Freehold VS Leasehold: Everything You Need To Know

When browsing property listings, you will see that they are labelled as either ‘freehold’ or ‘leasehold’. But what do these terms mean? Is it better to invest in a leasehold or a freehold property? Here, I will explain exactly what each term means, the pros and cons of freehold and leasehold properties, and how each will affect buying and selling a property.

Table of Contents

What Does Freehold Mean?
What Does Leasehold Mean?
Leasehold vs Freehold Properties – Pros and Cons
Is a 999-Year Lease as Good as Freehold?
What Happens When a Lease Expires on a Property?
How To Extend a Lease
Can You Turn a Leasehold Property into a Freehold Property?

What Does Freehold Mean?

When you buy a freehold property, you own the house and the land it is built on, including any outdoor space or gardens. The entire property belongs to you outright and there’s no ground rent to pay. Most houses in the UK are freehold properties.

What Does Leasehold Mean?

Buying a leasehold property means you own the house itself, but not the land it is built on. The land is owned by the freeholder, or landlord, who is selling the property for a set period. Most leasehold properties are flats, apartments or maisonettes, although some leasehold properties are houses. Leaseholds are usually quite long – from 125 to 999 years. If there are shared spaces on the property, like gardens, are owned by and the responsibility of the landlord. For indoor communal or shared spades such as corridors and stairs in a block of flats, the landlord usually maintains these in exchange for a service fee or ground rent charges.

Leasehold vs Freehold Properties – Pros and Cons

Here are some of the benefits and drawbacks of freehold and leasehold properties.

Leasehold Properties – Pros

Leasehold properties are often cheaper than freeholds.
The freeholder is often responsible for the structure and maintenance of the building, communal spaces and outdoor spaces.
The owners of flats can collectively buy their freehold, giving themselves 999-year leases and fund the maintenance of the building themselves, offering more security and saving money.
Leases can be extended or bought out entirely from the freeholder if they are willing to sell.

Leasehold Properties – Cons

Leasehold owners will have to pay ground rent and sometimes service charges to the freeholder, which may increase over time.
It can be harder to get a mortgage for a leasehold property.
You may be banned from making any changes to the property or need to obtain permission from the landlord first.
Leaseholds can have restrictions, such as not being able to keep pets or run a business on the property.
It can be harder to sell the property – the fewer years left on the lease, the more difficult it is to sell.
Conveyancing fees are often higher for a leasehold property.

Freehold Properties – Pros

You own 100% of the property including outdoor spaces, until you sell it or transfer ownership to someone else.
There are no ground rent or service charges to pay on a freehold property.
You can use the property for any purpose you wish (within reason, you can’t use a residential property as a farm, for example) including running a business.
You can make any changes you want to the property, subject to planning permission.
You can keep pets at the property or rent rooms to lodgers.
It is easier to sell or obtain a mortgage for a freehold property.
Freehold properties usually have a higher resale value than leasehold properties.

Freehold Properties – Cons

You are responsible for the structure and maintenance of the property, including outdoor areas.
You are responsible for building insurance.
Freehold properties are often more expensive to buy upfront.

Is a 999-Year Lease as Good as Freehold?

Some landlords of leasehold properties offer the chance to extend the lease for 999 years instead of selling the freehold, this is often cheaper than buying the freehold outright, and unless you plan on living for a thousand years, this length of lease is sufficient. This will make it easier to sell the property or obtain a mortgage, although even with a very long lease, you are still a leaseholder, subject to ground rent, service fees, and the restrictions that come with a leasehold property.

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What Happens When a Lease Expires on a Property?

Once a lease expires on a property, you don’t have to leave – the tenancy will carry on under the same terms as before unless you or the freeholder decides to end it. Sometimes, the landlord can end the lease and start eviction proceedings. Action is usually taken by one of both parties to extend the lease before it runs out, or the freeholder can sell the lease to the leaseholder.

How To Extend a Lease

Leaseholders have the right to extend their lease under the Leasehold Reform, Housing and Urban Development Act 1993. This can be done if they have lived there for more than two years and extend the lease to a further 90 years. Under the newer Leasehold and Freehold Reform Act which passed this year, leaseholders will not have to have lived in a property for two years to extend the lease, they can extend it by up to 990 years, and it is cheaper to extend the lease. While this act has passed into law, it will be at least a few months from the time of writing (October 2024) before these changes occur.

Under the current system, it does cost money to extend a lease, the price depends on the property value, how many years are left on the lease, and other factors. Contacting a solicitor who specialises in lease extensions will help you work out the expected costs – although they can be negotiated. Informing the freeholder of your desire to extend the lease is the first step – then get in touch with your solicitor. Bear in mind there are legal and admin fees associated with lease extensions, so factor these into your costs. This is known as the statutory lease extension or formal route.

Some freeholders will be willing to negotiate a lease extension directly with you informally – this can cost less but you will not be given the same statutory protections as the formal route.

Can You Turn a Leasehold Property into a Freehold Property?

Yes – this is what happens when you buy the freehold from the landlord. Of course, they have to be willing to sell it. If you want to buy your freehold and own the property outright, you will need to calculate its worth based on the value of the property, remaining lease term, ground rent, legal fees and more. As with extending a lease, you should seek the advice of a solicitor who specialises in leaseholds.

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