What does a leasehold mean?

What is a leasehold?

Including your rights & the problems with leasehold

Millions of people own a leasehold property, but this type of home ownership can be complex. Leaseholds have also received a lot of negative attention for many years now, so the Government is trying to introduce sweeping changes aimed at making it easier to extend a lease and do away with expensive ground rent. This guide explains what leasehold is, how it's set to change, and what to do if something goes wrong.

This guide primarily covers leasehold properties in England and Wales, but it also contains some information for leaseholders in Scotland and Northern Ireland.

Tip Email

FREE Weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today - it’s spam free!

Leasehold explained

When buying a property in England or Wales there are two main types – freehold and leasehold. In a nutshell, they mean the following...

Freehold: Someone who owns the freehold of a property owns the property and the land it stands on, for an unlimited period. Interestingly, the Civil Aviation Act 1982 means you'll also 'own' and have rights to the 'airspace' above your property up to about 500 feet.

Leasehold: Unlike a freeholder, as a leaseholder you own the property BUT NOT the land on which it is built – that is owned by the freeholder. Ownership of your property is also for a set period, which can be a number of years, decades or centuries, depending on the length of your lease. If your lease expires, ownership of your property technically passes to the freeholder.

Most flats are sold as leasehold properties with the freehold held by the builder or a firm he or she has sold the freehold to. However, this isn't always the case. Some flats – especially in houses converted into many flats – are sold on the basis that the owner shares the freehold with others in the same building, known as 'share of freehold'.

Houses tend to be sold as freehold properties as it's a more clear-cut scenario, given there's only one property on that piece of land. Controversially, however, this has not always been the case with new-builds homes in recent years.

Differences in Northern Ireland and Scotland

Here are some pointers if you're thinking of buying a property (or already own one) in either of these countries:
 
  • Northern Ireland. It's a similar situation to England and Wales, so it's still worth reading this guide for the basic principles, but there may be some nuances in legislation and definitions. More comprehensive guidance can be found on the Housing Rights NI website.
  • Scotland. Flats are sold on a similar basis as commonhold properties are in the rest of the UK (more on commonhold properties see below). Each flat owner owns their own freehold and the common areas are looked after by a 'factor' – a company to which flat owners pay a fee. Thanks to the Property Factors (Scotland) Act 2011, these factor companies also have to sign up to a code of conduct and a Government redress scheme. The Scottish Government has published a handy guide to buying a property in Scotland.

Quick questions on how leasehold works:

  • Normally the freeholder will be responsible for the upkeep of the common parts of the property (eg, the stairwell in a block of flats, the exterior walls and roof) and of the land it's built on.

    As a leaseholder you'll normally have to pay a service charge – to cover the cost of this upkeep – and sometimes ground rent too (more on these later).

    The freeholder may instead appoint a managing agent to manage the property on their behalf within the terms of the lease. The agent will usually be paid for from your service charge, so you don't incur a separate cost for this.

  • You'll get a contract listing the rights and responsibilities of you the leaseholder, and the freeholder. Your lease will set out conditions you've agreed to, including:

    • How much you'll have to pay to maintain the property (the service charge)
    • If you need permission from the freeholder to make alterations
    • Whether it's you or the freeholder who is responsible for repairs
    • Who deals with other issues such as noisy neighbours, any restrictions on pets, smoking, BBQs and noise
    • And MUCH more

    This is a legal document so if you're in breach of the lease, you could be evicted – though this is rare.

  • Commonhold properties were introduced under the Commonhold and Leasehold Reform Act 2002.

    Commonhold is essentially a form of community ownership where an apartment building is divided into 'freehold units', so each flat offers its own freehold, while common areas (stairwell, walls, roof etc) are managed by a commonhold association, which itself is owned by the freeholders of the flats.

    Despite the good intentions of commonhold (it offers more rights and works in a similar way to how the ownership of flats works in Scotland), it's very rare: the Homeowners' Alliance estimates that about only 20 commonholds exist in the UK.

    Its rarity can also pose a problem if you're looking for a mortgage. When it became apparent that commonhold wasn't catching on, most mortgage lenders quietly stopped offering mortgages for commonhold properties on the open market.

  • There are two types of home insurance – buildings and contents. The freeholder will generally be responsible for paying buildings insurance, but it's important to check the terms of your lease. We've come across cases where leaseholders are responsible for buildings as well as contents insurance.

