Buying a home is one of the biggest financial decisions you can make. In the UK, properties are commonly sold as either freehold or leasehold. If you’re considering a leasehold property, it’s important to know exactly how leaseholds work, what responsibilities come with it, and how it affects your rights as a homeowner.
What is a leasehold property?
A leasehold property means you own the right to occupy and use the property for a specific number of years, but you don't own the land it’s built on. The ownership of the land remains with the freeholder, who grants you the lease. This arrangement is common for flats, where multiple units share a building and common spaces. In some cases, houses are also sold as leasehold, although recent government reforms (Leasehold Reform) have reduced this practice.
When you buy a leasehold property, you’re purchasing a long-term lease, often ranging from 99 to 999 years. Unlike freehold ownership, your control over the property is based on the conditions outlined in the lease, including obligations to pay fees like ground rent and service charges. It’s essential to understand the lease’s terms as they can affect your ability to make changes to the property or sell it in the future.
What does ‘leasehold’ mean in the UK?
In the UK, a leasehold arrangement is a legal agreement where you purchase a lease, typically lasting from 99 to 999 years. The lease outlines your rights and obligations, including payment of ground rent and service charges.
What is a lease?
A lease is a contract between the leaseholder and the freeholder, setting out how long the leaseholder can use the property and the rules they must follow. It specifies charges, maintenance responsibilities, and conditions for any alterations to the property. You can learn more in our complete guide to what is a lease in the UK.
How is leasehold different to freehold?
With freehold, you own both the property and the land outright, giving you complete control. Leasehold owners, however, have to adhere to the terms set out in the lease and pay ongoing fees to the freeholder. This can lead to restrictions on making changes to the property or additional costs for services like building maintenance. Here's a run-through of the common difference, or you can learn more in our guide to leasehold vs freehold.
Aspect | Leasehold | Freehold |
|---|---|---|
Ownership | You own the property for the length of the lease but not the land | You own both the property and the land it’s built on outright |
Control | Subject to lease terms and restrictions | Full control over the property with fewer restrictions |
Fees | Responsible for ground rent, service charges, and management fees | No ground rent or service charges |
Lease expiration | Ownership reverts to the freeholder when the lease expires unless extended | No lease expiration |
Maintenance | Shared responsibility for communal areas through service charges | Responsible for maintaining both the property and the land |
Ground rent explained
Ground rent is a fee paid by leaseholders to the freeholder for the right to occupy the land on which the property is built. Historically, ground rents were nominal, but modern leases sometimes set higher fees which can increase over time.
Recent legal reforms in the UK, particularly the Leasehold Reform (Ground Rent) Act 2022, have restricted new residential leases to a peppercorn rent - effectively zero. However, older leases may still include significant ground rent obligations. Always check the lease to understand how much ground rent you’ll pay, how often it increases, and by how much.
Maintenance and service charges explained
As a leaseholder, you contribute to the upkeep of communal areas and shared facilities through service charges. These can cover:
Cleaning of hallways and communal spaces
Landscaping of shared gardens
Repairs to roofs, lifts, and structural elements of the building
Building insurance
Any other insurances
The amount varies based on the property’s size and needs, and managing agents or freeholders are legally required to provide a breakdown of costs. Leaseholders have the right to challenge unreasonable charges through a First-tier Tribunal (Property Chamber). Always review service charge histories before buying to avoid unexpected expenses.
Lease length explained
The length of a lease refers to the remaining time you have rights to the property before ownership reverts to the freeholder. Leases typically start with terms of 99, 125, or even 999 years. However, as the remaining years decrease, the property’s value may diminish. Once a lease falls below 80 years, renewing or selling it can become more complicated and expensive due to marriage value, a legal concept that increases the cost of lease extensions.
Key points to remember about lease length:
Leases below 70 years are often unacceptable to mortgage lenders, limiting potential buyers.
It’s wise to extend a lease before it falls under 80 years to avoid higher renewal costs.
Leaseholders have a legal right to extend their lease by 90 years on most residential properties after owning the leasehold for at least two years.
💡Editor's insight: "Confused about marriage value? I hear this a lot. Marriage value refers to the difference between a leasehold property’s value before and after the lease is extended. It reflects the extra market value once the lease has been extended!"
What happens at the end of a leasehold?
When a lease expires, ownership of the property returns to the freeholder unless an extension is agreed upon or completed beforehand. If no action is taken, the leaseholder loses their rights to the property without compensation. Several options can prevent this:
Extend the lease: A common solution where leaseholders negotiate additional years on the lease term. A qualified lease extension solicitor can usually guide you through the process.
Buy the freehold: In some cases, leaseholders can collectively or individually purchase the freehold, gaining full ownership. You can learn more in our guide to can you buy a freehold flat?
Negotiate a new lease: You can discuss a new lease agreement with the freeholder before expiration.
If the lease is allowed to lapse, the freeholder can take possession, meaning the property no longer belongs to the former leaseholder.
How is the building insured?
The freeholder is typically responsible for insuring the building as a whole. Leaseholders pay their share of the insurance premium through service charges. However, leaseholders are responsible for insuring their personal belongings and interior contents.
What are your rights in a leasehold property?
As a leaseholder, you have several legal rights that help balance the power between you and the freeholder. These rights ensure that leaseholders are not left without recourse when it comes to unfair charges or potential property disputes.
Right to a fair service charge: Leaseholders have the right to request a detailed breakdown of service charges and challenge unreasonable fees through the First-tier Tribunal (Property Chamber).
Right to manage (RTM): Leaseholders can form a collective to take over the management of their building from the freeholder without needing to buy the freehold.
Right to be consulted: For major works costing more than a certain amount, freeholders must consult with leaseholders before proceeding.
Right to extend the lease: Leaseholders can apply to extend their lease by 90 years on residential properties after owning it for at least two years.
Right of first refusal: If a freeholder plans to sell the freehold, leaseholders often have the right to buy it before it’s offered on the open market.
What are your responsibilities?
Leaseholders must:
Follow the terms of the lease, including restrictions on property alterations.
Pay ground rent, service charges, and other fees.
Inform the freeholder if subletting, depending on lease conditions.
Should you buy a leasehold flat?
Leasehold flats are common, and many buyers find them to be a practical option. However, it’s important to understand the financial commitments, lease terms, and any restrictions on alterations or pets before making a decision. Researching the freeholder’s reputation and reviewing service charge history can also provide valuable insight.
FAQs
Do I own my property if it’s leasehold?
No, you don't own the property. Instead, you own the right to live in the property for the duration of the lease. The freeholder retains ownership of the land. When the lease ends, the property reverts to the landlord.
What are the disadvantages of leasehold?
Leaseholders face issues such as:
Ongoing costs (ground rent, service charges)
Restrictions in the lease
Potential difficulties with short leases
Limited control over major building decisions
Final thoughts
Understanding how leasehold properties work helps you navigate the complexities of property ownership. Always review lease terms carefully, seek legal advice, and weigh the long-term costs to ensure your investment is the right one for you.
Looking for legal advice? Our property solicitors are here to help. Get in touch today for a free quote and to see how we can help.
References
Leasehold property from Gov.UK