Freehold vs Leasehold: Key Differences Explained
A comprehensive guide to understanding freehold vs leasehold ownership in England and Wales. Learn what separates a freeholder vs leaseholder, the advantages and disadvantages of each, and why would anyone buy a leasehold property. Whether you are buying your first home or managing a block, understanding the difference between leasehold vs freehold is essential.
What Is Freehold Ownership?
Freehold ownership means you own both the property and the land it stands on outright, with no time limit on your ownership. A freeholder holds the highest form of property ownership recognised in English law. There is no lease to expire, no ground rent to pay, and no landlord above you. The property is yours indefinitely, and it passes to your heirs or can be sold without the complications associated with a diminishing lease term.
Most houses in England and Wales are sold as freehold. When you buy a freehold house, you are responsible for all maintenance and repairs, but you also have full control over the property. You do not need to ask anyone for permission to carry out alterations, and you are not subject to the covenants and restrictions that typically apply to leaseholders. For more on what this means in practice, see our guide to freeholder responsibilities.
In the context of blocks of flats, the freeholder is the person or company that owns the building and the land. The leaseholder and freeholder relationship is central to how these buildings operate: the freeholder grants leases to individual flat owners and is typically responsible for the structure, exterior, and communal areas of the building, either directly or through an appointed freehold management company.
What Is Leasehold Ownership?
Leasehold ownership means you own the right to occupy a property for a fixed period, as set out in a lease agreement with the freeholder. You do not own the building or the land beneath it. Most flats in England and Wales are sold on a leasehold basis because it is not practical for individual owners in a shared building to each own the structure outright. The lease grants you exclusive use of your flat and shared use of the communal areas, subject to certain obligations and restrictions.
A leaseholder vs tenant distinction is important. A leaseholder holds a long lease, typically granted for 99, 125, or even 999 years, and has purchased a capital interest in the property. A tenant, by contrast, usually holds a short-term tenancy agreement, often for six or twelve months, and pays rent to the landlord. Both are technically tenants in legal terms, but the practical and financial differences are substantial. Leaseholders have purchased an asset; tenants are renting accommodation.
As a leaseholder, you are typically required to pay ground rent to the freeholder and a service charge towards the maintenance and management of the building. You must also comply with the terms of your lease, which may restrict alterations, subletting, and other activities. Understanding your rights is essential, and our leaseholder rights guide covers your legal protections in detail.
Crucially, a lease is a diminishing asset. As the years pass, the remaining term shortens, and the value of the leasehold interest declines. Once a lease drops below 80 years, extending it becomes significantly more expensive because the freeholder can claim marriage value. If you are considering buying a leasehold property, always check the remaining lease length and factor in the cost of a future lease extension if necessary.
Key Differences at a Glance: Freehold vs Leasehold
The following table summarises the core distinctions between freehold vs leasehold ownership. Understanding these differences is critical whether you are buying, selling, or managing property.
| Feature | Freehold | Leasehold |
|---|---|---|
| Ownership | Own the property and land outright, indefinitely | Own the right to occupy for a fixed term (the lease) |
| Duration | Permanent, no expiry | Fixed term, typically 99 to 999 years when granted |
| Ground Rent | None payable | Usually payable to the freeholder annually |
| Service Charge | Not applicable (unless share of freehold) | Payable towards building maintenance and management |
| Control | Full control over property and land | Subject to lease terms and freeholder consent |
| Maintenance | Solely responsible for all upkeep | Building maintenance managed collectively |
| Alterations | No permission needed (subject to planning law) | Permission from freeholder usually required |
| Selling | Straightforward, no lease complications | May be affected by lease length, charges, and restrictions |
| Common Property Types | Houses, some converted flats | Flats, apartments, some new-build houses |
This comparison shows that the choice between leasehold vs freehold involves trade-offs around control, cost, and convenience. Neither is inherently better; the right choice depends on the type of property, its location, and your personal circumstances.
Advantages and Disadvantages of Freehold and Leasehold
Both freehold and leasehold ownership have merits and drawbacks. Understanding these will help you make an informed decision when purchasing property or evaluating your current ownership structure.
