Freehold and Leasehold Property Explained – Key Differences Every Buyer Should Know

Understanding the difference between freehold and leasehold property is one of the most important steps when buying or investing in real estate in the UK. Many first-time buyers and even experienced landlords often face confusion about what these terms mean and how they affect ownership, costs, and long-term value. Choosing the wrong option without proper knowledge can lead to unexpected charges, restrictions on how you use your property, and difficulties when it comes to selling or refinancing. With government reforms underway and more lenders tightening criteria, knowing the pros, cons, and legal responsibilities of both freehold and leasehold is more critical than ever.

Why Freehold vs Leasehold Matters in the UK Property Market

Buying a home is one of the biggest financial decisions most people will make, and understanding whether a property is freehold or leasehold is essential. These terms define the type of ownership you hold, the responsibilities you face, and the long-term costs attached to the property. Many buyers are surprised to learn that owning a leasehold property may involve service charges, ground rent, and restrictions on how the property is used, while freehold ownership gives greater control but usually requires more upfront capital.

For landlords and investors, the choice between freehold and leasehold can also affect rental yield, mortgage approval, and resale value. By understanding the differences, benefits, and risks, buyers can make informed decisions that protect their investment and future financial security.

What Is a Freehold Property?

A freehold property means you own both the building and the land it stands on outright. There is no time limit on ownership, and once purchased, the property remains in your name indefinitely until you choose to sell it or pass it on. In the UK, most houses are sold as freehold, while flats are more often leasehold. As the freeholder, you are responsible for all aspects of the property, from repairs to compliance with local regulations. This full ownership offers stability, but it also comes with the obligation to cover costs that might otherwise be shared in a leasehold arrangement.

Advantages of Freehold

Freehold properties are often seen as the most secure form of ownership, offering several benefits:

• No ground rent or service charges: You avoid ongoing payments to a landlord or management company.

• More control: You can make changes or improvements without seeking permission, subject to planning rules.

• Permanent ownership: There is no lease to run out, which means the property value is more stable in the long term.

• Easier resale: Buyers and lenders usually prefer freehold properties, making them easier to sell or remortgage.

For families and long-term investors, these advantages make freehold properties a highly attractive option.

Disadvantages of Freehold

While freehold ownership is appealing, it is not without its drawbacks. The main disadvantages include:

• Higher initial cost: Freehold properties usually require a larger purchase price compared to leasehold alternatives.

• Full responsibility for maintenance: All repairs, structural issues, and upkeep of the property and land fall on the owner.

• No shared management: Unlike a leasehold flat, where maintenance costs are split between leaseholders, freehold owners must cover expenses alone.

For some buyers, especially first-time purchasers with limited funds, leasehold may initially seem more affordable despite its limitations.

What Is a Leasehold Property?

A leasehold property means you own the right to live in and use the property for a set period, but the land and building structure remain owned by the freeholder (landlord). In the UK, most flats are leasehold, while houses are generally freehold unless sold under specific arrangements. The lease is a legal contract that sets out the length of ownership, usually between 90 and 999 years at the start. When the lease expires, ownership reverts to the freeholder unless it is extended or purchased outright. This arrangement means leaseholders have fewer rights than freeholders and must follow restrictions set by the lease, such as seeking permission for alterations or subletting.

Buying a Leasehold Property

When buying a leasehold property, there are several checks buyers should make before proceeding:

• Lease length: The remaining years on the lease greatly impact both property value and mortgage eligibility.

• Ground rent and service charges: Buyers should ask how much these are, how they increase, and whether they are subject to review.

• Restrictions: Many leases limit property use, such as rules against running a business or keeping pets.

• Management arrangements: Understanding who manages the building, and how efficiently, is crucial for long-term satisfaction.

Mortgage lenders are often reluctant to finance properties with short leases, which can limit resale options. Buyers should always review the lease in detail with a solicitor before completing a purchase.

Importance of Lease Length

Lease length is one of the most important considerations when buying leasehold property. Typical UK lease terms range from 99 to 999 years, but it’s not unusual to find leases with fewer than 80 years remaining. Short leases reduce the property’s value and make it harder to secure a mortgage. Many lenders refuse to offer loans on properties with leases under 70 years. This can trap leaseholders in homes that are difficult to sell unless they pay to extend the lease. For this reason, buyers are advised to target properties with leases well over 80 years remaining to protect long-term value.

Extending a Lease – How It Works

Leaseholders have a legal right to extend their lease after owning the property for two years. Typically, a lease can be extended by 90 years, with ground rent reduced to zero. The process involves:

• Valuation: A surveyor calculates the premium payable to the freeholder.

• Legal process: Solicitors manage the notice to extend and handle negotiations.

• Costs: Extending a lease can cost anywhere from a few thousand to tens of thousands of pounds, depending on property value, ground rent, and remaining term.

The government has announced leasehold reform plans to make extensions simpler and cheaper, which may reshape the market in the coming years.

Costs Linked to Leasehold Properties

Leasehold ownership comes with additional financial commitments beyond the property purchase price. These often include ground rent, service charges, and management fees, which are ongoing costs that leaseholders must budget for throughout the life of the lease. Some leases may also include permission fees for changes to the property or contributions to long-term maintenance funds. Understanding these costs upfront is crucial, as they directly affect affordability, mortgage approval, and long-term returns on investment.

