Leasehold vs Freehold UK Guide

Around 4.98 million homes in England are leasehold — approximately 20% of all housing stock. Almost all flats are leasehold and, until recent reforms, so were many new-build houses. The leasehold system has attracted mounting criticism over exploitative ground rents, escalating service charges, and the expense of lease extension. This guide explains everything you need to know about leasehold versus freehold in 2025, including the sweeping changes introduced by the Leasehold and Freehold Reform Act 2024.

Freehold vs Leasehold: Core Definitions

When you buy a leasehold property, you are purchasing the right to occupy the property for the remaining length of the lease. A new-build flat might be sold with a 250-year lease, while an older flat might have only 70 years remaining. The lease is a legal document that sets out what you can and cannot do with the property, what charges you must pay, and what happens if you breach its terms.

The freeholder (also called the landlord or lessor) retains ownership of the land and, in the case of a block of flats, the building structure and common areas. The freeholder typically appoints a managing agent to look after the building and collect service charges from leaseholders.

Types of Ownership: Leasehold, Commonhold, and Shared Ownership

Residential Leasehold

The most common form of flat ownership in England and Wales. Leases can run from as little as a few decades to 999 years. The key document is the lease itself, which you should always read carefully before purchase. Key clauses include: permitted use, alterations (usually require freeholder consent), subletting rights, service charge obligations, and forfeiture provisions.

Commonhold (Introduced 2002, Reformed 2024)

Commonhold is an alternative ownership structure for blocks of flats, available since 2002 but historically very rarely used due to practical barriers. Under commonhold:

• Each flat owner holds a freehold interest in their individual unit
• All unit holders jointly own and manage the common parts through a Commonhold Association (a limited company)
• There is no lease, no freeholder above you, and no risk of the property reverting
• Unit holders vote on management decisions and control service charges collectively

The Law Commission's 2020 report strongly recommended commonhold as the preferred tenure for flats. The government committed to expanding commonhold, and the Leasehold and Freehold Reform Act 2024 introduced new measures to make conversion from leasehold to commonhold easier, with further secondary legislation expected in 2025-2026.

Shared Ownership

Shared Ownership is a government-backed scheme where you buy a share of a leasehold property (between 10% and 75%) from a housing association and pay subsidised rent on the remaining share. Crucially, shared ownership properties are always leasehold, with leases typically of 99 or 125 years (some new-build shared ownership properties now come with 990-year leases). The lease extension and enfranchisement rules are different for shared ownership — you generally cannot extend the lease or buy the freehold until you have staircased to 100% ownership.

Leasehold Reform (Ground Rent) Act 2022

This Act, which came into force on 30 June 2022, made a decisive change to new residential leases: ground rent was banned. The Act makes it unlawful for landlords to charge a financial ground rent on most new regulated leases entered into on or after 30 June 2022.

The Act does not apply to statutory lease extensions (where the leaseholder extends under the Leasehold Reform, Housing and Urban Development Act 1993) — though such extensions now also result in a peppercorn ground rent. It also does not apply to community housing leases, home finance plan leases, or certain other specialist categories.

Leasehold and Freehold Reform Act 2024

Passed in May 2024, this is the most significant reform of leasehold law in a generation. The Act was rushed through Parliament before the 2024 general election and introduced a package of measures benefiting leaseholders:

Key Risks of Leasehold Ownership

The leasehold system contains several well-documented risks that buyers should understand before purchasing:

1. Ground Rent Escalation Clauses

Many leases signed before June 2022 contain ground rent escalation clauses — provisions that double the ground rent every 10 or 25 years, or link it to RPI. A ground rent that starts at £250 per year can become £4,000 per year within 40 years through doubling clauses. Mortgages can become almost impossible to obtain on properties with escalating ground rents that breach lender thresholds (typically ground rent exceeding 0.1% of property value per year). If you are buying a pre-2022 leasehold property, have your solicitor analyse the ground rent clause carefully.

2. Service Charges

Service charges cover the costs of maintaining and managing the building — cleaning, repairs, insurance, lift maintenance, and major works such as roof replacement or external decoration. Service charges can vary dramatically year to year and are notoriously difficult to predict. Major works — sometimes costing thousands of pounds per flat — can be invoiced with relatively little notice. Under Section 20 of the Landlord and Tenant Act 1985, freeholders must consult leaseholders before carrying out works costing more than £250 per leaseholder, but this consultation process is often rushed.

3. Short Lease Risk

A lease becomes a significant problem when it falls below 70-80 years. Lenders typically require a minimum remaining term of at least 70 years at the end of the mortgage period (so if you have a 25-year mortgage, you need at least 95 years remaining at purchase). RICS research shows that properties with leases below 80 years frequently sell at a significant discount — 5-15% — to equivalent properties with longer leases.

4. Absentee or Difficult Freeholders

Some freeholders are corporate entities registered overseas, making it difficult to serve notices or obtain consents. If a freeholder refuses to grant consent for alterations, or ignores requests for information, leaseholders may need to apply to the First-tier Tribunal (Property Chamber) for relief, which is both time-consuming and costly.

The 80-Year Rule and Marriage Value

The "marriage value" rule was one of the most controversial aspects of leasehold law. When a lease fell below 80 years, the cost of extending it increased substantially because leaseholders were required to pay the freeholder 50% of the "marriage value" — the increase in the property's market value that results from the lease extension itself.

