Housing Law

Leasehold vs Freehold — Everything You Need to Know Before Buying (2025)

8 May 2025 ⏱ 7 min read 🇬🇧 England & Wales Last reviewed: May 2025

Millions of people in England and Wales own leasehold property without fully understanding what that means — until the service charge demands arrive, the lease drops below 80 years, or they try to sell and find buyers cannot get a mortgage. This guide explains the full difference, your legal rights, and the major 2024 reforms that are changing the rules for leaseholders.

The Fundamental Difference

When you buy a property in England and Wales, you are buying one of two things: the freehold or a leasehold interest. This determines what you actually own, what obligations you have, and what the property may cost you over its lifetime.

🏡 Freehold

You own the building and the land it stands on
You own it forever — no time limit
No ground rent to pay
No service charges (unless on a managed estate)
No freeholder permission needed for most works
Typical for houses

🏢 Leasehold

You own the property for a fixed term only
The freeholder owns the land and building
Ground rent (older leases) and service charges apply
Freeholder permission needed for many alterations
Lease length decreases — affects value and mortgageability
Typical for flats; some new-build houses

How Leasehold Works in Practice

A leasehold property comes with a lease — a legal document setting out your obligations (maintaining the interior, not subletting without permission, not making structural alterations without consent) and the freeholder's obligations (maintaining the structure, exterior, and common parts). Leases are typically granted for 99, 125, or 999 years.

Over time the remaining lease term decreases. A flat with 90 years remaining is readily mortgageable and saleable. One with 65 years or fewer becomes difficult to sell and impossible to mortgage with most high-street lenders. The value falls significantly as the lease shortens below 80 years — and the cost of extending rises sharply once it drops below that threshold.

Ground Rent — An Expensive Trap in Older Leases

Ground rent is an annual payment by leaseholders to the freeholder. For decades, developers sold flats with escalating ground rent clauses — doubling every 10 or 25 years. A ground rent of £250/year that doubles every 10 years becomes eye-wateringly expensive within a generation. The Competition and Markets Authority investigated several major developers and secured commitments to remove these clauses.

The Leasehold Reform (Ground Rent) Act 2022 abolished ground rent for new residential leases granted on or after 30 June 2022 — the rent for all new leases must be zero (a "peppercorn"). However, existing leases with escalating ground rent clauses are not automatically fixed — if buying an older flat, check the lease carefully before proceeding.

Before buying any leasehold property: check the ground rent and how it escalates, the remaining lease term, the annual service charge, any major works planned, and whether a healthy reserve fund exists. Ask your solicitor to review the full lease.

Service Charges — Your Rights to Challenge Them

Leaseholders pay service charges to cover maintaining and managing the building — cleaning, building insurance, lift maintenance, gardening, and major works such as roof replacement. Under section 19 of the Landlord and Tenant Act 1985, service charges must be reasonable. You have the right to:

Request a written summary of service charge costs (section 21 LTA 1985)
Inspect the accounts and supporting receipts
Apply to the First-tier Tribunal (Property Chamber) to challenge unreasonable charges
Be consulted before major works costing more than £250 per leaseholder (section 20 LTA 1985 — failure invalidates the freeholder's right to recover the full cost)

Assess your service charge dispute with our Leasehold Service Charge Dispute Estimator.

Lease Extension — Your Statutory Right

After owning a leasehold flat for two years you have a statutory right to extend the lease under the Leasehold Reform, Housing and Urban Development Act 1993. The extension adds 90 years to the current unexpired term and reduces ground rent to zero. The cost depends on the current lease length, ground rent, property value, and whether the lease has fewer than 80 years remaining.

The 80-Year Cliff Edge

Once a lease drops below 80 years unexpired, the freeholder becomes entitled to 50% of the "marriage value" — the increase in the flat's value from having a longer lease. This can add tens of thousands of pounds to the extension cost. A flat with 79 years left might cost £20,000–£30,000 more to extend than an identical flat with 81 years remaining. If buying a flat approaching 80 years, either negotiate a price reduction, require the seller to extend before completion, or act immediately after purchase.

Budget for the full purchase with our Conveyancing Cost Calculator and Stamp Duty Calculator.

Collective Enfranchisement — Buying the Freehold Together

Where at least half of qualifying leaseholders in a block wish to participate, they have a statutory right to collectively purchase the freehold under the 1993 Act. This gives leaseholders control over building management, the right to grant extended leases, and the ability to appoint their own managing agent. The process requires a special purpose company and specialist legal advice throughout.

The Leasehold and Freehold Reform Act 2024

The 2024 Act introduced the most significant leasehold reforms in decades:

The two-year ownership requirement before applying for a statutory lease extension or collective enfranchisement is abolished — you can apply from day one
Statutory lease extensions for houses are increased to 990 years (from 50)
The marriage value element of lease extension premiums is abolished — removing the 80-year cliff edge for future extensions
Leaseholders gain stronger rights to challenge service charges and replace managing agents
Restrictions on building insurance commissions paid to managing agents are introduced

Many provisions require secondary legislation — implementation is expected to run through 2025 and 2026. Check current government guidance for which provisions are now in force.

Pre-Purchase Leasehold Checklist

✅ Remaining lease term — aim for 90+ years; be very cautious below 80
✅ Ground rent — zero/peppercorn (new leases) or fixed low amount is good; escalating clauses are a red flag
✅ Annual service charge — request three years' accounts to see the trend
✅ Reserve/sinking fund — is there money set aside for major repairs?
✅ Managing agent reputation — check any First-tier Tribunal decisions against them
✅ Planned major works — upcoming roof, lift, or cladding work could mean a five-figure bill
✅ Building safety — for flats over 11 metres, check the cladding status

Frequently Asked Questions

What happens when a leasehold runs out?+

In theory, ownership reverts to the freeholder. In practice this almost never happens — leaseholders exercise their statutory right to extend well before the lease expires. However, a short lease (under 70 years) makes the property very difficult to sell or remortgage, so act well in advance.

Can my freeholder increase service charges by any amount?+

No. Service charges must be reasonable under the Landlord and Tenant Act 1985. You can apply to the First-tier Tribunal (Property Chamber) to challenge charges you consider excessive. For major works over £250 per leaseholder, the freeholder must follow a statutory consultation process — failure limits their ability to recover the full cost.

Can I buy a leasehold house?+

You can buy an existing leasehold house and have a statutory right to buy the freehold after two years (enfranchisement under the Leasehold Reform Act 1967). New-build leasehold houses are now very rare following the 2022 and 2024 reforms. If buying a new-build house, insist it is freehold.

What is commonhold — is it better than leasehold?+

Commonhold allows flat owners to hold the freehold of their unit and collectively manage common parts through a Commonhold Association. It avoids diminishing lease terms and ground rent entirely. However, commonhold remains very rare in England and Wales. The government has committed to making it the default for new flats, but most existing blocks remain leasehold.