Leasehold vs freehold: what’s the difference?
Last updated: 01/04/2022
If you’re a first time buyer, the words ‘freehold’ and ‘leasehold’ might be new to you. Knowing the difference between the two legal terms is important. Here’s why.
This is the more simple of the two terms, and what you’d probably normally associate with home ownership. If you own the freehold to your home, then you own both the building and the land it’s built on.
This means that you have all of the responsibilities of full home ownership, including making any repairs and making sure you’re on top of the maintenance of your home.
With a leasehold, you only own the property for a fixed period of time, and you don’t own the land it’s built on.
In England and Wales, most flats are leasehold, although houses, generally new builds, can be leasehold too.
You’ll have a legal agreement, or ‘lease’, with the landlord, also known as the freeholder. The lease lets you know how many years you’ll own the property for; they normally start out with a term of either 99 or 999 years. After that time, ownership of the property returns to the landlord, unless you can extend the lease.
If you’re buying a leasehold property, you should check how many years are left on the lease. In general, the shorter the remaining lease, the less a property is worth and the harder it can be to sell. In particular, it can be difficult to get a mortgage or sell a property with less than 70-80 years left on the lease.
There are also fees involved with buying a leasehold property, and it’s really important to understand what fees you might be charged before committing to a sale.
The most common charges are:
- Ground rent: a fee for renting the land the property sits on. However, a new law came into force in 2022 banning this charge on new properties.
- Services charges: to cover the costs of providing services to a building, and sometimes amenities and areas around the building.
- Administration charges: including permission fees for example to sublet or make alterations to the property.
Leaseholders who want to take more control of their home can buy the freehold from the landlord along with other leaseholders. At least half of the leaseholders must agree to buy a share. This will allow you to extend your lease for up to 999 years
It’s really simple to find out if a property is freehold or leasehold. Just type the property's postcode into the Land Registry website. The information provided will include the property’s ‘tenure’ which will be either freehold or leasehold.
So, is freehold better than leasehold? Which should you choose? In the end, it comes down to what’s right for you.
Freehold properties are usually thought to be the best option for home buyers. With a freehold property you don’t have to worry about the lease running out, pay charges like ground rent, and you have full control over the property.
With a leasehold property, there is no standard set of rules for who is responsible for communal areas or who manages what. For example, if you buy a leasehold flat, the landlord who owns the freehold may be responsible for the structure of the building and communal areas - but they might not. It’s important to check everything thoroughly and decide what’s right for you.
The property advice website ‘HomeOwners Alliance’ warns that some estate agents may gloss over a property’s ownership type. So, it’s important to know what you’re getting into.
The Competition and Markets Authority (CMA) suggests requesting advice from the estate agent, developer or freeholder on:
- The number of years remaining on the lease term
- The annual ground rent, whether it increases and how often
- The current service charge, what this covers and at least the previous two years’ charges so you can see how costs change
- Whether any major works have been recently completed or are anticipated for which you may be asked to pay towards
- Whether there are any restrictions on how you use the property or charges for certain activities – like owning a pet or changing your boiler
- Whether there are requirements for gaining certain permissions. For example to sublet or alter the property, and whether fees will be charged for this
- Whether ground rent payments are up to date and who collects them
- Who the freeholder is and, if there is one, which managing agent they use for the property
- Which insurance company will insure the building and what the annual insurance amount is. This may be addressed in the service charges information
- Whether the freeholder has agreed to, or intends to, sell the freehold (especially for new build properties). In some cases you can buy the freehold yourself, in some cases that won’t be possible.
Try and use these questions as a checklist to make sure you get the best deal possible on a leasehold along with the other questions you’d ask when buying a home.
- Buying a leasehold flat? You might be interested in our list of things to consider when buying a flat.
- Use our deposit calculator to work out how to save a deposit for your first home.
- Download our free First Home Steps app for a pocket-guide to budgeting, planning, saving, and buying your first place.