Understanding the difference between leasehold and freehold is fundamental before buying any property in England and Wales. The distinction is not merely administrative — it affects what you own, what you can do with your property, what ongoing costs you will face, and how easily you can sell or mortgage in the future. This guide covers the full picture, including the 2022 and 2024 legislative reforms that are changing the landscape for leaseholders.
The Fundamental Legal Distinction
Freehold means you own the property and the land it sits on outright — it is an estate in fee simple absolute in possession, the closest thing to absolute ownership that English land law recognises. There is no time limit on your ownership and no superior landlord.
Leasehold means you have purchased the right to occupy the property for a fixed term — the lease — after which ownership reverts to the freeholder (the landlord). Most residential leases in England and Wales are granted for 99, 125, 150, or 999 years; the original term is not the issue, but the unexpired term (how much is left) very much is.
In practice, almost all flats are sold leasehold. Many houses were also sold leasehold by developers, particularly between 2012 and 2020 — this practice has since been the subject of significant political controversy and regulatory reform.
Ground Rent: History and the 2022 Act
Historically, ground rents were a source of income for freeholders — often starting at modest amounts but with escalation clauses (doubling every 10–25 years, or linked to RPI) that could compound to significant sums. Several major house builders sold leasehold houses with ground rents that doubled every 10 years; buyers found within a decade that both their ground rent and their re-mortgaging options had deteriorated sharply.
The Leasehold Reform (Ground Rent) Act 2022 ended this for new residential leases in England and Wales. Since 30 June 2022, ground rents on new regulated leases must be a peppercorn (effectively zero). The Act does not affect existing leases — if you are buying a property with an existing lease created before June 2022, the historic ground rent terms remain in force and must be carefully scrutinised before you exchange.
For a detailed analysis of ground rent reform and its implications for current leaseholders, see our ground rent reform guide. For a comprehensive guide to understanding existing ground rent and service charge obligations, see our ground rent and service charges UK guide.
Lenders have their own thresholds. UK Finance guidance indicates that most mainstream lenders will decline to mortgage a property where the ground rent exceeds the higher of £250 per year (£1,000 per year in London) or 0.1% of the property value. If the lease contains an escalation clause that will push ground rent above these thresholds within the mortgage term, a lender may refuse to lend.
Service Charges
Leaseholders of flats pay a service charge to the freeholder (or their managing agent) to cover the cost of maintaining, insuring, and managing the building and common parts. Service charges can include:
- Buildings insurance premiums
- Cleaning, caretaking, and gardening of common areas
- Lift maintenance and repair
- External decoration and repair
- Reserve fund (sinking fund) contributions for major works
Service charges are variable — they can fluctuate significantly from year to year, particularly when major works (external redecoration, roof replacement, lift refurbishment) are required. For expensive planned works exceeding £250 per leaseholder, the freeholder must follow the Section 20 consultation procedure under the Landlord and Tenant Act 1985 — failure to do so caps their recoverable costs at £250 per leaseholder regardless of the actual cost.
If you believe service charges are unreasonable, you can apply to the First-tier Tribunal (Property Chamber) for a determination of reasonableness under Section 27A of the Landlord and Tenant Act 1985. This is a relatively accessible process — no solicitor is required, though one will strengthen your case — and the fee is around £100–£300 depending on the amount in dispute.
Administration charges (for items such as providing consents, dealing with enquiries on sale, or processing notices) are also subject to challenge at the First-tier Tribunal.
The 80-Year Cliff and Lease Extension
The unexpired term of a lease affects its value and mortgageability in a non-linear way. Two thresholds are critical:
The 70-Year Lender Threshold
Most mainstream mortgage lenders require that a lease has a minimum unexpired term at the end of the mortgage term — typically 70 years (some lenders require more). On a 25-year mortgage, this means the lease must have at least 95 years remaining at the time of purchase. Leases with fewer than 70–80 years are difficult to mortgage with standard lenders, though specialist lenders will consider shorter leases at a premium.
The 80-Year Marriage Value Threshold
Under the Leasehold Reform, Housing and Urban Development Act 1993, a qualifying leaseholder has the statutory right to extend their lease by 90 years (added to the current unexpired term) and reduce the ground rent to a peppercorn. However, once a lease falls below 80 years, the statutory premium calculation includes marriage value — the uplift in property value created by the extension itself — and 50% of that marriage value is payable to the freeholder. This can increase the premium substantially.
For a lease of, say, 78 years on a £400,000 flat, the premium including marriage value could be £40,000–£60,000 or more, compared with perhaps £8,000–£15,000 for the same flat with a lease of 95 years. The 80-year threshold is therefore often described as a "cliff" — if a lease is approaching 80 years, extending before it crosses that threshold can save tens of thousands of pounds.
For the complete step-by-step process for statutory lease extension, see our how to extend a lease guide.
Lease Extension Costs by Remaining Term
| Unexpired Term | Indicative Premium (£350k flat) | Notes |
|---|---|---|
| 95+ years | £3,000–£8,000 | Low marriage value, straightforward |
| 85–94 years | £6,000–£15,000 | Still no marriage value |
| 80–84 years | £12,000–£25,000 | Approaching but not yet below 80 |
| 70–79 years | £20,000–£45,000 | Marriage value applies |
| 60–69 years | £35,000–£70,000 | Significant marriage value, some lenders will not lend |
| Below 60 years | £50,000–£100,000+ | Very difficult to mortgage; specialist advice essential |
Professional fees for a lease extension (solicitor and RICS surveyor for both parties) typically add £3,000–£6,000 to the above figures.