    Even if the freeholder does arrange buildings insurance, don't think you'll necessarily get it for free – it'll likely form part of your service charge.

    As a leaseholder you'll be responsible for getting contents insurance, which covers items such as furniture, clothing and any white goods. It's not a legal requirement but think about what you would do if the contents of your home got damaged or destroyed.

  • You may get landed with a major works service charge on top of your ordinary service charge.

    For example, if you've bought an ex-local authority flat in a block on an estate, you may have to pay a service charge for extra work such as upgrading windows or improving lighting to make it safer at night.

    You usually won't be refunded anything when you sell your property though you could always use the fact the property has been improved as a result of the works to negotiate a better sale price with your buyer.

Tip Email

FREE Weekly MoneySaving email

For all the latest deals, guides and loopholes simply sign up today - it’s spam free!

Leaseholds have lifespans – steer clear of leases around 80 years

Owning a leasehold gives you the right to live in a property for a set period of time, which can be years, decades or centuries.

But it's important to understand that in the eyes of the law, you're essentially a tenant of the freeholder for that period. Also, you don't technically own the property, you own the lease – even though you can obviously buy and sell the physical property.

Any lease around 80 years in length should ring ALARM BELLS

A decent length on a lease (100+ years) can add £1,000s or even £10,000s to your property's marketing value.

On the other hand, where a lease is under 80 years it's considered dangerous territory, and can make a property difficult to sell or remortgage if you already own it, while for buyers, lenders may be unwilling to give you a mortgage on it. This is why it's sometimes necessary to extend your lease.

Unfortunately, extending a lease can be both expensive and complicated, and the price only goes up the fewer years a lease has left on it. The Government is currently attempting an overhaul of the system to make it both easier and cheaper for homeowners to extend a lease. Information about the length of the lease should be provided by the housing developer or seller. If you're unsure, speak with your conveyancing solicitor.

We want to sear a point onto your brain...

There is a magic number of years at which leases become much pricier to extend. That magic number is: 

Freeholders sit around praying you let your lease drop to 80 years or less, as then they rake in the cash. This is because after that you will pay 50% of the property's 'marriage value' on top of the the usual lease extension price. Marriage value is the amount of extra value a lease extension would add to your property.

If your lease has 83 years left, it's time to really start looking seriously into this.

If you're a property-hunter, alarm bells should screech if a lease is nearing or below 80 years – don't just accept estate agents' promises of easy extensions.

Here are some general principles about lease lengths:

  • RED. Lease of fewer than 80 years  - warning, you're in the danger zone. You urgently need to think about extending your lease if it's near to 80 years. At 80 years you might have to pay 'marriage value' (more on that below), while if your lease is under 70 years, mortgage rates may at best increase, and your property will be virtually unmortgageable under 60, so you will struggle to remortgage.
  • AMBER. Lease of 83ish years in length - it's time to consider your options. Everyone – whether selling or staying – should start thinking about extending their lease once it gets to 83ish years.
  • GREEN. Lease of 90+ years in length - no need to worry (yet). If you've more than 90 years remaining, the value added to your flat of extending the lease may only be a smidgen more than your costs – see potential added values in our table. (Though, of course, who knows what little things can sway people to pay more for one property than another?)

The cost of extending a lease rockets when you hit 80 years

Normally you have to have owned your property for two years before you can extend. A seller can get the ball rolling and pass the rights to the purchaser. But if a buyer waits until they've completed the purchase, it'll be another two years before they've a right to extend. 

The below table shows how much it might cost to extend a lease.

Typical cost to extend lease on £200,000 flat by 90 years

LEASE LENGTH EXTENSION COST PROFESSIONAL FEES (1) TOTAL POTENTIAL ADDED VALUE (2)
95 years £4,500 £4,000 £8,500 £14,000
85 years £6,500 £4,000 £10,500 £19,000
79 years £14,500 £4,000 £18,500 £19,500
70 years £19,500 £4,000 £23,500 £25,000
60 years £28,000 £4,000 £32,000 £33,000
Typical cost to add 90 years to a lease, cost based on Leasehold Advisory Service data. Costs are per flat and can vary dramatically. Based on a £200,000 flat (£200,000 is its value with 999 year lease) with £200 annual ground rent. 1) This includes the valuation fee and freeholder's legal costs. 2) Estimates by Kinleigh Folkard & Hayward (up to date as of Jan 2021). These are typical values for straightward cases and will vary.

