In England and Wales, property can be owned as freehold or leasehold. Most houses are freehold. The majority of flats — and a significant proportion of new-build houses sold in recent years — are leasehold. For buyers in London, where flats make up the dominant available stock, understanding what leasehold means in practice is essential before any purchase decision.
Leasehold is not ownership of the property in the same sense as freehold. A leaseholder owns the right to occupy the property for a defined period — the term of the lease — under conditions set by the freeholder, subject to ongoing financial obligations, and with restrictions on what can be done with the property. When the lease expires, ownership reverts to the freeholder unless it is extended.
This guide explains what leasehold means for buyers, what the costs and obligations involve, why lease length matters so much, and how recent legislation is changing the landscape.
Freehold vs Leasehold: The Core Distinction
Freehold means you own the property and the land it stands on outright and indefinitely. No landlord, no ground rent, no lease expiry date. You are the sole owner subject only to planning law and registered covenants.
Leasehold means you own a long-term interest in the property — typically between 99 and 999 years when first granted — but not the land. The freeholder retains ownership of the land and typically the structure of the building. You pay the freeholder ground rent and service charges, comply with the terms of the lease, and seek consent for certain changes.
When you buy a leasehold flat, you are buying the number of years remaining on the lease — not a permanent interest. This is the most important thing most buyers do not fully understand when they first encounter leasehold.
The Key Obligations of a Leaseholder
These are the ongoing financial and practical obligations that come with leasehold ownership.
Ground rent. An annual payment to the freeholder for use of the land. Under the Leasehold Reform (Ground Rent) Act 2022, ground rent on new leases granted from 30 June 2022 is legally capped at zero — new leases cannot charge ground rent. Existing leases granted before this date may still carry ground rent obligations, which vary from nominal amounts to significant annual charges with escalation clauses.
Service charge. The most significant and most variable ongoing cost of leasehold ownership. It covers maintenance of communal areas, the building structure, building insurance, and management costs. Service charges range from a few hundred pounds per year for a well-maintained smaller block to several thousand pounds annually for larger buildings. Always review at least three years of service charge accounts before exchange.
Consent requirements. Most leases require permission from the freeholder before structural alterations, subletting, or works affecting the structure or appearance of the building. The freeholder cannot unreasonably withhold consent, but the process takes time and sometimes incurs fees.
Repair obligations. The lease specifies who is responsible for repairing which elements. External fabric (roof, walls, foundations) is typically the freeholder’s responsibility, funded through the service charge. Internal decoration and fittings are the leaseholder’s responsibility.
The Lease Length Question
This is the most commercially significant factor in any leasehold purchase — and the one most commonly underestimated.
Why lease length matters:
- Most mainstream mortgage lenders require a minimum of 70 to 85 years remaining on the lease at the point of purchase
- When a lease falls below 80 years, the cost of extending it increases substantially due to a payment called marriage value — the freeholder becomes entitled to 50% of the value increase that a lease extension creates
- As a lease gets shorter, the property becomes progressively harder to sell and harder to mortgage
- Below 70 years, most high-street lenders will not lend at all
The 80-year rule. If a flat has 82 years on the lease when you buy it, it will have 80 years two years later — at which point extension costs jump significantly. For any property with a lease below 90 years, establish the extension cost before exchange and factor it into your price negotiation.
Recent legislative changes. Under the Leasehold and Freehold Reform Act 2024, which came into force in stages from March 2025:
- The two-year ownership rule — previously requiring leaseholders to own the property for two years before applying for an extension — was abolished from 31 January 2025. New buyers can apply for a lease extension immediately on completion.
- New lease extensions for flats are now granted for 990 years on top of the remaining term (up from 90 years), providing effective permanent security of tenure.
- Marriage value is being abolished for leases above a threshold — reducing extension costs significantly when fully implemented.
These are the most significant improvements to leaseholder rights in a generation. However, the existing framework still applies to many ongoing transactions, and any purchase where lease length is a concern still requires specific legal advice.
Service Charges: What to Check
Service charges are where many buyers get an unpleasant post-completion surprise. There are specific things to check before exchange.
