 2019, but this trend has been stopped and you will most likely only be confronted with a lease when purchasing a flat. 

This is due to the government announcing in 2019 that “all new-build houses will be sold as freehold” to “tackle unfair leasehold practices.” This lowered the sale of leasehold properties from 11% to just 2% during 2019 alone.

If you’re looking to purchase a new-build home, it should not be sold as leasehold. Carefully read through your contract when buying a home and ensure you understand whether the property you’re interested in is freehold or leasehold.

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Solicitor Fees For Buying A Leasehold Property

Because of their complexity, you’ll have to pay more in conveyancing fees when you buy a leasehold property, compared to buying a freehold property. Below we’ve listed the average legal fee for leasehold properties with a range of property values.

Property ValueAvg. Solicitor Fee For Buying A Leasehold Property*

Up to £100,000

£1,030

£100,001 to £200,000

£1,110

£200,001 to £300,000

£1,230

£300,001 to £400,000

£1,310

£400,001 to £500,000

£1,390

£500,001 to £600,000

£1,560

£600,001 to £700,000

£1,630

£700,001 to £800,000

£1,850

£800,001 to £900,000

£2,010

£900,001 to £1,000,000 

£2,100

*We took a sample of fees from 50 licensed conveyancers across the UK to find these averages, but this is just an indication of costs. Fees will greatly vary depending on your situation and conveyancer.

Leasehold Extensions

You’re allowed to ask your landlord to extend your lease at any time. You legally have the right to extend your lease by 50 years after owning the house for 2 years. If it’s a flat rather than a house, you can extend the lease by 90 years if you qualify. 

If you can’t agree on a deal with your landlord, you’ll have to go to a tribunal which is often a slow and costly process. 

However, even without this added legal process, extending a lease can be expensive, costing you thousands of pounds. The final price will depend on a variety of factors, including the value of the property, the ground rent and the original length of the lease. 

If the lease on the property you want to buy needs to be extended, then it is up to the seller and current owner to claim the right to extend. This must be started before the property is passed on you as you will then have to complete it yourself. If the seller doesn’t make the claim before the transaction is completed, you will have to wait until you’ve owned the property for 2 years.

What Lease Length Do I Need for a Mortgage?

We’ve listed some of the most popular mortgage lenders and their minimum lease length required for a leasehold mortgage, taking the data from the Council of Mortgage Lenders’ ‘Lenders’ Handbook’.

Mortgage LenderLease Length Required for Leasehold Mortgage

Lloyds Bank

Mortgage term plus 30 years subject to an overall minimum term of 70 years.

Halifax 

Minimum of 70 years left on lease when you apply for a mortgage

HSBC

More than 30 years remaining on the lease beyond the term of the mortgage at the outset.

Scottish Widows Bank

Minimum of 70 years unexpired at the start of the mortgage.

TSB Bank

Minimum of 70 years at mortgage commencement, with 30 years remaining at mortgage redemption.

Yorkshire Building Society

85 years from the date of completion of the mortgage.


Can I Get A Mortgage On A Leasehold Property?

Many mortgage lenders provide leasehold mortgages, but the key factor in the process being simple or extremely difficult will be the length of the lease. It’s significantly harder to be accepted for a leasehold mortgage if your lease is short, with anything under 80 years causing difficulty when applying for a mortgage. 

When applying for a mortgage for a short leasehold term, you will face higher interest rates on the mortgage as well as requiring a bigger mortgage deposit. Leasehold properties typically have a lease ranging from 90 to 120 years but can last as little as 40 years and as long as 999 years. Many mortgage lenders will prefer a lease extended to a minimum of 40 years after your mortgage has ended.

Before you commit to buying a leasehold property, you should check how long is left on the lease. Your property surveyor will be able to tell you how long is left, so make sure you compare surveyor quotes to save money on your survey. 

Leasehold Mortgage Requirements

You will need to meet certain requirements and criteria to be accepted for a leasehold mortgage, just like you would with a traditional mortgage. The specific details of the requirements will vary depending on the mortgage lender you choose. You should expect the lender to assess your affordability when applying for a leasehold mortgage, including your income and outgoings. 

