Difference between Leasehold and Freehold properties.

Freehold, Leasehold and Commonhold Property

One of the biggest differences when buying property is whether it is freehold, leasehold, or, less commonly, commonhold. The type of ownership affects your rights, responsibilities, costs and what you can do with the property.

With a freehold property, you own the building and the land outright. With a leasehold property, you own the right to use the property for a fixed number of years under a lease, but a landlord or freeholder owns the land or building. Commonhold is a different structure, primarily designed for flats, in which each owner owns their unit and shares responsibility for the common parts.

Freehold Property

If you own a freehold property, you usually own both the building and the land it stands on. Your ownership will normally be registered at HM Land Registry, and you will be the freeholder.

Freehold ownership usually gives more control than leasehold ownership, but it does not mean you can do anything you want without restriction. Planning permission, building regulations, restrictive covenants, rights of way, conservation rules, listed building controls and mortgage conditions may still apply.

Unlike most leasehold properties, a freehold property usually does not involve ground rent, service charges, or landlord consent under a lease. However, some freehold properties, particularly on estates, may still be subject to estate rentcharges, management charges or covenants requiring contributions towards shared areas.

Leasehold Property

With a leasehold property, you have a lease from the landlord or freeholder. The lease sets out how long you can own and occupy the property, what you must pay and what you can and cannot do. Leases can be granted for long terms, such as 99, 125, 250 or 999 years, but the value and mortgageability of a leasehold property can be affected as the term reduces.

Most flats are leasehold. Some houses are also leasehold, although this has become a major area of reform and public concern. The lease will usually set out responsibilities for repairs, insurance, service charges, ground rent, alterations, subletting, pets, business use and use of communal areas.

Leaseholders may need the landlord's consent before carrying out alterations, changing use, subletting or keeping pets. The exact restrictions will depend on the wording of the lease.

Service Charges, Ground Rent and Other Costs

Leasehold ownership often involves ongoing costs. These may include service charges, buildings insurance, management fees, reserve fund contributions, administration charges and ground rent.

Service charges can vary from year to year and may increase significantly if major works are needed, such as roof repairs, lift replacement, cladding works, fire safety works or external decoration. Before buying a leasehold property, your solicitor should check the lease, accounts, management information, planned works and any disputes involving the building.

Lease Length and Mortgage Issues

The length of the lease is important. A short lease can reduce the property's value and may make it harder to obtain a mortgage. The cost of extending a lease can also increase significantly once the lease falls below 80 years.

If you are buying a leasehold property, you should check the remaining term carefully and ask your solicitor and mortgage lender whether the lease length is acceptable. Where the lease is short, it may be possible to negotiate a lease extension as part of the purchase.

Extending a Lease or Buying the Freehold

Leaseholders may have the right to extend their lease or, in some cases, to buy the freehold. The rules depend on whether the property is a flat or a house, the type of lease, how long the leaseholder has owned the property and whether the statutory criteria are met.

Current GOV.UK guidance says that qualifying flat owners may be able to extend their lease by 90 years, while qualifying leasehold house owners may be able to extend their lease by 50 years. Leasehold reform is changing this area, and the Leasehold and Freehold Reform Act 2024 is intended to increase the standard lease extension to 990 years for both houses and flats once the relevant provisions are fully in force.

Because the law is changing in stages, leaseholders should seek up-to-date advice before starting a lease extension, freehold purchase, or enfranchisement claim.

Right of First Refusal

In some cases, leaseholders of flats may have a right of first refusal if the landlord decides to sell the freehold. This means the landlord may need to offer the freehold to qualifying leaseholders before selling it to someone else.

The rules are detailed and do not apply in every situation. They are more commonly relevant to flats than houses. If you receive a notice about the sale of a freehold, or believe the freehold has been sold without proper notice, you should seek legal advice quickly.

Commonhold Property

Commonhold was introduced as an alternative to leasehold ownership, particularly for blocks of flats. In a commonhold structure, each unit owner owns their own unit and is a member of the commonhold association that manages the shared parts of the building, such as the roof, structure, hallways, stairs, gardens and other communal areas.

Commonhold remains rare, but the Government has proposed further reforms to make commonhold a more widely used form of ownership and, in future, the default model for new flats. Buyers should still take legal advice before buying a commonhold property because the rights, responsibilities and management arrangements need to be understood.

Buying a Leasehold Property: Key Checks

Before buying a leasehold property, you should understand the lease term, ground rent, service charges, repair responsibilities, restrictions, management arrangements, reserve funds, planned major works, insurance, dispute history and whether the property is acceptable to your mortgage lender.

You should also ask whether the lease allows your intended use of the property, including pets, letting, working from home, alterations or use of parking and communal areas.

Getting Legal Advice

Leasehold property can be a good purchase, but the lease must be understood properly. Problems often arise when buyers do not appreciate the costs, restrictions, short-lease issues, or management arrangements before completion.

A conveyancing solicitor can review the title, lease, management pack, service charge information and mortgage requirements, and can explain the risks before you commit to the purchase.

Find a Conveyancing Solicitor

To find a solicitor who may be able to help with freehold, leasehold, commonhold, lease extensions or conveyancing, use the search facility, select Conveyancing or Property Law and enter your location.