Request three years of service charge accounts. These are provided as part of the leasehold management pack. Look for:
- A rising trend in charges year on year
- Any large one-off demands or works that suggest upcoming bills
- The size of the reserve fund — a well-managed block maintains a sinking fund to cover major works without sudden large demands
Check for Section 20 notices. Section 20 of the Landlord and Tenant Act 1985 requires the freeholder to consult leaseholders before carrying out major works costing above £250 per leaseholder. An outstanding Section 20 notice means a significant works bill is coming — establish the expected cost before exchange.
Assess the management. Is the block managed by a professional external agent, a residents’ management company (RMC), or by the freeholder directly? The quality of management directly affects both the condition of the building and the reasonableness of service charges over time.
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Right to Manage and Collective Enfranchisement
Two mechanisms give leaseholders greater collective control.
Right to Manage (RTM) allows leaseholders to collectively take over management of their building from the freeholder without buying the freehold. Under the LRFA 2024, the qualifying threshold for RTM has increased to 50% of the building’s total floor area being residential, making it more accessible in larger or mixed-use buildings.
Collective enfranchisement allows leaseholders to collectively buy the freehold of their building. This eliminates ground rent, gives direct control over service charges and management, and removes dependence on a potentially exploitative or poorly managed freeholder. The cost depends on the number of flats, the lease terms, and the property values involved.
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Commonhold: The Coming Alternative
Commonhold is a form of flat ownership where each flat owner holds their flat as freehold and jointly owns common areas through a commonhold association — similar to condominium ownership in other countries. The government has committed to making commonhold the default for new flat ownership in England, with legislation forthcoming. Commonhold would eliminate the lease length problem, ground rent, and many of the power imbalances associated with freeholder-leaseholder relationships. Implementation is ongoing.
For current guidance on leasehold rights, lease extensions, and the LRFA 2024, check: LEASE — Leasehold Advisory Service
The London Leasehold Picture
In London, the vast majority of flats are leasehold. In inner London particularly, many properties have leases granted decades ago that are now shortening toward or below the critical thresholds. The combination of high property values (making lease extension expensive in absolute terms), complex freeholder structures, and variable management quality has made leasehold among the most significant consumer issues in the London property market.
The ongoing reform programme — LRFA 2024 and its secondary legislation — is materially improving the position for both existing leaseholders and future buyers. But the existing lease terms, not the new legislation, govern any specific transaction, and careful legal review remains the essential foundation of any leasehold purchase.
For official GOV.UK guidance on leasehold property obligations, check: GOV.UK — leasehold property
Conclusion
Leasehold means owning the right to occupy a property for a defined term, subject to financial obligations and conditions set by the freeholder. Lease length, service charges, ground rent terms, and management quality are the four factors that determine whether a leasehold property is a sound purchase. All four require specific investigation before exchange.
The leasehold reform landscape is improving rapidly. The abolition of the two-year rule, the extension to 990-year terms, and forthcoming changes to marriage value are genuinely significant improvements for leaseholders. But the specific terms of the lease you are buying still matter — and careful due diligence with an experienced conveyancer remains essential.
Frequently Asked Questions
Can I extend my lease as soon as I buy a leasehold flat?
Yes — the two-year ownership requirement was abolished under the LRFA 2024 from 31 January 2025. New buyers can apply for a statutory lease extension immediately on completion, without waiting two years. This is a significant improvement from the previous position, where buyers had to wait before being able to extend.
What are service charges in a leasehold property?
Service charges cover maintenance of communal areas, building structure, insurance, and management costs. They vary widely from a few hundred to several thousand pounds per year. Always review three years of accounts and check for outstanding Section 20 notices indicating forthcoming major works before exchanging contracts.
How long should a lease be when buying a flat?
A lease of 90 years or more at purchase is advisable — giving headroom before the 80-year threshold, below which extension costs increase significantly due to marriage value. Under the LRFA 2024, new lease extensions are now granted for 990 years, providing effective permanent security of tenure for those who extend.