The statutory process begins with a Section 42 notice served on the freeholder, specifying your proposed premium. The freeholder has two months to serve a counter-notice. Negotiation typically resolves within three to six months; if agreement is not reached, either party can apply to the First-tier Tribunal.
Commonhold: The Alternative
Commonhold was introduced by the Commonhold and Leasehold Reform Act 2002 as an alternative tenure for flats, modelled on systems used in Australia, the United States, and much of Europe. Under commonhold, each flat owner holds their unit as freehold, and the common parts are owned and managed by a commonhold association (a company in which all unit holders are members).
In practice, commonhold has barely been used in England and Wales — fewer than 20 commonhold schemes exist as of 2024. The reasons are primarily structural: developers preferred leasehold because it generated ongoing income from ground rent and service charge management, and lenders were reluctant to lend on an untested tenure.
The Leasehold and Freehold Reform Act 2024, which received Royal Assent in May 2024, makes a series of reforms including:
- Abolishing the requirement for two years of ownership before a leaseholder can claim a lease extension or collective enfranchisement
- Requiring more transparent service charge information (standardised accounts)
- Making it easier to challenge unreasonable service charges
- Extending the standard lease extension term from 90 years to 990 years
Further commonhold reform is expected via secondary legislation, but as of mid-2026 commonhold remains largely unused for new developments.
Share of Freehold
Many leasehold flats are sold with a share of freehold — meaning the leaseholders collectively own the freehold of the building through a company (a residents' management company or freehold company), and each leaseholder holds a share in that company.
Share of freehold is advantageous because:
- You are effectively your own landlord, so ground rent (if any) and service charges are managed by and for residents
- Lease extensions can typically be granted informally and cheaply (legal costs only, no premium to a third-party freeholder)
- You have more control over building management, insurance, and major works
Acquiring share of freehold is usually done either via collective enfranchisement under the 1993 Act (requiring at least 50% of leaseholders to participate) or informally when all leaseholders agree. The cost of collective enfranchisement is broadly similar to the aggregate of individual lease extension premiums, plus legal costs and a surveyor on each side.
What to Check Before Buying a Leasehold Property
| Item | Why It Matters | Red Flag |
|---|---|---|
| Unexpired lease term | Mortgageability and resale | Below 80 years without budget for extension |
| Ground rent amount and escalation clause | Mortgageability, lender thresholds | Doubling clauses; above £250/yr (£1k London) |
| Service charge history (3 years) | Budget for ongoing costs | Large unexplained increases; no reserve fund |
| Major works planned or recent | Budget for upcoming bills | Section 20 notice outstanding |
| Reserve / sinking fund balance | Whether major works are funded | Very low or non-existent fund |
| Freeholder identity | Management quality, ease of extension | Offshore or uncontactable freeholder |
| Managing agent | Service quality | Not ARLA or RICS regulated |
| EWS1 certificate (buildings 18m+) | Mortgageability under BSA 2022 | Not available, or Grade B1/B2 pending remediation |
Always ask your solicitor to raise TA7 leasehold enquiries and to review the last three years of service charge accounts and the most recent buildings insurance renewal document. The freeholder's managing agent should provide these on request.
For a practical, step-by-step checklist for buying a leasehold flat, see our buying a leasehold flat checklist.
Related Guides
- Freehold vs Leasehold UK — a concise overview of the key legal and financial differences between the two tenures
- How to Extend a Lease: Leasehold Flat UK — the Section 42 process, premium calculation, and when to act before the 80-year cliff
- Ground Rent and Service Charges UK Guide — detailed guide to understanding, budgeting for, and challenging ground rent and service charges
- Buying a Leasehold Flat Checklist UK — a comprehensive pre-exchange checklist for leasehold flat buyers
- Sinking Fund Leasehold Property UK — how sinking funds work, what a healthy balance looks like, and what to do if there is none
- Section 106 Agreements: What Property Buyers Need to Know — on development sites, s.106 obligations can bind leasehold titles through use restrictions, principal-residence clauses, and estate management charges
- Leasehold Enfranchisement: How to Buy the Freehold of Your Flat — if you're in a qualifying building and 50%+ of leaseholders are willing to act together, collective enfranchisement under LRHUDA 1993 and LFRA 2024 gives you full ownership of the freehold and eliminates the third-party freeholder entirely
- Freehold vs Leasehold Flats UK: Service Charges, Ground Rent, and What Buyers Need to Know — a deeper dive into the specific obligations that come with leasehold flat ownership: service charges, Section 20 consultation, ground rent reform, and lease extension costs
- Conveyancing for New Builds vs Resale Properties: Key Differences — how new build conveyancing differs from a resale purchase: exchanging off plan, developer contracts, leasehold new build traps, and Building Safety Act pre-completion inspection rights
- Dilapidations Explained: What Commercial Tenants Need to Know — for tenants holding commercial property under FRI leases, the Section 18(1) diminution cap, schedule of condition protection, and how to negotiate a dilapidations settlement