The main factor lenders will judge is the number of years left on your lease. According to the Council of Mortgage Lenders’ ‘Lenders’ Handbook’the minimum unexpired lease term required for a leasehold mortgage is around 70 years from the date the mortgage begins. Many lenders also usually require a minimum of around 30 years to be left on the lease after the mortgage term ends. 

This is just an average and the handbook shows lenders that require a lease term as little as 20 years at the end of the mortgage term, all the way to 250 years from the start of the mortgage term.

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Leaseholder Rights and Responsibilities

Although the freeholder is responsible for the building as a whole, you’ll have responsibilities outlined in your lease to ensure your property is kept in good condition. Your responsibilities and rights include:

1. Paying the service charge

If you pay service charges, you have a right for a summary about how the charges are spent and any receipts. You can also request details on the insurance policy you’re paying towards through the service charges.

2. Right to Manage

If you have issues involving the management of the property such as unexplained service charges, you can use a tribunal to appoint a new manager. There are also avenues for the leaseholders of a flat to take over the management of the building through Right to Manage. Once this is done it can be easier to extend the leasehold.

3. Right of first refusal

If your landlord wants to sell the freehold to your home you’ll get the right to first refusal as the leaseholder. This means you’ll be offered the chance to purchase the freehold if the landlord is selling it.

Pros and Cons of Buying Leasehold Properties

There’s a variety of pros and cons when owning a leasehold property, many of which will depend on the lease itself and the current upkeep of the building. To help you decide if it’s right for you and your personal circumstances, we’ve created a list of both the pros and cons of buying a leasehold home:

ProsCons

You won’t have to ask your neighbours to help with the repairs or general upkeep of the building as it’s already been paid for with the service charge.

A lease is almost like a long-term rental agreement. Once it expires, you will have to ask the freeholder to extend the lease which is often expensive.

Your freeholder should be the person you go to for any complaints or issues, ensuring they’re fixed within a reasonable period of time.

The lease could contain a variety of restrictions which could affect your life when living in the property. These restrictions could also make it difficult to sell the property in the future.

The building insurance is often organised by the freeholder.

There’s not always a guarantee that the freeholder will agree to extend the lease.

If you don’t want to be a leaseholder, you can eventually apply to buy the freehold.

The service charge and ground rent can be very expensive.

If the lease is under 100 years, the property will often be sold for a lower price.

If the lease is below 80 years, it will be difficult to get a mortgage and sell the home.

If you want to make any changes to the property, you will need the freeholder’s permission. They may ask for fees to do this work.

The freeholder will be the one to hire any required contractors, meaning you will have no control on who completes the work and whether they’ll do a good enough job.


If you’re still unsure whether buying a leasehold property is right for you, you can contact The Leasehold Advisory Service for further help and advice on the matter.

Difference Between Freehold and Leasehold

The main difference is that a freeholder owns the property in perpetuity, whereas a leaseholder owns it for a period of time before ownership reverts back to the freeholder. Freeholders own the property and the land it sits on and may lease the property for a set period of time to the tenant or leaseholder.

The most common property type for a leasehold is flat, with separate apartments leased from the overall building freeholder. Leaseholders will pay ground rent to the freeholder, and will also pay for ongoing maintenance fees. Freeholders are responsible for the condition and maintenance of the external walls, communal areas and roof.

A leaseholder will generally have to get permission from the freeholder to change or extend the property. If you purchase a freehold home, you can change or renovate your property as you please. The biggest concern with renovating a freehold home is if you'll require planning permission or a party wall agreement for more extensive work.

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What is a Service Charge?

When you buy a leasehold property, there will be on-going costs to pay as well as the outright cost of buying the home. One of these fees is the service charge. 

A service charge is a fee payable by all residents. It contributes towards the general maintenance and upkeep of the shared building. For example, if you’re living in a block of flats, it would be used to repair or clean shared or communal spaces such as the staircase, corridors, exterior walls or roof. 

