Leasehold and freehold are the two principal forms of residential property ownership in England and Wales. Most buyers encounter the distinction for the first time when purchasing their first home and quickly discover that the difference is far more significant than it initially appears — affecting not just legal title but ongoing costs, the right to alter the property, the ease of selling, and, in some cases, the ability to obtain a mortgage at all.
Getting this right before buying is essential. Millions of homeowners in the UK — particularly in London, where flats represent approximately two-thirds of all dwellings — own their property on a leasehold basis, and many did not fully understand what that meant when they bought. The reforms introduced through the Leasehold and Freehold Reform Act 2024 have changed some of the rules significantly, but the fundamental distinction between the two ownership types remains.
Freehold: What It Means
A freehold owner owns the property and the land it sits on outright — indefinitely and without condition. There is no superior owner, no landlord, and no annual charge for the right to occupy. The freehold is yours in perpetuity.
Most houses in England and Wales are sold freehold. You buy the house, you own it. You can alter it (subject to planning and building regulations), you can paint it, you can extend it. No one can charge you a service fee for maintaining the building’s common parts, because with a house there are typically no common parts. No one can tell you your lease is running short and that you need to pay to extend it.
Freehold ownership is the simpler, more secure, and in most cases more straightforward form of property ownership. When buyers talk about preferring freehold, this is why.
Leasehold: What It Means
A leasehold owner owns the right to occupy a property for a fixed term — the duration of the lease. The land and the building itself remain owned by the freeholder (also called the landlord or lessor), who grants the leaseholder the right to occupy for the lease period.
The lease is a legal contract between the leaseholder and the freeholder that sets out the obligations of both parties. The leaseholder typically pays:
- Ground rent — an annual payment to the freeholder for the right to occupy. New leases granted since June 2022 must charge zero ground rent by law. Older leases may charge ground rent that escalates over time — some historic leases contain doubling ground rent clauses that have become significant costs for affected owners.
- Service charges — an annual or twice-yearly charge covering the maintenance, repair, and management of the building’s shared areas — roof, external walls, communal hallways, lifts, gardens. Service charges vary enormously — from £500 per year for a well-managed small block to £8,000 to £20,000 per year in premium developments with extensive facilities.
- Buildings insurance — typically arranged by the freeholder and recharged to leaseholders as part of the service charge.
- Management company fees — the freeholder often appoints a managing agent to administer the block and oversee service charge expenditure.
Leasehold is the standard form of ownership for flats throughout England and Wales. This is because flats share structural elements — the roof, the foundations, the external walls — that cannot practically be divided between separate freehold owners. The leasehold structure provides a legal framework for shared responsibility.
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The Lease Length Problem
The most commercially critical feature of a leasehold property is the remaining length of the lease.
A brand-new leasehold flat might have a 999-year lease. A flat bought 70 years ago might now have only 55 years remaining. This matters enormously because:
- Mortgages. Most lenders will not lend on properties with fewer than 70 to 85 years remaining on the lease, and some require significantly more. A flat with 60 years left cannot be mortgaged by most buyers — limiting the sale price to cash buyers only.
- Resale value. Properties with short leases sell at a discount that grows as the lease shortens. Below 80 years, the discount becomes significant. Below 60 years, the discount can be 20 to 40% of the property’s freehold equivalent value.
- Extension cost. Extending a lease costs money. The shorter the lease, the more expensive the extension becomes. The critical threshold is 80 years — below this, the calculation changes significantly because the freeholder becomes entitled to claim “marriage value” (a share of the uplift in property value that the extension creates), adding substantially to the cost.
What the Leasehold and Freehold Reform Act 2024 changed: Before January 2025, leaseholders had to own the property for two years before they had the legal right to extend the lease. This two-year rule was abolished by the Act, meaning buyers can now extend immediately on purchase. The Act also extended the standard lease extension term to 990 years (up from 90 years for flats and 50 years for houses) and abolished ground rent in extended leases.
This is a significant improvement for buyers. You can now buy a flat with a short lease and extend it immediately at completion, rather than waiting two years while the lease continues to shorten.
Commonhold: The Alternative No One Uses (Yet)
Commonhold is a third form of property ownership in England and Wales, introduced in 2002 but almost never used in practice. It allows flat owners to own the freehold of their individual unit collectively — each flat owner holds a share of the building freehold through a commonhold association, without any superior landlord.
The Government has proposed making commonhold the default for new-build flats. If implemented, this would fundamentally change flat ownership in England and Wales — removing the leasehold structure and the freeholder/leaseholder relationship from new developments. Existing leasehold properties would retain their structure unless converted, which requires unanimous agreement from all leaseholders.
Key Questions to Ask Before Buying a Leasehold Property
If you are buying a leasehold property in London, these are the specific questions your solicitor should answer before exchange of contracts:
- How many years remain on the lease?
- What is the current annual ground rent and how does it escalate?
- What is the annual service charge and what has it been for the last three years?
- Are there any anticipated major works that could produce a large one-off service charge bill?
- Who is the freeholder and what is their track record?
- Is the building professionally managed or self-managed by the freeholder?
- Has the building had a recent Section 20 notice (advance notice of major works that leaseholders must be consulted on)?
For official government guidance on leasehold reform and your rights, check: GOV.UK — leasehold property: buying the freehold
The Cost of Buying the Freehold
Leaseholders of flats can collectively purchase the freehold of their building through a process called collective enfranchisement — provided at least 50% of qualifying leaseholders agree to participate. The cost depends on the lease length, the ground rent, and a valuation methodology set by the Leasehold Reform Act. Professional advice from a solicitor specialising in leasehold enfranchisement is required before proceeding.
For houses, individual freehold purchase (enfranchisement) is available and typically less complex than the collective flat process.
For lease extension valuations and professional leasehold advice, check: RICS — leasehold reform and lease extensions
Conclusion
The difference between leasehold and freehold is the difference between owning a property outright and owning the right to occupy it for a defined period subject to ongoing costs and conditions. Most London flats are leasehold. The Leasehold and Freehold Reform Act 2024 has improved leaseholder rights significantly — abolishing the two-year ownership requirement for lease extension, extending the standard term to 990 years, and abolishing ground rent in new and extended leases. But lease length, service charges, and freeholder relationship remain critical due diligence points in any leasehold purchase.
Frequently Asked Questions
What happens when a leasehold runs out?
When a lease expires, the property technically reverts to the freeholder. In practice this almost never happens because leaseholders almost always extend before expiry — and now have statutory rights to do so at any time. However, a lease that is allowed to run below 80 years becomes significantly more expensive to extend and harder to mortgage, making it a serious practical problem well before the theoretical expiry date.
Can you extend a leasehold in the UK immediately after buying?
Yes — since January 2025, under the Leasehold and Freehold Reform Act 2024, the two-year ownership requirement for lease extension has been abolished. Buyers can now extend the lease immediately on purchase. The standard extension term is 990 years and extended leases must have zero ground rent.
Is leasehold bad in the UK?
Not necessarily — most London flats are leasehold and millions of people own and live in leasehold properties without significant problems. The key variables are lease length (longer is better), service charge quality and value, and the freeholder’s management approach. A 999-year lease with transparent, well-managed service charges on a well-maintained building is a very different proposition from a 75-year lease with escalating ground rent and a poorly managed freeholder.
