What is the Difference Between Freehold and Leasehold


If you’re buying property in South West London, especially a flat or maisonette, you will usually do so on a leasehold basis. To anyone new to house hunting, the differences between buying leasehold v freehold, might seem confusing. But whether a property is freehold or leasehold is one of the first questions you should ask your estate agent before booking a viewing. We look at the pros and cons of these two types of tenure and explain more about extending the lease or buying a freehold, if you need to do so.

What is a freehold property?

When you buy freehold, you are buying both the property and the land which it is built on. You own the home in its entirety with no additional charges or ground rent to pay and no landlord to deal with. However, you are also responsible for all repairs and maintenance including to the structure of the building. Traditionally most houses were sold as freehold. More recently, an increase in new-build leasehold houses, with escalating ground rents led to government reforms of the system.

What is a leasehold property?

Buying leasehold means you own the property’s internal space, fittings, floor and walls, but not the land it sits on or the exterior of the building. Leasehold gives you the right to occupy the property for number of years set out the lease. There may also be conditions to the lease – no pets, without consent of the freeholder (also known as the landlord) for example. You may need to apply to the landlord if you want to carry out certain renovations to your property.

What charges come with a leasehold property?

If you live in a leasehold flat, you are likely to pay service charges for the upkeep of the building. In return, the freeholder should maintain and repair the structure as well as communal areas and grounds. You may also see other charges including energy bills for communal areas and a sinking fund for unexpected maintenance work in future. Leasehold flats and houses may also come with an annual ground rent.

How important is the length of a lease?

The length of a lease is a key thing to check before viewing a home. As properties age and pass between owners, the lease length will fall, eventually reverting to the freeholder once it runs out. A flat with a short lease of less than 80 years remaining will be difficult to mortgage and to sell on.

How do I extend a lease?

If your lease has less than 90 years left, you should look at extending it. By law, leaseholders are entitled to a 90-year extension to the lease at a fair market price, as long as you have owned the property for at least two years.

If you want to extend your lease, you should find a solicitor with experience of leasehold enfranchisement and a surveyor, to value the lease extension (called the premium).

It’s worth noting that the government has announced plans to reform the leasehold sector which could allow leaseholders to extend their leases by much longer periods.

Can I buy the freehold of my leasehold property?

If you live in a leasehold block, you can join with your neighbouring leaseholders to buy a share of the freehold. This is known as collective enfranchisement. At least 50% of leaseholders in your block must agree to take part. Ideally, your lease should have 85 years or more to run – when the time on your lease falls to 80 years, it will be more expensive to extend the lease and buy the freehold. To buy the freehold, you and the other leaseholders will have to serve what is called a Section 13 Notice on the freeholder.

How much does it cost to buy the freehold?

This will vary depending on factors such as the length of the lease. The cost will be made up of your share of the freehold price (the premium) and the leaseholders’ and freeholder’s legal and valuation costs. You will also need to pay stamp duty, if the purchase price is over £125,000.

What are the benefits of buying the freehold?

Buying a share of the freehold means you can extend your lease for up to 990 years. Once you jointly own the freehold, together you can set ground rents, and choose your own buildings insurance and property management services, putting you more in control of your costs.

Leasehold Reform Bill changes

Since the Leasehold Reform Bill has been passed, you can expect to see more rights for leaseholders filtering in to law. These include extra transparency over costs, easier lease extensions, the abolition of marriage value and a simplified valuation process. As these changes come into effect, it is well worth seeing how they might affect you and when.

What is a commonhold property?

Commonhold is an alternative to the traditional system for managing blocks of flats. Together a property’s leaseholders can set up a commonhold association, which owns the land, building and communal areas and is responsible for the management, maintenance and repairs, with no time limit.

If you are looking to buy in South West London, we can advise you about all aspects of your property wishlist – including leasehold v freehold. Call us today to talk about our current range of properties.