What’s the difference between a leasehold and a freehold?

The short answer is that leasehold means you legally own the property but not the land it stands on, and freehold means that you own both. For instance, most flats in London are leasehold, whereas houses are often freehold.  

The difference between a leasehold and a freehold can limit what you can do with the property, so it’s important to know what you’re getting into before you decide to buy. Let’s dive into the pros and cons of these two types of legal ownership. 

What is freehold?

Freehold is when you own everything – the building and the land it stands on. Most houses in the UK are freehold, and this is the preferred option for most homeowners. 

You don’t need to pay ground rent, and you don’t need to ask a landlord if you want to make changes to your property (although you might need planning permission). On the other hand, the upkeep of the building and land will fall squarely on your shoulders.

What is leasehold?

You’ll come across plenty of leasehold properties if you’re buying a flat in London. Most flats are leasehold, which means that you own everything within the four walls of the property for a set period of time (known as the lease), but you don’t own the land or building it’s within. 

The land is owned by the ‘freeholder’ (effectively your landlord), and you (the leaseholder) purchase the lease from them to temporarily own the property for however long is agreed in the lease. At the end of the lease, the property is legally transferred back to the landlord. 

In practice, you have a legal right to extend the lease (more on that later) and you are still very much a homeowner, but you might have to ask the freeholder’s permission to make any major changes to the property. For instance, you can hang a picture, but knocking down a wall without asking is probably a no-no. 

Leaseholders have to pay Ground Rent

As a leaseholder, you will have to pay ‘ground rent’ each year to the landlord. This is usually quite a small amount, but don’t forget to budget for this when crunching the numbers on your new home. You can find details about ground rent fees in the lease. 

You might also have to pay something called a ‘service charge’ on top. This covers the landlord’s costs for maintaining the building and looking after any communal areas. 

How long should be on the lease?

At Keatons, one of the most common questions we’re asked by tenants is, “How long should the lease be when buying a flat?” Every lease is different, but they are usually for a long time, often between 120 years up to 999 years.

If the remaining lease is short (say, under 80 years), then this can begin to affect the value of the property and might even be an issue when it comes to getting a mortgage. 

How to extend the lease

In most cases, you have a legal right to ask the landlord to extend the lease at any time or ask the seller to do this as a condition of your offer if the lease is short. 

The Leasehold Advisory Service has a lease extension calculator to give you a rough idea of how much this costs. 

Final thoughts

There are benefits to buying a freehold property, but that’s not to say that leaseholds are a bad idea. If you’re looking to buy a property in London, chances are you will come across leasehold properties that tick your boxes – and if you’re looking at flats, then you will probably be limited to leasehold. The main thing is to check how long is left on the lease and make sure you’re aware of any ground rent and service charges that you will have to pay in addition to your mortgage. 

See our full list of property advice articles in our Knowledge Centre

About Keatons

Keatons has been based in East London for over 20 years and has since expanded to the north and south of the city. We have an outstanding Trustpilot rating from customers and we are known for helping sellers and landlords achieve the best possible market price for their property. To find out more, visit our website.


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