When buying a property, you’ll often come across the terms freehold and leasehold. For many first-time buyers and property investors, the terminology can be unfamiliar.

But by knowing the difference, it can help you make smarter decision whether you’re planning to buy your dream home, sell, or invest in real estate.

What is Freehold Property?

Freehold property is the simplest form of ownership. When you buy a freehold property, you own both the building and the land it stands on indefinitely. There’s no lease, no landlord, and no ongoing ground rent to worry about.

Key Features of Freehold Ownership:

• Full Control: You have complete authority over your property. Whether you want to renovate, extend, or repaint, the decision is entirely yours.
• No Additional Charges: There are no annual ground rent or service charges, unlike leasehold properties.
• Longevity: Ownership doesn’t expire, it’s yours until you decide to sell.

Example: If you buy a detached house as a freehold property, you won’t need to answer to a freeholder or renew any lease agreements.

Who Should Consider Freehold Properties?

Freehold properties are ideal for buyers who value control, want to avoid recurring fees, and plan to own the property long-term.

What is Leasehold Property?

Leasehold property ownership means that you own the property for a fixed term, as outlined in a lease agreement, but the land it stands on belongs to a freeholder (landlord). Lease terms typically range from 99 to 999 years.

Key Features of Leasehold Ownership:

• Limited Control: Major changes to the property often require the freeholder’s consent.
• Recurring Costs: Leaseholders are usually required to pay ground rent, service charges, and maintenance fees.
• Lease Expiry: When the lease expires, ownership reverts to the freeholder unless you extend or purchase the freehold.

Example: Over 90% of apartments in England are leasehold. If you own a leasehold apartment, you might need to contribute to building maintenance through service charges.

Who Should Consider Leasehold Properties?

Leasehold properties are an excellent choice for buyers looking for affordability and access to prime urban locations. They are particularly suitable for first-time buyers, professionals seeking flats in city centers, and those who prefer shared maintenance responsibilities over handling property upkeep independently.

Key Differences Between Freehold and Leasehold

Aspect	Freehold	Leasehold
Ownership	You own the property and the land.	You own the property, not the land.
Costs	No recurring charges.	Ground rent and service charges apply.
Control	Full authority over the property.	Requires freeholder’s consent for major changes.
Longevity	Ownership is indefinite.	Ownership is limited to the lease term.
Maintenance	Responsible for all maintenance and repairs.	Responsibility may lie with the freeholder for some aspects.
Property Value	Typically retains its value over time.	Property value can decrease as the lease term shortens.
Selling	Easier to sell, as buyers own both property and land.	Selling can be harder, especially with a short lease term.
Mortgage	Easier to mortgage.	Mortgages can be harder to obtain, particularly with a short lease.

Advantages and Disadvantages of Freehold Properties

Freehold properties have their benefits, but they also come with a few downsides. Let’s take a look at what they are.

Advantages:

• Full Ownership: You own the property outright, offering long-term security.
• No Restrictions: Renovate, extend, or modify the property without needing permission.
• Cost-Effective: No ground rent or service charges.

Disadvantages:

• Higher Purchase Cost: Freehold properties are often more expensive upfront.
• Maintenance Responsibility: You’re solely responsible for all upkeep and repairs.

Advantages and Disadvantages of Leasehold Properties

Leasehold properties can be a more affordable option with shared upkeep, but they also come with ongoing costs and restrictions. Here’s a closer look at the ups and downs.

Advantages:

• Lower Upfront Costs: Often more affordable than freehold properties.
• Shared Maintenance: Building upkeep is managed collectively.
• Accessible Locations: Many leasehold properties are flats in prime urban areas.

Disadvantages:

• Recurring Costs: Ground rent and service charges can add up over time.
• Lease Length Matters: Shorter leases can impact resale value and mortgage eligibility.
• Limited Control: You’ll need freeholder approval for significant changes.

Extending the Lease

If you own a leasehold property, one important aspect to consider is the lease length. Once the lease drops below 80 years, it can significantly affect the property’s value and make it more difficult to sell or secure a mortgage. If you’re nearing this point, it’s advisable to extend the lease.

Why Extend the Lease?

• Increase Property Value: Extending the lease can maintain or even increase the property’s market value.
• Easier to Sell: Properties with a long lease are easier to sell and attract more potential buyers.
• Mortgage Eligibility: Lenders are more likely to offer favorable mortgage terms for properties with longer leases.

How to Extend the Lease:

Professional Advice: It’s recommended to consult a solicitor or specialist surveyor to help you through the process of negotiating and valuing the extension.

Leaseholder’s Right: In most cases, you have the legal right to extend your lease by 90 years. You’ll need to negotiate with the freeholder, and the cost of the extension will depend on the property value and the length of the lease remaining.

Service Charges

Service charges are recurring costs that leaseholders pay to the freeholder or managing agent for the upkeep of the property, particularly in blocks of flats or apartments. These charges cover things like building maintenance, insurance, and communal areas (e.g., lifts, hallways, and gardens).

What’s Included in Service Charges?

• Building Maintenance: Cleaning, repairs, and general upkeep of the building.
• Insurance: The building insurance policy is often managed by the freeholder.
• Utilities: Costs for shared services, such as heating, water, and lighting in communal areas.
• Management Fees: Fees for managing the property, including administrative costs and professional fees.

Key Points to Know:

Disputes: If the service charges seem unreasonable, or if maintenance is poor, you can dispute them with the freeholder or managing agent.

Transparency: Always ask for a detailed breakdown of the service charges before purchasing a leasehold property.

Ground Rent

Ground rent is a fee that leaseholders pay to the freeholder for the land on which their property is built. While this fee was once nominal, in recent years, some leaseholders have experienced dramatic increases in ground rent, leading to concerns and legal reforms.

Legal Changes Regarding Ground Rent:

Buying the Freehold: If you’re facing high ground rent, you might want to consider buying the freehold (through enfranchisement) or negotiating a reduction.

2022 Legislation: The UK government passed legislation that limits ground rent to a peppercorn (effectively zero) for new leases, aiming to protect future buyers from excessive fees (Leasehold Reform (Ground Rent) Act 2022 – gov.uk).

Which Option is Right for You?

Choosing between freehold and leasehold depends on your financial goals and lifestyle needs.

Consider the Following Scenarios:

• First-Time Buyers: Leasehold may be more affordable, especially in city areas where flats dominate.
• Long-Term Investors: Freehold offers better stability and no recurring fees.

Always check the lease terms before buying. Leases below 80 years can significantly impact resale value and mortgage eligibility.

FAQs About Freehold and Leasehold

Final Thoughts: Making the Right Choice

Understanding the difference between freehold and leasehold is key to making a confident decision when buying your property. Freehold provides control and stability, while leasehold provides affordability and accessibility.

Consult a property expert or solicitor before making a decision, and use a property management software like Loomlease to simplify the process. If you’re a landlord or property manager, take advantage of LoomLease’s free trial to streamline your management of both freehold and leasehold properties.