What’s the Difference Between Freehold and Leasehold?

In England and Wales, there are two types of property: freehold and leasehold. It’s important you know which yours is when you purchase it.

There are differences in Northern Ireland and Scotland, so be sure to do your research for those locations. We recommend the Housing Rights NI website and The Scottish Government’s guide to buying a property in Scotland.

This guide will take you through what each term means across England and Wales and some of the legislations and costs that come with them both.

What is freehold?

A freehold property means someone (the freeholder) owns the freehold of a property which is the property itself and the land it stands on, for an unlimited period. You also 'own' and have rights to the 'airspace' above your property up to about 500 feet thanks to The Civil Aviation Act 1982.

Houses tend to be sold as freehold properties as there's only one property on that piece of land.

What is a leasehold?

Unlike a freeholder, as a leaseholder you own the property but not the land on which it is built, which remains owned by the freeholder. You also only own your property for a set period, dependant on the length of your lease. If your lease expires, ownership of your property technically passes to the freeholder.

Most flats are sold as leasehold properties with the freehold held by the builder (often a property developer) or a company that they sold the freehold to. Although that’s the most common way for flats to be sold, some flats, especially in converted houses, are sold on the basis that the owner shares the freehold with others in the same building. This is known as 'share of freehold'.

The key differences between freehold and leasehold property

Be sure to check over the differences between these two types of property as owning one or the other is not for everyone.

The term

Owning a leasehold gives you the right to live in a property for a set period of time, which can be years, decades or centuries. Owning a freehold allows you to own the property for an unlimited period.

With a leasehold, it's important to understand that legally you're essentially a tenant of the freeholder for the period on your lease and you don't technically own the property, you own the lease. This doesn’t mean you can’t sell the physical property though.

With a freehold property you don’t have to worry about your lease running out. If you buy a leasehold property, you take over the lease from the previous owner, so you need to know how many years are left to run from the original term. This is vital as, if the lease falls under 80 years, you might struggle to get a mortgage, and the value of the property might also be affected when it comes to selling the house. It’s possible to obtain a lease extension, but this comes at a premium.

Maintenance, repair, and alterations

If you live in a leasehold property, it’s normally the freeholder who is responsible for the upkeep of the common parts of the property and of the land it's built on. That’s why you pay things called ground rent and service charge (covered below), to cover these costs. The freeholder might appoint a managing agent to do this for them, which will be within the terms of the lease. It’s paid for from your service charge, so you don’t need to worry about an extra cost.

If you are the freeholder of your house, you maintain it yourself with your own finances as you own both the land and the home that stands on it.

Service charges and ground rents

Under a lease you usually pay a ground rent and service charge every year. Ground rent is usually a nominal amount, ranging from a peppercorn rent to maybe £500 per year, although some ground rents have recently proved controversial as they can increase significantly depending on the terms of the lease.

Read our full guide to ground rent here.

The service charge covers the cost of insuring, maintaining, and repairing the land and building. It’s important to be aware that service charges will vary and there may also be additional costs for major works, such as external redecoration, new windows, or a new roof.

Leaseholders can apply for the ‘Right to Manage’ a leasehold property and take over the management themselves if they feel the charges are becoming too high.

Control of your property

Be aware that what you can and cannot do to your property also depends on whether it is a freehold or leasehold. For example, owning pets is not always possible in a leasehold.

When you purchase either type of property, you'll get a contract listing the rights and responsibilities which will set out conditions you've agreed to, including:

• How much you'll have to pay to maintain the property (the service charge)
• If you need permission from the freeholder to make alterations
• Whether it's you or the freeholder who is responsible for repairs
• Who deals with other issues such as noisy neighbours, any restrictions on pets, smoking, BBQs, and noise

This is a legal document, so be sure to read it very carefully, although your solicitor will read it too and can offer you plenty of guidance.

Cost implications

Although leasehold properties are often flats or apartments, and therefore typically cheaper than a house, you have to take into account the additional ground rent and service charges that will come into play while you own a leasehold property.

Then again, the maintenance for a house and the land it is on is solely your responsibility with a freehold, so if anything goes wrong it is down to you to pay.

Keep this in mind when you are looking to purchase your property.

We’re on a mission to get you moved

At haart, we understand the buying and selling process completely, which means we can support you while you do both, even if it’s a leasehold property.

We use expert local knowledge and unique technology to make sure you get the best offer on the property you sell, so you can move to your new home as quickly as possible (and with as little stress).

Contact your local branch and let’s get you moving.