Depending on whether you buy a freehold or a leasehold property, there may be limits on what you can do to your own home.
In this guide, we explain everything you need to know about leasehold and freehold ownership.
- Are you hoping to buy a leasehold property? You can get impartial expert advice on getting a mortgage by calling Which? Mortgage Advisers on 0808 252 7987.
Leasehold and freehold: the basics
If you buy a leasehold property, you own the dwelling but not the land it stands on. In this arrangement, you're known as a 'leaseholder'. On the other hand, when you buy a freehold property, you become the sole owner of both the building and the land.
In England and Wales, flats are most commonly owned on a leasehold basis, while houses are normally sold as freehold properties - however, there are exceptions. In Scotland, very few properties are sold as leaseholds.
With leasehold properties, the land is owned by the landlord, also called the 'freeholder'. Once the lease runs out, ownership of the entire property will revert back to them.
Leaseholders have to get permission from the freeholder to make certain alterations to the property. They will also have to pay rent each year - known as 'ground rent' - and often have to pay an annual fee to a managing agent.
How long should I have left on my lease?
Your lease is a legal document, which will tell you how long you’re allowed to live in the building, as well as what you need to pay towards insurance and upkeep.
When first drawn up, residential leases usually last for up to 125 years, although it’s possible to have a lease for up to 999 years.
As a general rule, the longer left on your lease, the better, as properties with short leases can be difficult to sell.
Find out more: finding the best places to live
Service charges and sinking funds
The cost of buying the house isn’t the only thing you’ll need to factor in if you’re purchasing a leasehold property. You’ll also need to pay service charges - and these can can add a significant sum to your monthly bill.
When you own a leasehold property, you’ll usually pay a service charge to your landlord or management company to maintain any common areas of the building.
This charge generally covers the cost of supplying important services to the building, or for employing a managing agent to do so on the freeholders' behalf.
While some older leases have fixed service charges that must be paid every year, most newer agreements instead include ‘variable service charges’, which allow the freeholder to estimate the cost for each year. This allows freeholders to raise fees to finance major one-off expenses, for example, refurbishing a lift or updating a fire alarm system.
What is ground rent?
In England and Wales, ground rent is traditionally a token fee paid to the freeholder in exchange for renting the land the property sits on.
On older properties, ground rent is usually paid annually and is often a relatively low amount - such as £50-£100. Ground rent can either be a fixed charge or it can escalate over time.
If you extend your lease, your ground rent is reduced to zero, or what is known as a ‘peppercorn rent’. While you could in theory pay your freeholder a peppercorn, the term is generally used figuratively. In the past, the terms of a lease couldn’t be enforced unless there was a set ground rent, however tiny.
Ground rent shouldn’t be a major concern for the vast majority of leaseholders, but there are concerns about exploitative ground rent schemes systems on new-build homes. These schemes often see ground rent costs multiplying over time. For more information, see our ‘leasehold issues with new-build homes’ section.
How do I extend my lease?
Many leaseholders have a legal right to extend their leases,and it’s best to have as long a lease as possible on your property to protect its value.
Extending your lease can be a complicated business, and throw up a wide range of questions. In this section, we answer the most common questions around extending leases.
Can I buy my freehold?
Buying the freehold of your building can give you more control over what you pay out in maintenance charges and protect the value of your property.
Buying a share of the freehold in a block of flats differs from buying the freehold of a house.
When you buy the leasehold of a house, you'll outright own the land your property sits on.
If you buy your flat’s freehold, however, you’ll jointly own the land with your fellow freeholders - meaning you'll have a share of the building's freehold.
You can usually extend your lease to 999 years for free (aside from legal fees), freeing you to manage your own service charges, and potentially increasing the value of your property too.
Selling your freehold
You might see your freehold as a long-term investment, but in some instances there is little you can do to stop your lessees buying it from you.
Here, we explain how you can respond if your leaseholders serve you with notice that they want to buy the freehold.
How do leasehold tribunals work?
If you can’t agree on a price to extend your lease or buy your freehold, you can escalate the matter to a tribunal.
A tribunal is a last resort, but the threat of this and the associated costs can sometimes encourage an out-of-court settlement, particularly if the freeholder is either not responding or is holding out for an unreasonable sum of money.
Before applying to a tribunal, it’s best to try and sort matters out amicably. The government-backed Leasehold Advisory Service (LAS) provides free advice, and civil mediation services are available too.
If a tribunal is the only option, you can apply by downloading a form from the UK government website (or the Residential Property Tribunal Wales website, if you live in Wales) and you might need to pay a fee. You’ll then be informed if the tribunal will consider your case.
What happens next depends on whether you’ve requested an oral in-person hearing, which you or your lawyer will have to attend, or a paper decision.
If you request a paper decision, you should hear back within 6 weeks, and if you’re unhappy with the final decision you can submit an appeal within 28 days.
Leasehold issues with new-build homes
Leasehold issues with new-build homes have been a hot topic in the media, and the government has now announced plans to stop unfair practices in the market.
A significant number of new houses have been sold as leaseholds in recent years - and at times, the terms offered to leaseholders have been concerning.
While it’s important to clarify that these pitfalls don’t affect everyone who has bought a leasehold new-build property in the last few years, some home buyers have been adversely affected by ‘doubling’ ground rent schemes and spiralling freehold quotes.
In this section, we explain the most common issues and look at how the industry and lenders are reacting to these problems.
You can also find the latest news on the government's proposals to outlaw new-build houses being sold as leaseholds and ground rent 'doubling' clauses.
Correct as of date of publication.