Advantages of Freehold
- Outright ownership with no time limit means your property does not diminish in value due to a shortening lease
- No ground rent, service charges, or other payments to a landlord
- Complete freedom to alter, extend, or redevelop the property, subject to planning permission
- No risk of forfeiture for breach of lease terms
- Simpler and faster conveyancing process when selling
- Greater control over maintenance decisions and timing
Disadvantages of Freehold
- Full responsibility for all repairs and maintenance, which can be costly for older properties
- No shared costs for structural or external maintenance
- Freehold houses are often more expensive to purchase than comparable leasehold flats
- Limited availability in city centres where most properties are flats sold on a leasehold basis
Advantages of Leasehold
- Often more affordable, making it easier to get onto the property ladder in desirable areas
- Building maintenance and insurance are managed collectively, reducing individual burden
- Communal areas, gardens, and shared facilities are maintained on your behalf
- Legal protections for leaseholders under the Commonhold and Leasehold Reform Act 2002
- Right to manage and collective enfranchisement give leaseholders routes to greater control
Disadvantages of Leasehold
- The lease is a diminishing asset that loses value as the term shortens
- Ongoing ground rent and service charge obligations can increase over time
- Limited control over building management unless leaseholders exercise the right to manage
- Restrictions on alterations, subletting, and use of the property
- Lease extension and freehold purchase involve legal costs and can be expensive
- Risk of forfeiture if lease terms are breached or ground rent is unpaid
Share of Freehold Explained
A share of freehold arrangement is common in smaller blocks of flats where the leaseholders have collectively purchased the freehold of the building. Each flat owner holds a leasehold interest in their individual flat and also owns a share in the company that holds the freehold. This gives the leaseholders collective control over the building and its management.
The key benefit of share of freehold is that the leaseholder and freeholder are effectively the same group of people. This means decisions about ground rent, service charges, maintenance, and building improvements are made collectively by the flat owners, rather than being imposed by an external landlord. In many share of freehold arrangements, the ground rent is set at a peppercorn, reducing ongoing costs.
However, share of freehold is not without its challenges. The leaseholders must manage the building themselves or appoint a professional managing agent. Disputes between co-owners can arise, and the administrative burden of running a freehold company, including filing accounts, maintaining insurance, and organising major works, should not be underestimated.
If you are part of a share of freehold arrangement and need professional support, our freehold management services can help you run the building efficiently while protecting the interests of all flat owners.
Commonhold as an Alternative
Commonhold is a form of property ownership introduced by the Commonhold and Leasehold Reform Act 2002 as an alternative to the traditional leasehold vs freehold model. Under commonhold, each flat owner holds a freehold interest in their individual unit (called a commonhold unit), while the shared areas of the building, such as hallways, stairwells, and the roof, are owned and managed by a commonhold association made up of the unit holders.
In theory, commonhold solves many of the problems associated with leasehold ownership. There is no diminishing lease term, no ground rent, and no external freeholder. Each owner has a permanent stake in their unit and a democratic voice in how the building is managed. The commonhold association operates under a commonhold community statement, which sets out the rights, obligations, and rules for all unit holders.
In practice, however, commonhold has seen very limited uptake since its introduction. Fewer than 20 commonhold developments have been registered in England and Wales. The reasons include resistance from developers, a lack of mortgage lender familiarity with the structure, and the difficulty of converting existing leasehold buildings to commonhold, which requires the unanimous consent of all leaseholders. The government has indicated that future reforms may make commonhold more accessible and encourage its wider adoption.
For more on how commonhold works and whether it could be an option for your building, visit our dedicated commonhold page.
Which Should You Choose: Freehold or Leasehold?
The question of freehold vs leasehold does not always have a straightforward answer. The right choice depends on the type of property you are buying, your budget, your long-term plans, and the specific terms of the lease or freehold arrangement on offer.
If you are buying a house, freehold is almost always preferable. You will have complete control and no ongoing obligations to a landlord. The exception is certain new-build estates where houses have been sold on a leasehold basis, a practice that has attracted significant criticism and led to calls for reform. If you are offered a leasehold house, check the ground rent terms carefully and consider whether the freehold will be offered to you in due course.
