07 January 2025
Freehold vs Leasehold: What to know
9 minutes
Two of the property types you can buy in the UK are freehold and leasehold properties.
Buying a freehold property means you own both the property and the land it’s on, while a leasehold property means you own the property for a set number of years — but not the land. If you’re not familiar with this distinction and its implications, deciding between freehold vs leasehold can seem like an overwhelming task.
In this article, we’ll try to help. We’ll discuss the difference between freehold and leasehold properties, and outline the associated costs related to each one. We’ll also talk about how to determine which property type you have, how to manage your lease if you have a leasehold property, and how to decide which property type to buy.
What does freehold mean?
Buying a freehold property means you own both the building and the land. You’re responsible for everything on the property — from maintenance and upkeep to security and repairs. Most new-build houses sold on the property market today are freeholds.
You can buy a freehold property in two ways: buying it as it is on the market or converting your leasehold into a freehold. We’ll discuss the second method later.
Advantages of a freehold property
- You own the property and the land indefinitely.
- You’re free to make any changes to your property as long as you have the necessary planning permission.
- You don’t have to pay any ground rent or service charges.
- You don’t have to worry about extending your lease and working with a landlord.
Disadvantages of a freehold property
- You’re responsible for maintaining the building and grounds in good condition.
- You’re responsible for all repairs and major works needed for your property.
- You pay for buildings insurance on top of contents insurance.
- Freehold properties are usually more expensive to buy than leaseholds.
What is a flying freehold?
A flying freehold is part of the building that crosses over someone else’s property. It can hang over your neighbour’s property (e.g. an overhanging balcony), or go underneath it (e.g. a basement cellar). Parts of the property that extend underground are sometimes called “creeping freehold”.
What does leasehold mean?
Owning a leasehold property means you own the building (usually a flat or a maisonette) for a limited time, usually (but not always) between 90 and 999 years. You don’t own the land; the freeholder, sometimes referred to as the landlord, owns the land and leases it to you.
You’ll sign a lease agreement with the freeholder when you buy a leasehold property. The agreement should tell you:
- How many years you have left on the lease
- A detail of costs, such as service charges, ground rent, and any admin fees
- Any cost increases planned in the future
- Any restrictions on the property, such as owning pets
Advantages of a leasehold property
- You’re only responsible for keeping the inside of your property in good condition. The freeholder should take care of building maintenance, upkeep of communal areas, and any major works needed for the building.
- You technically only need to pay for contents insurance. Your freeholder is meant to pay for buildings insurance.
- Leaseholds are often (but not always) cheaper to buy than freehold properties.
- After a few years, you have the right to try to buy the freehold if your freeholder agrees.
Disadvantages of a leasehold property
- You pay for other things, such as annual ground rent and service charges, which are separate from your mortgage payments.
- You usually need to get permission from the freeholder first before you can make any changes to the property.
- Leaseholds may have specific rules and restrictions, such as no pets.
- You have to worry about the lease length and pay for costs associated with renewing it.
- Waiting too long to renew a lease makes the process more expensive. Shorter leases also make selling harder because most mortgage lenders refuse to lend on such properties.
- Letting the lease expire means you lose the right to buy the freehold. The freeholder can also seize the property with a court order.
How do I know how many years are left on the lease?
There are several ways to find out how many years are left on the lease:
- Your conveyancer or broker can tell you how long is left on the lease if you haven’t bought the property yet.
- Check your legal title or lease documents if you own the property.
- Use the HM Land Registry search tool to get a copy of your lease documents and title register.
Can I extend the lease on a leasehold property?
There are two ways for you to potentially extend your lease:
- Informal route: You can ask your freeholder if they’re interested in negotiating a lease extension with you. Your freeholder is under no obligation to agree or respond to your request. But if they do, then you can potentially negotiate the terms and price of your lease extension.
- Formal route: If you’ve owned the property for at least 2 years and your original lease is over 21 years, you can start the legal process to extend your lease for 90 years on a flat or 50 years on a house. You’re responsible for the costs associated with the process, which includes the freeholder’s legal fees. If you and the freeholder can’t agree on the lease extension, you can appeal to the First-tier Tribunal.
How much does it cost to extend the lease?
The cost of extending a lease varies by property because it depends on the following factors:
- Lease extension premium: Your negotiations with the freeholder will determine the exact value of the premium, but it’s usually based on:
- Your ground rent annually
- How many years remaining on the lease
- Current property value
- Predicted property value after lease extension
- Yield rate, which is determined by dividing ground rent by property interest
- Recent similar transactions in your area
You can use a lease extension calculator to get a general idea of how much the premium might cost.
- Marriage value: This cost only applies if you have less than 80 years left on your lease. It’s calculated by subtracting the property’s current value from the estimated property price after the lease extension. Half of the marriage value is payable to the freeholder.
- Stamp Duty: If the leasehold property is your only home, you pay Stamp Duty if your premium is over £125,000. If it’s your second home, there’s a 3% surcharge if your premium is worth more than £40,000 (note: subject to change, but accurate at the time of writing). Your conveyancer will inform you of the exact costs.
- Land Registry fees: To finalise the lease extension process, you must register the appropriate documents with the HM Land Registry. Your conveyancer will tell you how much this will cost.
