What’s the difference between leasehold and freehold?

When buying a property there are two terms that you should understand early on in your property search: leasehold and freehold. These refer to the type of ownership the property is being sold with. Which ownership you’re sold fundamentally affects things such as how much owning the property is likely to cost you and what you can do with it. So, let’s clear up the difference between freehold and leasehold property, so you can pick the right new home for you.

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Freehold vs Leasehold: The Key Differences

What is freehold?

When you purchase a freehold property, you own the building and the land it sits on outright. This is the most straightforward type of ownership, giving you complete control and responsibility for maintenance and any changes you wish to make.

You own the freehold indefinitely, until you choose to sell. The Land Registry records will name you as the ‘freeholder’, and usually with ‘title absolute’ (also known as ‘fee simple’).

As the property is entirely yours, it’s also entirely your responsibility. This means that you are accountable for maintaining the building and interiors yourself. As such, it’s recommended you take out buildings and contents insurance – in fact, your mortgage lender will likely require it.

With all this responsibility, you may be asking yourself, ‘why is freehold better?’. Ultimately, it does depend on what you’re looking for in a property, but the main benefit of a property being all yours is that you have free rein over what you do with it. As a freeholder you have the right to make the changes you want (subject to appropriate planning permissions), and no one can tell you whether you can get a pet, for example.

What is a flying freehold?

A flying freehold is when part of the property you own extends over land that you don’t own. This could be a room above a shared archway or communal entrance, a balcony over someone else’s land, or even a basement vault. You own the space itself but not the land beneath it.

Flying freeholds don’t have to be complicated, however, your conveyancing solicitor should be aware of it. It’s important to know if you might need access to a neighbour’s land or if there are any restrictions on building or repairs.

Most mortgage lenders are happy to accept flying freeholds as long as they only make up part of the property. It is not unusual for a lender to request more information on this before deciding whether to lend.

What is a leasehold property?

Purchasing a leasehold property comes with more complexities than freehold. Although you do technically own your home, your ownership only lasts for as long as your lease. You are likely to be subject to some legally enforceable restrictions on what you can do with your property, such as restrictions on pet ownership or changes to the property itself.

A leaseholder will usually be required to pay service charges to the freeholder for maintenance of shared areas (such as staircases and vestibules). Owners of residential long leases are also frequently required to pay ground rent to the freeholder. Fortunately, new government legislation came into effect in June 2022 that banned ground rent charges on new residential leases. However, existing ground rents are still payable, which applies to the majority of leases; it’s only new ones that’ll be exempt.

When the lease expires, ownership of the property passes back to the freeholder, who owns the building and land outright. This is rarely a problem though, as the period of a lease is usually over 100 years and can be up to 999 years. A lease with 999 years on it can be considered as good as a freehold, but you’ll still benefit from the advantages of leasehold ownership. It’s only when the lease term is lower than 85 years that it poses a problem.

Learn more about buying a leasehold property.

Can I renew or extend my lease?

Recently, government legislation has come into effect to make it easier for leaseholders to extend their lease. However, it’s still an expensive process, particularly if the lease term is approaching the 80-year mark. The closer it gets to 80 years, the more it will cost to extend it. Once the remaining lease term is under 80 years, the cost skyrockets.

It is worth extending your lease, though. A lease of more than 100 years can add thousands to your property’s value but, as the expiry date grows nearer, the property value plummets. If you’re considering buying a leasehold, make sure you know how long the lease is before moving forward.

If you already own a leasehold property and the lease term is getting to around 85 years, it’s time to seriously consider extending.

Find out more about lease extensions and the process to extend your lease.

Can I buy the freehold?

If you’ve owned the leasehold on your property for two years or more, and there are at least 21 years remaining on the lease, you have the right to buy the freehold.