As the table demonstrates, the cost of extending a lease rockets once a lease drops below 80 years in length. The difference between extending a lease 85 years in length and one 79 years in length can be in excess of £8,000, while it can cost near £30,000 to extend a lease that has only 60 years on it.

We're currently working on a new guide about how to extend your lease. For now, if you need advice on how to extend a lease, see the Gov website.

Common problems with leasehold

In recent years, the leasehold sector has been beset with issues. Thousands of leasehold homeowners have complained about being mis-sold or misled over the terms of their lease.

This culminated in an investigation by the Competitions and Market Authority (CMA) in 2020, which found "worrying evidence" of homeowners being taken advantage of. Among its findings were leaseholders who faced punitive ground rents and service charges, and buyers who weren't told up front their property was leasehold or how much it costs to extend a lease or purchase a freehold. 

1. Extortionate ground rents

One of the main issues cited by the CMA report was ground rent, where the leaseholder pays a sum, or 'rent', to the freeholder. 

Traditionally this ground rent was a nominal sum, but in more recent years leaseholders have complained about being sold properties where the annual ground round is in excess of £250. In some cases, the ground rent doubles every few years, meaning leaseholders face paying their freeholder £100s or £1,000s in ground rent each year.

Some leaseholders have found that the ground rent is so expensive that it's made remortgaging or selling their property nearly impossible. And because the terms of the ground rent are written into the lease, it can cost £1,000s in legal fees to have the ground rent amended or removed – something that would need the agreement of the freeholder.

The Government is currently attempting an overhaul of the system to make it easier and cheaper for homeowners to scrap their ground rent.

  • If you've already purchased a leasehold property, or if you're planning to:

    • First, check the ground rent section of the lease. If it's all legal gobbledygook to you, get a lawyer to translate it.

    • If you're in the process of buying a house or flat, ask your conveyancing solicitor to check the ground rent clause. Avoid solicitors recommended by the builder as they may not be as independent as they seem.

    • If the lease says any increase is linked to an index such as the Retail Prices Index inflation measure, you can probably breathe a sigh of relief. Although that does mean it will rise at some point, it isn't as onerous a hike.

    • If the lease does say the ground rent will double, it's worth seeking legal advice if you want to challenge it. It's also worth checking with neighbours in case they're affected and you can claim together. You generally only have six years from the date of purchase of the property to bring a claim against your conveyancing solicitor – though you may also be able to claim up to three years after you knew there was a problem – so time might be critical.
  • More than 40 leading property developers and freeholders signed a pledge in 2019 that they would free existing leaseholders already trapped on onerous leases. This includes contacting those with unfavourable leases (eg, where the rent doubles more frequently than every 20 years) and offering a fairer rate linked to the Retail Prices Index inflation measure.

    Of the estimated 12,000 leaseholders affected, a majority are said to be covered by firms signed up to the pledge.

    For future leaseholders, no clause will be inserted where ground rent doubles more often than every 20 years.

    Those to sign the pledge have also committed to setting up a complaints process for leaseholders and publishing a code of conduct. One major homebuilder, Taylor Wimpey, has already set up a 'ground rent review assistance scheme' for all its customers who purchased and still own one of its properties with a 10-year doubling ground-rent clause in their lease. For more information on eligibility and how to access the scheme, see the Taylor Wimpey site.

2. Expensive service charges

Another growing issue for leaseholders, especially those who live in new-build estates, is escalating service charges. 

Service charges normally need to be paid monthly or annually, and typically go to the freeholder or a service management company, who look after the common areas of your building or estate. Part of your service charge might also go into what's known as a sinking fund, a pot of money set aside to cover the cost of any major works.

For some leaseholders, service charges can be a modest sum, but we've also heard of cases where leaseholders are billed £100s or £1,000s each year. Like ground rent, these charges are normally written into the terms of your lease, and if there is no cap on what can be charged, what you might pay can easily increase. If you pay a service charge, it's important to remember that:

  • Your lease should set out the way the service charge is organised and what can be charged. 
  • You have the right to ask for a summary showing how the charge is worked out and what it's spent on and see any paperwork supporting the summary, such as receipts.
  • Service charges must be reasonable and fair, which means leaseholders can dispute any charges they think are unfair at a tribunal.