- Legal fees: You’re responsible for your and your freeholder’s legal costs during the lease extension process. You don’t have to pay your freeholder’s legal fees during negotiations.
- Valuation fees: You pay for your and your freeholder’s valuation costs during the extension process. Like with legal fees, you’re not responsible for your freeholder’s fees during negotiations.
What happens if the lease runs out?
Letting your lease run out doesn’t immediately mean you lose your property. You can still live in your home and continue to pay ground rent and service charges. Your tenancy doesn’t end unless you or the freeholder serve each other a notice.
There are two ways a freeholder can legally end your tenancy:
- Offer an assured periodic tenancy: Your freeholder can offer a monthly tenancy, with ground rent set to current market rates. You’ll no longer own the property.
- Seize the property: Your freeholder will serve a legal notice informing you of their intention to take possession of the property. You have two months to respond or lose the right to stay in the property. Meanwhile, the freeholder must justify to the courts why they want to take the property to gain a court order.
For more details on what could happen after your lease terms, consult The Leasehold Advisory Service.
Can you turn a leasehold into a freehold?
You can turn your leasehold into a freehold by buying the land (i.e. the freehold) from the landlord. The purchase can be done through the formal or informal route.
Informal route
You ask the freeholder if they’ll sell you the freehold. They don’t have to agree or respond to your request. If they agree, you and the freeholder can attempt to negotiate on the price.
Formal route
You must have already owned the property for at least 2 years, with a lease longer than 21 years from when you first received it. If so, you serve a formal notice to the freeholder outlining your intention to buy and your proposed price. The freeholder has two months to respond; if not, you can apply to the county court to purchase the freehold.
The formal route is usually costly and lengthy, so it’s recommended that you hire a solicitor to help you through it.
How you start the formal process depends on the type of property you have, as described in the 1993 Leasehold Reform Act:
- Single-unit property (e.g. a house): You can proceed with the formal or informal process with the help of your solicitor.
- Block of two flats: The other flat owner must agree to buy the freehold with you.
- Block of multiple flats: At least half of the flat owners must agree to buy the freehold, known as “collective enfranchisement. At least two-thirds of the leaseholders must have leases of at least 21 years. When the purchase goes through, you and the other leaseholders will own a “freehold share,” sometimes called “share of the freehold”.
What does it mean to own a freehold share?
Owning a freehold share means you and the other residents collectively own the freehold for the building. You and the other property owners will now handle building maintenance and insurance instead of relying on the freeholder.
Extending the lease is also easier and cheaper when you own a share of the freehold. You and the other owners can decide on the premium together or choose not to charge any premiums at all. Being a freehold share owner also allows you to extend your lease to 999 years.
Is a 999 year lease as good as freehold?
Having a 999-year lease can sometimes be a double-edged sword. That’s because the long lease practically guarantees near-indefinite leasehold ownership, so you and your family don’t have to extend it for several centuries. However, a 999-year lease doesn’t give you full ownership rights over the property. You still need consent to make any changes or additions to the building. You also still need to wait for the housing association if you need any repairs to the property or communal spaces.
How much does it cost to buy the freehold?
The cost of buying the freehold largely depends on the property and your circumstances. Not only do you have to pay the sale price you and the freeholder agreed on, but you also have to worry about legal costs, valuation fees, Land Registry fees, and any applicable Stamp Duty.
How do I know if a property is freehold or leasehold?
The HM Land Registry search tool will tell you if a property is freehold or leasehold. You can search by postcode, street and town, map, title number (if you have it), or INSPIRE ID (for freehold properties in England and Wales).
Getting a general summary of the property is free. The results will tell you the address held by Royal Mail, property description, tenure type (freehold or leasehold), and the last recorded sale price.
The summary will also tell you if the property has any restrictive covenants and easements, but not their details. If you want those details, you’ll have to buy a copy of the title register.
Which is better, leasehold or freehold?
Deciding between a freehold vs leasehold property ultimately depends on your budget and individual circumstances.
A freehold house typically commands a higher price on the property market because you’re buying the house and the land together. You’re also free to make any changes you want if you have the necessary permits. However, you’re in charge of paying for everything to keep your property in good condition.
On the other hand, a leasehold home may seem attractive if you have a limited budget. The freeholder will oversee the upkeep and repairs on the building's exterior and communal areas. However, buying a leasehold home means paying for a conveyancer to handle lease-related paperwork. You must also factor in additional costs, such as ground rent, service charges, and the eventual lease extension.
In summary: leasehold vs freehold
To summarise: freehold means you own the property and the land, while leasehold means you only own the property. Someone else owns the land on leasehold properties, and they’re referred to as the “freeholder” or the “landlord”.
If your property is a freehold, you handle all the expenses associated with its repair and upkeep. You don’t have any restrictions on what you can have inside your home, and you’re free to make alterations or additions—with the proper permits. However, buying is usually more expensive because you own the land indefinitely.
On the other hand, if you’re a leasehold owner, you’re only responsible for what’s inside your property. Your landlord takes care of building repairs and grounds maintenance. In exchange, you pay your landlord ground rent and other associated service charges yearly.
You also have a time limit on how long you own the property unless you extend your lease. It’s usually an expensive and lengthy process, but it helps establish a more accurate property value if you want to sell in the future. But if you want to keep your property indefinitely, you can try to buy the freehold from your landlord.