If you decide to proceed with buying the freehold, you’ll need to start by giving the freeholder notice and the opportunity to reply. At this point, a price can be agreed, and the sale undertaken. If you and the current freeholder can’t agree on a price, the issue can be taken to tribunal, where an independent third party will set the price. There are several moving parts to the process of buying the freehold of your leasehold property, and it can get complicated, so it’s advisable to have a solicitor on hand to help you.

Can I buy a share of the freehold?

Although it is not very common, in some cases you may be given an option to buy a share of the freehold. If you want to purchase the freehold of a flat, all your fellow leasehold neighbours in the block would have to club together and agree to jointly buy the freehold. This is called buying a share of the freehold or collective enfranchisement.

Benefits of owning a share of the freehold

Owning a share of the freehold gives you more control over your home, maintenance decisions and the expenses you’re responsible for. It can also make if easier to extend your lease.

Drawbacks of owning a share of the freehold

Buying the freehold can be costly. You’ll need to co-ordinate with the other leaseholders to set up a management company or hire a managing agent to take care of the building.

Being part of a management company related to the building can mean increased responsibility, with more conversations around collective decisions with your fellow freeholders.

What is a commonhold property?

There is a third property tenure which is not as common as freehold and leasehold, this is known as a commonhold property.

A commonhold property is an alternative to leasehold ownership where you own your individual property unit (like a flat) outright, while also sharing ownership and responsibility for the communal areas of the building or development. This setup means there’s no time limit on your ownership, unlike leasehold, and you and the other property owners jointly manage the shared spaces, typically through a commonhold association.

Commonhold can offer more transparency and control over shared costs and management compared to traditional leasehold arrangements.

Although they were first introduced as a property tenure in 2004 very few commonholds have been created since then. To increase the number of commonhold properties a consultation was carried out by the Law Commission in 2018/19, and a report published in July 2020. If you would like to understand more about commonhold property ownership click here.

What is the difference between commonhold and a share of the freehold?

The main difference between commonhold and a share of the freehold lies in how the ownership and management of a property are structured.

Commonhold properties offer individual ownership with shared management and no leases involved, whilst a share of the freehold still involves a lease but gives leaseholders shared control over the building.

Key details of a commonhold property

Ownership: You own your individual property unit (for example, your flat) outright, with no time limit.

Management: All property owners collectively own and manage the shared parts of the building through a commonhold association, similar to a homeowners' association. This setup is designed to give more direct control over communal areas and expenses without having the complexities of a lease.

Structure: There is no lease involved, so there is no need for lease extensions or ground rent.

Key details of a share of the freehold property

Ownership: You own your property as a leaseholder, but you also own a share of the freehold, typically with other leaseholders in the building. This means you share ownership of the land and the building.

Management: The freehold is often managed collectively by the leaseholders or through a management company they set up. This structure still operates under leases, so lease extensions are easier but not eliminated.

Structure: While you have more control over the property compared to standard leasehold, you are still subject to lease terms, and managing the building can require coordination among the co-owners.

Leasehold vs Freehold

So, which is better: leasehold or freehold? Buying freehold is commonly thought of as preferable to leasehold, but there are pros and cons associated with each. It really depends on your circumstances as to which is the better option for you.

Advantages and disadvantages of buying a freehold property

Advantages and disadvantages of buying a leasehold property

Is a leasehold property worth buying?

Only you can decide whether buying a leasehold property is right for you. The prospect of an expensive lease extension should certainly factor into your decision. That said, if you pick a property with more than 100 years remaining on the lease, you won’t see any effect on your property’s value for decades to come.

If you’re considering buying a leasehold, be sure of the remaining term before proceeding. Also, make sure you know the fees and charges you will be liable for, and what restrictions and responsibilities you can expect.

Whilst freehold properties seem to have a lot of advantages they are often more expensive to purchase. If this purchase is not your 'forever home' it's worth considering some great perks that can come with a leasehold property, like a communal pool/gym, communal gardens (that you don't have to maintain) and dedicated parking spaces.

Need more information or advice on your property purchase? Our Move Specialists are happy to help answer any questions you may have.