Leasehold vs Freehold
Freehold means owning the building and the land. Leasehold means owning the right to live there for a fixed number of years. Most of what follows comes from that one difference.
The Difference, in One Paragraph
A freeholder owns the property and the land it stands on, with no end date. A leaseholder owns a lease: the right to occupy the property for a fixed term, commonly 99, 125 or 999 years, granted by the landlord, usually the freeholder. The lease sets what the leaseholder pays, what they must repair, and what they need the landlord's consent for, and the term counts down from the start date stated in the lease.
What a Leaseholder Pays, and Why
Most leases of flats require a service charge towards repairing, insuring and running the building, and many older leases also reserve a ground rent; most new long leases granted since 30 June 2022 can charge only a peppercorn. The service charge is not the landlord's profit: under the Landlord and Tenant Act 1985 it can only cover costs reasonably incurred, and section 42 of the Landlord and Tenant Act 1987 requires most landlords to hold the money on trust for the building's leaseholders.
Consents are the other half. A lease usually says what needs permission, such as alterations, subletting or keeping a pet, and many require the landlord to be told when the flat is sold or mortgaged.
Why Almost Every Flat Is Leasehold
A flat sits above, below and beside other people's homes, so its owner depends on everyone else maintaining the roof, the structure and the shared parts. Under English law a promise to repair or pay does not automatically bind the next owner of a freehold, but it does bind the next owner of a lease. That is why flats have been sold on long leases for generations, with a landlord or a management company holding everyone to the same terms.
Commonhold was created by the Commonhold and Leasehold Reform Act 2002 as a freehold alternative for flats, with the owners running the building through a commonhold association. Very few have been created. The government has published a draft bill to make commonhold the normal tenure for new flats; until legislation is passed and brought into force, almost all new flats are still sold leasehold.
Share of Freehold and Fleecehold
A share of freehold flat is still a leasehold flat, but the flat owners own the freehold between them, usually through a company, so they are collectively their own landlord.
Fleecehold is the opposite case: a freehold house on an estate whose roads, open space or drainage are owned by a management company, with the homeowner paying an estate charge towards their upkeep. The word has no legal meaning, but the charge is a real obligation, usually written into the transfer deed.
What to Check Before Buying a Leasehold Flat
The length of the lease left, because a short lease is harder to mortgage and costs more to extend. The ground rent and how it can rise. The service charge history, the budget and the reserve fund, which the managing agent sets out in the LPE1 management pack. Any major works planned or under consultation. Restrictions in the lease that matter to you, such as subletting or pets. And, in a taller block, the building safety position.
Who manages the building matters as much as the lease. A block run by a residents' management company or a right to manage company is in the hands of its own leaseholders; one run by a third-party landlord is not.
Common Questions
What Does Leasehold Mean?
Owning a property on a lease: the right to occupy it for a fixed number of years, granted by a landlord who keeps the freehold. The lease sets what you pay and what you may do.
What Is a Freeholder?
The owner of the freehold: the building and the land, with no end date. For a block of flats the freeholder is usually the landlord under the flat leases, and may be an individual, an investment company, a developer or the flat owners' own company.
Is Leasehold or Freehold Better?
For a house, freehold is usually simpler, because there is no landlord and no lease to run down. For a flat, the choice is rarely open: almost all flats are leasehold, so the useful questions are how long the lease is, what it costs to hold, and who runs the building.
Can Leaseholders Buy the Freehold of Their Block?
Often, yes. If the building qualifies and at least half the flats take part, the leaseholders can buy the freehold together, known as collective enfranchisement. The flats that took part then become share of freehold.
Do Freehold Homeowners Pay Service Charges?
Not under a lease, but many freehold homes on newer estates pay an estate charge to a management company for the shared roads, open space and drainage. It is set out in the transfer deed rather than a lease.
What Is Commonhold?
A form of freehold ownership for flats, created in 2002, in which each owner owns their flat outright and the owners together run the building through a commonhold association. It exists in law but has rarely been used.
Related Pages
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Read moreRead more: Fleecehold vs Leasehold for Plymouth Homeowners, Commonhold and Leasehold Reform Bill: What Is Proposed, Lease Extension Cost and Process for Flats, Ground Rent and the Proposed Cap: What Has Changed