Even with marriage value abolished, leases below 80 years remain more expensive to extend because the premium calculation still accounts for the freeholder's loss of ground rent income and reversion value. The key practical points remain:

• Most mortgage lenders will not lend on leases with fewer than 70 years at the end of the mortgage term
• Properties with short leases sell at a discount and take longer to find buyers
• Extension costs increase as the lease shortens — act early to avoid higher premiums
• Below 80 years, valuations become more complex and you should always use a RICS-accredited surveyor

How to Extend a Lease

There are two routes to extending a leasehold flat's lease: the formal (statutory) route and the informal (negotiated) route.

Formal (Statutory) Route

Under the Leasehold Reform, Housing and Urban Development Act 1993 (as amended by the 2024 Act), qualifying leaseholders have a statutory right to a 990-year lease extension at a peppercorn ground rent. The formal route follows a prescribed legal process:

1. Check eligibility: You must be the registered owner of a flat held on a long lease (originally granted for more than 21 years). Under the 2024 Act, the 2-year ownership rule is abolished — you can serve notice immediately after purchase.
2. Get a surveyor's valuation: Instruct a RICS-accredited valuer experienced in lease extensions to assess the premium. This typically costs £500-£1,500.
3. Serve a Section 42 Notice (Tenant's Notice): This formal notice, served on the freeholder, specifies the premium you propose to pay. The solicitor drafts this — costs around £800-£1,500.
4. Freeholder responds (Counter-notice): The freeholder must respond within 2 months with a counter-notice, either accepting or proposing a different premium.
5. Negotiate or apply to Tribunal: If premiums cannot be agreed, either party can apply to the First-tier Tribunal (Property Chamber) to determine the premium.
6. Exchange and complete: Once a premium is agreed (or determined by Tribunal), the lease extension is completed by solicitors.

Informal (Negotiated) Route

Many leaseholders prefer to approach the freeholder informally and negotiate a lease extension without triggering the formal statutory process. This can be quicker and cheaper — no statutory timetable applies and legal costs may be lower. However, the freeholder can refuse or propose terms that are less favourable than statute provides. The freeholder can charge any premium they choose and can include terms that differ from the statutory provisions (such as maintaining a ground rent). The informal route works best when the freeholder is co-operative and both parties have realistic expectations of market value.

Indicative Lease Extension Costs

Estimates only. Actual premiums depend on ground rent, property value, and freeholder's valuation. Always get a professional RICS surveyor's opinion.

Enfranchisement: Buying Your Freehold

Collective enfranchisement is the right of leaseholders in a block of flats to collectively purchase the freehold of their building. Once they own the freehold, they control the management of the building and can grant themselves new long leases.

Eligibility for Collective Enfranchisement

• At least two-thirds of the flats in the building must be held on long leases
• At least 50% of qualifying leaseholders must participate
• No more than 25% of the building's floor area can be in non-residential use
• Under the 2024 Act, the 2-year ownership rule no longer applies

Individual house leaseholders also have the right to purchase the freehold of their house under the Leasehold Reform Act 1967 (as amended), provided they have lived in the property for at least 2 years and the lease was originally granted for more than 21 years. The 2024 Act also amended house enfranchisement rights.

Service Charges and Disputes

Service charges are the leaseholder's contribution to the costs of maintaining and managing the building. Under Section 19 of the Landlord and Tenant Act 1985, service charges must be reasonably incurred and carried out to a reasonable standard. Leaseholders have the right to inspect accounts and supporting invoices.

How to Challenge a Service Charge

1. Request a breakdown: Ask the freeholder or managing agent for a full breakdown of all service charge costs with supporting invoices.
2. Inspect accounts: Under the Landlord and Tenant Act 1985, you have the right to inspect accounts and request a summary of costs within 6 months of year-end.
3. Write a formal objection: If you believe costs are unreasonable, write to the freeholder specifying exactly which items you dispute and why.
4. Apply to the First-tier Tribunal (Property Chamber): If the dispute cannot be resolved, apply to the Tribunal, which can determine whether charges are reasonable. There is a £100 application fee.
5. LEASE advisory service: Contact the LEASE advisory service (leaseholdadvisoryservice.org.uk) for free initial advice on your rights.

Right to Manage (RTM)

The Right to Manage (RTM) allows leaseholders to take over management of their building without buying the freehold and without needing to prove any fault by the freeholder. RTM is exercised through a specially formed RTM Company, of which the leaseholders are members.

How RTM Works

• Leaseholders form an RTM Company (a private limited company)
• The RTM Company serves a notice of invitation to participate on all qualifying leaseholders
• Once at least 50% of qualifying leaseholders have agreed to participate, a Claim Notice is served on the freeholder
• The freeholder has 1 month to serve a Counter-notice (admitting or denying the right)
• If the freeholder denies RTM, leaseholders can apply to the Tribunal
• RTM takes effect 3 months after the claim notice is given

Once RTM is acquired, the RTM Company takes over the management functions previously exercised by the freeholder or their managing agent — including service charge collection, maintenance contracts, and insurance arrangements. The 2024 Act expanded RTM rights and reduced the ability of freeholders to recover their legal costs from leaseholders in successful RTM claims.

Forfeiture: Can a Freeholder Take Your Home?

Forfeiture is the ultimate sanction available to a freeholder for a breach of the lease — the ability to repossess the property. Historically, this could theoretically apply even for very small ground rent debts. The prospect of losing a flat worth hundreds of thousands of pounds over a £50 ground rent debt caused significant public concern.

The practical safeguards against forfeiture include: the freeholder must serve a Section 146 notice before forfeiture proceedings; courts have a broad discretion to grant relief from forfeiture; mortgage lenders must be notified of forfeiture proceedings and can step in to remedy the breach; and the Commonhold and Leasehold Reform Act 2002 prevents forfeiture for amounts below £350 unless the amount has remained unpaid for more than 3 years.

Frequently Asked Questions