Leasehold vs freehold: what’s the difference between the two?
There are three ways you can own a property: freehold, leasehold or with a share of the freehold. Find out the different costs and responsibilities with each, and how they impact on how much a property will cost to buy, sell, and maintain.
The freeholder of a property owns it outright, including the land it’s built on. Generally, most houses are freehold properties although some might be leasehold – usually through shared ownership schemes.
If you buy freehold, you are responsible for maintaining your property and land, so you’ll need to budget for these costs.
The main benefit of freehold is that you don’t have to:
- worry about the lease running out, as you own the property outright
- deal with the freeholder (often known as the landlord)
- pay ground rent, services charges and any other landlord charges
Owning a share of freehold
You can buy a share of the freehold with the other leaseholders (such as other people living in a small block of flats) as long as at least half of them agree to buy a share. Together you will have to serve a Section 13 Notice on the freeholder of the property.
It gives you more control over your home, and the costs you pay out, plus you can extend your lease fairly easily for up to 999 years.
It may be expensive to buy the freehold and you and the other leaseholders will then need to set up a company to manage the building, or find a managing agent to do it for you.
Find out more about buying a share of the freehold and other aspects of leasehold ownership at The Leasehold Advisory Service website.
Most flats and maisonettes are owned leasehold, apart from in Scotland where there are very few leasehold properties.
With a leasehold, you own the property and its land for the length of your lease agreement with the freeholder. When the lease ends, ownership returns to the freeholder unless you are able to extend the lease.
When you buy a leasehold property, you’ll take over the lease from the previous owner, so before making an offer you’ll need to consider:
- how many years are left on the lease
- how it may affect getting a mortgage and the property resale value
- how you’ll budget for service charges and related costs
Charges for leasehold properties
If you own a leasehold property, you don’t own the land. This means that you won’t be responsible for maintaining and running the building. The landlord will do this or appoint a managing agent to do so for them.
However, the leaseholders share the costs of this by paying a service charge to the landlord. You may also be asked to pay into a sinking fund, to help cover any unexpected maintenance work needed in the future.
Service charges vary from property to property and are pay for things like maintaining large communal gardens, electricity bills for communal areas, repair and maintenance of exterior walls, roofs and lifts.
Make sure you’re aware of the service charges before you put in an offer on a property as it may impact on whether you can afford to live there or not.
As a leaseholder you have rights that prevent the landlord from taking advantage of you financially. For example, you can ask to see:
- a summary of what the service charges are being spent on
- how they have been calculated
- any supporting paperwork, such as receipts for work carried out
The landlord must also consult you:
- about any building work that will cost more than £250
- before doing any work lasting more than a year
- before doing any work that will cost you more than £100 a year
If you own a leasehold property, the repairs and maintenance in your property are your responsibility. But you’ll usually need to get the landlord’s permission to make any significant changes.
Other charges may include:
- ground rent
- buildings insurance (arranged by the landlord)
- administration charges
Before buying a leasehold property, ask about all of these charges. Use our Budget planner to check that you’ll be able to afford them on top of your mortgage payments.
If you want to challenge your landlord’s charges, you can do this through the Leasehold Valuation Tribunal.
If you’re unhappy with the charges or the way the property is managed you can do one of two things.
The Right to Manage lets leaseholders take over certain management tasks from the landlord without having to prove bad management. You’ll need to qualify, and set up a management company with the other leaseholders.
Find out more at the Leasehold Advisory Service (LAS), which has a guide on the Right to Manage.
You can also apply to appoint a new manager but you must prove bad management.
Find out how to apply to the Residential Property Tribunal.
Read more on property disputes.
How important is the length of a lease?
If the lease is for less than 70 years you may struggle to get a mortgage. Lenders will normally need it to run for 25-30 years beyond the end of your mortgage.
This means if you want to get a 25-year mortgage the lease needs to have at least 50-55 years before it ends.
As a result it can also be difficult to sell a property if the lease is for less than 80 years. If you want to sell a leasehold property you’re buying think about how many years will be left on the lease by that time.
Extending the lease
You can ask the landlord to extend the lease at any time. And once you’ve owned your home for two years, you have the right to extend your lease by 90 years provided you are a qualifying tenant.
As a general rule you will qualify if your original lease was for more than 21 years. The freeholder will charge for extending the lease.
If you and the freeholder can’t agree on the cost of extending the lease, you can appeal to the Leasehold Valuation Tribunal. You may need to hire a solicitor and surveyor, which will increase the cost.
Find out more about extending the lease or buying the freehold of a house or flat on GOV.UK.
Find out about the Leasehold Valuation Tribunal on the Ministry of Justice website.
Factoring charges in Scotland
In Scotland, services charges are known as ‘factoring charges’. These usually apply to flats with common parts or to properties in residential areas which have communal gardens or grounds.
Read more about buying in Scotland on the Scottish Government website.