If you are buying a flat, leasehold is the standard form of ownership for practical reasons. The key factors to assess are the remaining lease length (ideally above 90 years), the level of ground rent and service charge, the quality of the building management, and whether there is a responsible freeholder or managing agent in place. A well-managed leasehold flat with a long lease can be just as secure an investment as a freehold house.
Why would anyone buy a leasehold property? The answer is simple: location, affordability, and convenience. In many parts of the country, particularly London and other major cities, the majority of available homes are leasehold flats. For first-time buyers and those who prefer apartment living, leasehold is often the only realistic option, and it can be an excellent one provided the terms are fair and the building is well managed.
Whatever your situation, doing your due diligence before purchasing is essential. If you are considering buying a leasehold property, take professional advice on the lease terms and ensure you understand the full picture before committing.
Frequently Asked Questions About Freehold vs Leasehold
Who owns the property if it's leasehold?
If a property is leasehold, the leaseholder owns the right to live in and use the property for the duration of the lease, but the freeholder owns the building and the land it stands on. The leaseholder holds a diminishing asset: as the lease term shortens, the value of the leasehold interest decreases. The freeholder retains ultimate ownership and the property reverts to them when the lease expires. This is why lease length matters so much when buying a leasehold property, and why leaseholders are encouraged to extend their lease well before it drops below 80 years.
What is the downside of leasehold?
The main downsides of leasehold ownership include ongoing costs such as ground rent, service charges, and potential special levies for major works. Leaseholders must also seek permission from the freeholder for alterations, may face restrictions on subletting or keeping pets, and have limited control over the management of the building. The lease is a diminishing asset, meaning its value falls as the remaining term shortens. Additionally, selling a leasehold property with a short lease can be difficult, and extending the lease or buying the freehold involves legal costs and potential negotiation with the freeholder.
Why would anyone ever buy a leasehold?
People buy leasehold properties for several practical reasons. Leasehold flats are often significantly cheaper than freehold houses in the same area, making them an accessible route onto the property ladder. Many desirable locations, particularly in cities, are predominantly leasehold because purpose-built blocks of flats are almost always sold on a leasehold basis. Buyers may also choose a leasehold property because the building is well managed, the lease is long, and the service charge is reasonable. Provided the lease has sufficient remaining years and the terms are fair, leasehold ownership can be a perfectly sound investment.
Can I convert leasehold to freehold?
Yes, in many cases you can convert leasehold to freehold through a process known as enfranchisement. If you own a leasehold house, you generally have the right to buy the freehold under the Leasehold Reform Act 1967, provided you meet certain qualifying conditions. If you own a leasehold flat, you cannot buy the freehold individually, but you and the other leaseholders in the building can collectively purchase the freehold under the Leasehold Reform, Housing and Urban Development Act 1993, provided that at least half the flats in the building are owned by qualifying tenants. The process involves a formal notice, a valuation, and negotiation on the price, and legal advice is strongly recommended.
Is it hard to sell leasehold flats?
Selling a leasehold flat is not inherently difficult, but certain factors can make it harder. The most significant issue is the remaining lease length: if the lease has fewer than 80 years remaining, many mortgage lenders will refuse to lend on the property, drastically reducing your pool of buyers. High or escalating ground rents, excessive service charges, and poorly managed buildings can also deter buyers. On the other hand, a well-managed leasehold flat with a long lease, reasonable charges, and a responsive managing agent can sell just as readily as a freehold property. Preparing a comprehensive leasehold information pack in advance can speed up the process considerably.
What is the difference between a landlord and a management company?
A landlord, in the context of leasehold property, is typically the freeholder who owns the building and the land. They hold the superior interest and are the party to whom ground rent is payable. A management company, by contrast, is appointed to handle the day-to-day management of the building on behalf of the freeholder or the leaseholders. The management company is responsible for collecting service charges, arranging maintenance, managing communal areas, and ensuring compliance with health and safety regulations. In some buildings, leaseholders form a resident management company and take over the management themselves, either by exercising the right to manage or by purchasing the freehold collectively.
Need Help Understanding Your Freehold or Leasehold?
Whether you need advice on leaseholder rights, support with freehold management, guidance on lease extensions, or help with commonhold structures, Block is here to help. Our experienced team manages buildings of every tenure type across the country.