Some larger blocks may have a managing agent to set the service charge and arrange any repairs or maintenance. In smaller blocks, these responsibilities may fall to the residents’ committee. Currently, there is no cap on how much you may be expected to pay. 

This annual fee is typically fixed but it could change year on year. Ask your conveyancer or conveyancing solicitor to explain the charges before you purchase the property. Ask if the lease administrator has any plans for future work that you may be responsible to pay for.  

The service charge must be explained in your lease. It should describe how the service charge will be organised and what you may be charged for. If you have a service charge, you have the right to:

  • Ask for a summary of how it’s worked out and what it will be spent on
  • See any paperwork or receipts supporting the summary

It is a criminal offence if a landlord does not give you the information stated above. 

Service Charge Disputes

Disputes between leaseholders and freeholders are very common. Most disputes are about high service charges and major works bills and the service received in return.

If you cannot reach an agreement with your freeholder about service charge disputes, you can take your case to the First-Tier Tribunal (Property Chamber). However, freeholders will hire expensive solicitors to fight their case, so this process can be stressful and expensive.

Ultimately, if you don’t pay the service charges owed, the freeholder can repossess your property.

What is Ground Rent?

Ground rent is an annual or monthly fee the leaseholder must pay to the freeholder. It is usually a fixed sum and is a fee paid to rent the land the property is built on from the freeholder. The amount as well as how and when you need to pay, will all be outlined in your lease. It’s typically around £100 a year but can vary greatly. 

Some homeowners have seen their ground rent double every decade, turning a small fee into a significant long-term bill. This is called a spiralling ground rent and should be scrutinised by your conveyancer.

The Competition and Markets Authority (CMA) investigated these unfair, spiralling fees in February 2020, announcing that they “found worrying evidence that people who buy leasehold properties are being misled and taken advantage of.” A spiralling ground rent contributed to this evidence as it meant people “often struggle to sell their homes and find themselves trapped.”

If you’re considering purchasing a leasehold property, it would be wise to keep up-to-date on the CMA’s website as they are looking to “reduce ground rents for new leases to zero” in the coming years. Always read your lease thoroughly before purchasing the property and work alongside your conveyancer to ensure you understand each clause and section. 

You shouldn’t have to pay ground rent unless the freeholder has sent a formal, written demand for it. If you then refuse to pay, they can take legal action once you’ve received this demand. Landlords can also recover unpaid ground rent as far back as 6 years.

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What are Administration Fees?

Administration fees are payments charged by the freeholder for services connected with your buying, selling or use of the property. This can include anything from charges for document applications to exit fees. 

An example would be a seller being expected to pay for management information that the landlord or freeholder will need to provide a buyer. This will be required during the conveyancing process when selling a leasehold property. 

These fees should be explained in your lease agreement. Your conveyancer should review your lease and advise you further.

Commonhold Properties

In addition to leasehold and freehold, there is a third and relatively rare type of property - commonhold.

Some regard commonhold as a type of freehold, but it has been legally separate since 2004.

Well under one per cent of properties are commonhold, and they are always flats within a block, so it is highly unlikely you will encounter it.

Under the commonhold system, all flat owners are automatically members of a company that owns the freehold and therefore owns the block, making it easier - in theory - to run the entire building for the benefit of the flat owners.

 For an existing block of leasehold properties to become commonhold, they would require the consent of the current freeholder - who, in reality, has little incentive to agree to the change.  

Next Steps of Buying a House

This article is part of our home buying guide. Whether you’re looking to buy a freehold or leasehold property, you'll still need to make an offer on the property. In our next article, we give tips for getting your offer accepted. To find out more read making an offer on a house

Zenyx Griffiths

Before Compare My Move, Zenyx once wrote lifestyle and entertainment articles for the online magazine, Society19 as well as news articles for Ffotogallery.

Emma Lunn

Reviewed by Emma Lunn

Freelance Personal Finance Journalist,

Emma Lunn is an award-winning journalist who specialises in personal finance, consumer issues and property.