3. Lack of information about cost of extending a lease

Extending a leasehold property's lease or buying its freehold can cost £1,000s. Where a lease is short in length (ie, 80 years or fewer), both of these options can cost £10,000s

Some homeowners told the CMA investigation they weren't given this information by developers before buying their property. Others told the CMA they weren't even made aware that their property was a leasehold before buying it.

NEW. Leaseholders to get new rights which could save £10,000s

The Government has been under increasing pressure to take action that helps leaseholders stuck with onerous lease terms, such as doubling ground rent, and bring down the cost of extending a lease more generally.

Last year, the Government announced plans to ban the sale of new houses as leasehold, so in future only flats can be sold on a leasehold basis. It also pledged to reduce ground rents on future lease to zero, though neither of these reforms are yet to be made law. 

And in January of this year, the Government laid out additional proposals to make it easier and cheaper for existing leaseholders to extend a lease, buy a freehold, or do away with ground rent. Again, it's not clear when these changes will come into effect.

Under the latest proposals:

  • All leaseholders who can extend their lease will have the right to do so by 990 years – and if you do, you won't have to pay ground rent. Currently, leaseholders of houses can only extend their lease once, by a 50-year period, while leaseholders of flats can extend leases as often as they wish for a 90-year period.
  • Many who extend their lease or buy their freehold will pay less. A number of charges involved in the cost of extending a lease or purchasing a freehold will either be capped or abolished. At present it can cost £1,000s, or even £10,000s, to extend a lease.

Should I buy a leasehold property? The pros and cons

It might seem after reading this guide that buying a leasehold property isn't worth the hassle. But far from it. If you've fallen in love with a property that happens to be leasehold, there's no reason you shouldn't go ahead and purchase it. Leases themselves aren't an issue – it's bad leases that are the issue.

In fact, there are even some pros to buying a leasehold over a freehold, for example:

You shouldn't have the headache of dealing with the upkeep and repairs of any communal areas in and around the property or negotiating with neighbours to get it sorted (remember to check this in the terms of your lease)

Terms in your lease mean if you're having any issues, for example with noisy neighbours, this can be dealt with. A freeholder's only course of action is taking the complaint up directly with the police.

The buildings insurance will normally be sorted for you by the freeholder (though you'll still have to contribute to the cost – normally in the form of a service charge).

Of course, there are certain issues that some leaseholders have to deal with which owners of freehold properties don't.

Some of the cons of leasehold include:

You might need to pay an annual ground rent or service charge, both of which could be expensive.

You may not be allowed to carry out major refurbishment or extension works. Sometimes this will require consent from the freeholder, and there's no guarantee they'll say yes. Some leases or freeholders might not allow pets either.

You're not always in control of your spend. If your freeholder wants to carry out major works to your property or common areas, if it's stipulated in your lease that you need to share the cost then you'll have to pay your way (whether you like it or not).

Any other issues should be picked up by your solicitor before you purchase the property – as they would be with any other kind of property type – giving you time to change your mind if needed. This is where the primary issue of the leasehold scandal lies, in that solicitors and conveyancers haven't fully explained the risks of buying a leasehold.

Leaseholder rights & how to complain

Even if you've properly vetted the terms of your lease before moving in, you may still run into issues. There are any number of things that could trigger a dispute with your freeholder and all of them could be grounds for you to complain.

As a leaseholder you have a right to gain information about your service charge and any insurance paid, know the name and address of your freeholder, be consulted about certain maintenance and running costs and challenge certain charges under some circumstances.

In reflection of this, according to the Homeowners' Alliance, some common causes of disagreement include high service or administration charges, high cost of buildings insurance, poor appointment of managing agent by the freeholder, a breach of the lease terms and being denied the chance to buy or extend the freehold.

It's worth noting that your freeholder may have appointed a managing agent to act on its behalf. Unless your complaint is specifically about the managing agent, you may wish to complain to the freeholder in the first instance.

What to do if you have a complaint

Step 1. Speak to other leaseholders (informally)

If you're on an estate, or live in a block of flats, other leaseholders may have faced similar issues to you. It's worth having an informal chat with your neighbours (in person is probably best), because if they've had a similar dispute (whether or not they've raised it as an issue yet), you'll be able to make a stronger case to the freeholder if you complain together. Or if they've had a successful resolution, you'll know what to do.