Ground Rent Explained

Ground rent is a fee paid annually by leaseholders to the freeholder. Historically, many ground rents were small and fixed, but in recent decades, some contracts included escalating ground rents that doubled every 10 years, making properties unaffordable. These unfair practices caused significant problems for leaseholders trying to sell. To address this, the UK government has banned ground rents on all new leases, protecting future buyers from excessive costs. Existing leaseholders, however, may still face ground rent charges unless they negotiate or extend their leases.

Service Charges and Management Fees

Service charges cover the cost of maintaining communal areas such as hallways, lifts, roofs, and gardens. Leaseholders in flats are typically required to contribute annually to these costs, which can range from a few hundred to several thousand pounds per year. Management fees, charged by property managers or freeholders, are also included in these payments. Charges are usually calculated based on property size or lease terms. If leaseholders feel charges are unfair or excessive, they have the legal right to challenge them through a tribunal.

Other Possible Leasehold Charges

In addition to ground rent and service charges, leaseholders may encounter extra costs, such as:

• Permission fees: Charged for subletting the property, carrying out renovations, or even changing flooring.

• Reserve or sinking funds: Contributions toward future large-scale works, such as roof replacement or structural repairs.

• Insurance contributions: Some leases require leaseholders to pay into a building insurance arranged by the freeholder.

These additional charges can significantly increase the long-term cost of owning a leasehold property, making it essential for buyers to factor them in before committing.

Freehold vs Leasehold Property – Key Differences at a Glance

Understanding the differences between freehold and leasehold is essential for buyers, landlords, and investors. The table below highlights the main contrasts:

Factor	Freehold	Leasehold
Ownership	You own the property and the land outright, with no time limit.	You own the property for a fixed number of years but not the land.
Costs	No ground rent or service charges (except shared facilities in some cases).	Ongoing costs like ground rent, service charges, and permission fees.
Responsibilities	Full responsibility for repairs and maintenance.	Freeholder/management company maintains structure and communal areas.
Control	Full control over alterations (subject to planning).	Restrictions apply; freeholder approval often needed.
Resale Impact	Easier to sell, generally holds value.	Lease length can reduce value and limit mortgage availability.

Who benefits most?

• First-time buyers often find leasehold flats more affordable.

• Landlords usually prefer freehold for long-term stability, though HMOs are often leasehold.

• Investors may use a leasehold to access city flats, but must weigh costs and restrictions carefully.

Alternatives to Freehold and Leasehold

While freehold and leasehold are the most common forms of property ownership in the UK, there are alternative structures available. Commonhold and share of freehold are two examples that give buyers more collective control over their property and the building it sits in. These alternatives were introduced to address some of the challenges of traditional leasehold, offering more fairness and flexibility for property owners. Although less widespread, they are worth considering for buyers who want a balance between ownership and shared responsibility.

What Is Commonhold Property?

Commonhold is an alternative form of ownership introduced in the UK in 2004. It allows owners to hold the freehold of their flat while jointly managing communal areas with other residents through a Commonhold Association. Unlike leasehold, there is no time limit on ownership, and no ground rent applies. However, commonhold has not become widespread due to a lack of lender support and reluctance from developers, meaning it remains rare in the UK housing market.

Share of Freehold

Another alternative is “share of freehold.” This usually applies when leaseholders in a block of flats collectively buy the freehold through a company or trust. Each leaseholder still has their individual lease, but they also own a share of the freehold, giving them greater control over service charges, maintenance, and lease extensions.

Pros: Lower long-term costs, more control, and easier lease extensions.

Cons: Collective decision-making can lead to disputes, and setup costs may be high.

For many buyers, a share of freehold offers the best balance between control and affordability.

Legal and Practical Considerations

Both freehold and leasehold ownership come with important legal rights and responsibilities that affect how the property is managed and sold. Leaseholders must comply with agreements set out in the lease, while also holding rights to extend leases or purchase the freehold under certain conditions. Freeholders, on the other hand, carry full responsibility for maintenance and compliance. From selling a leasehold property to securing a mortgage, legal and practical aspects can significantly influence the buying process and overall investment strategy.

Landlord and Tenant Rights in Leasehold Properties

Leaseholders are protected by several legal rights, including:

• Right to Manage (RTM): Leaseholders can take over building management without buying the freehold.

• Right to Buy Freehold: Leaseholders can collectively purchase the freehold, giving them full control.

These rights are designed to prevent freeholders from exploiting leaseholders through excessive charges or poor management.

Selling a Leasehold Property – What to Expect

Selling a leasehold property is more complex than selling a freehold. Buyers and lenders look closely at the lease length, and short leases can make sales difficult. Solicitors also need to obtain a “management pack” from the freeholder or managing agent, which adds time and cost. Extending the lease before selling can improve value and speed up the process.

Mortgages and Leasehold Property

Mortgage lenders impose strict rules on leasehold properties. Many refuse loans on leases under 70 years, and some require at least 85 years at purchase. Ground rent clauses that escalate sharply can also affect mortgage approval. Freehold properties, by contrast, rarely face such restrictions, making them easier to finance. Buyers should always confirm lease details with their solicitor before applying for a mortgage.

Suggestions: Making the Right Choice as a Buyer or Landlord

Choosing between freehold and leasehold depends on your goals, budget, and long-term plans. Freehold provides security, control, and stability, while leasehold may offer more affordable entry into high-demand markets but with added costs and restrictions. Legal reforms, such as the ban on ground rents for new leases, are making leaseholds fairer, but careful review of lease terms remains essential. Buyers and landlords should always seek professional legal advice and consider future resale implications before committing.