It might also be worth visiting the Leasehold Knowledge Partnership website, a charity established to support leaseholders. You can ask for advice and subscribe to its newsletter, which provides a regular round-up of the latest leasehold news.

Step 2. Try to resolve any issues with the freeholder directly

Some disputes, especially those that are relatively minor, may be resolved by setting it out in writing to the freeholder, or even doing so face-to-face.

If your freeholder is an individual, it should be fairly simple to get hold of them. If your freeholder is an investment company, or an individual with a large portfolio of freeholds, it's likely they'll have appointed a management company – and that's what you should contact initially.

Step 3. Consult your tenants' association (if you have one)

The freeholder will have to consult with your tenants' association about major work and long-term changes to agreements and the association may be able to guide you in your dispute.

  • You can apply to the First-Tier Tribunal (Property Chamber – Residential Property) to set one up, but you'll need at least 60% of the leaseholders in your building to be members of the association for it to be recognised.

    Recognised tenants' (or residents') associations have additional rights and can also act on your behalf in disputes.

    The Department for Communities and Local Government has a guide with more information on setting up an association.

Step 4. Use a mediation service to settle the dispute

You can use an independent and impartial mediator to act as a 'middleman' between you and the freeholder to try to settle a case without having to take it to tribunal. The decision isn't legally binding, but you have to go down this route before going to a tribunal.

Typically a company offering mediation services will be accredited by a recognised body and will be a solicitor, surveyor or accountant. The Ministry of Justice has a searchable database of civil mediation providers in your area. The cost will be dependent on how much you're claiming in your dispute, but starts at about £75 plus VAT for a one-hour session.

Step 5. Apply to tribunal

If you've exhausted the options above, you can apply to the First-Tier Tribunal (Property Chamber – Residential Property), or FTT. This tribunal is independent of the Government and will listen (at a hearing) to both sides of an argument before making a decision.

Any leaseholder or freeholder can take a case to the FTT – there's no requirement to be a member of any particular scheme. If you want help or advice before applying, you can go to the Leasehold Advisory Service or Citizens Advice.

Step 6. Appeal if you're unhappy with the outcome

If you're unhappy with the decision, you may be able to appeal to a different tribunal – the Upper Tribunal (Lands Chamber) – but you'll need to have first applied to the FTT.

You must ask the FTT for permission to appeal and you must do this within 28 days of its decision. It may decide to reopen the case itself rather than pass it to the Upper Tribunal.

If your case is complex, hinges on a legal argument or is in respect of a large financial sum, then it may be transferred to the Upper Tribunal without you making an appeal. The Government appeals site has more information on how to appeal against a decision.

Quick questions on applying to tribunal

  • You'll need to download and complete the relevant form to your dispute, complete it and send it to the address on the form.

    You'll then be told whether or not the tribunal requires more evidence from you. If not, you may be told a decision can be made on your application – this is known as a 'paper decision'. You can still request a hearing (known as an 'oral decision').

  • The cost will depend on what you're disputing and will be printed on the form. However, it'll typically cost £100 to make an appeal to tribunal. If and when you receive notification of a hearing date you'll be required to pay a further £200. So you'll be paying at least £300.

    If you have little income, savings, or are on some benefits, you may be able to get help with paying these fees. See Getting Help with Court Fees for more.

  • If you've asked (or been told) that it'll be a 'paper decision', you won't have a hearing.

    Instead, you'll receive your decision within about six weeks of the tribunal looking at your application.

    If you've asked for an 'oral decision' then you'll have to attend a hearing. This is public and you'll have to present your case (you can have a representative if you wish, eg, a family member, friend or even a lawyer).

    You'll also be asked questions and the tribunal will then make its decision. You'll receive the outcome of this within six weeks.

  • You have 28 days from an original decision date to make a request for the First-Tier Tribunal (Property Chamber – Residential Property), or FTT, to set aside a decision and re-evaluate it.

    This is your opportunity to send further relevant documentation to the FTT or make another representative available at the next hearing.

    Where can I find previous decisions?

    You can search legislation and previous decisions for help making your own case as well as deciding whether or not you want to take your case to tribunal.

    The Government has a searchable database as well as links to legislation that may be relevant to your situation on its previous decisions page.

Spotted out of date info/broken links? Email: brokenlink@moneysavingexpert.com