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What is a leasehold?
Including your rights & the problems with leasehold
Updated 13 January 2023
Millions of people own a leasehold property, but this type of home ownership can be complex. Leasehold tenure has received much negative attention over the years, so the Government is introducing changes aimed at making it easier to extend a lease – plus ground rents are now banned on new leases. 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.
Need help extending your lease?
We've got a full step-by-step guide on How to extend a lease, including how much the costs will be and what the process involves.
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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 (technically you actually own a lease, which permits you to occupy the 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:
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.
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.
Freeholders sit around praying you let your lease drop to below 80 years, 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 below. (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 a lease on a £200,000 flat by 90 years
| LEASE LENGTH | EXTENSION COST | PROFESSIONAL FEES (1) | TOTAL | POTENTIAL ADDED VALUE |
|---|---|---|---|---|
| 90 years | £4,500 | £4,000 | £8,500 | £12,500 |
| 85 years | £5,500 | £4,000 | £9,500 | £16,500 |
| 79 years | £13,000 | £4,000 | £17,000 | £19,500 |
| 70 years | £19,500 | £4,000 | £23,500 | £25,000 |
| 60 years | £28,000 | £4,000 | £32,000 | £33,000 |
| Extension costs and added value from Homehold, based on Upper Tribunal Guidance. Estimated for a flat worth £200,000 once the lease is extended, with £100 ground rent rising by £100 for each 33 years of the term. These are just estimates and can vary wildly – they are not a substitute for valuation advice. (1) This includes your valuation, negotiation and legal fees, as well as your freeholder's valuation and legal fees. It does NOT include any stamp duty cost. | ||||
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.
See our recently updated How to extend your lease guide for full step-by-step help if extending a lease is something you need to do.
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 either need the agreement of the freeholder, or the lease itself to be extended (which as a by-product reduces any ground rent to zero).
As a result, the Government is attempting an overhaul of the system to make it both easier and cheaper for current leasehold homeowners who have to pay ground rent to get rid of it. It's hoped that some of these changes might enter law sometime in 2023.
Separately, in a win for future homeowners, a law banning ground rent on all new leases is now in effect, meaning you shouldn't be charged any ground rent if you decide to buy a new leasehold property (ie, a new-build home). More details about how this ban works, which took effect in June 2022, can be found in our news story.
Ground rent help:
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 (in other words, 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.
We've got a guide all about what Extending a lease involves, including costs and step-by-step help.
Leaseholders to get new rights which could save £10,000s
For years the Government has been under pressure to take action which helps leaseholders struggling with onerous lease terms, as well as improve the attraction of leasehold properties more generally.
Fortunately, as of June 2022, a ground rent ban is now in effect. This has outlawed ground rent on all new leases entirely – a win for future homeowners – plus it'll stop freeholders being able to introduce ground rents via informal lease extensions. See our news story for the full details.
More significantly, the Government also plans to make it easier and cheaper for existing leaseholders to formally extend their lease, and simplify the process of buying a property's freehold. This will be covered in a separate bill, but it's some way behind the ground rent ban and there's no indication when it could become law.
Under the lease extension plans:
- All leaseholders who have the right to extend their lease will be able to do so by 990 years – and if you do, any ground rent will be wiped. 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.
I'm planning to extend my lease or buy my freehold – should I wait or take action?
This all depends on how urgently you need to extend your lease or buy your freehold.
Remember, these leasehold reform proposals aren't yet law and could be delayed or changed as they pass through Parliament. We don't have a clear timescale for when all the changes will become law – it could potentially be a few years.
Here are a few pointers for now:
- My lease is ticking down to 80 years and I need to take action soon. Whether you're selling or staying, you should really start thinking about extending your lease once it gets to 83ish years. You should probably begin considering it even sooner than that if you're able. Where a lease has 81 or 82 years left, the cost of extending can still increase by £100s or even £1,000s, as the 80-year mark is so close and the need to extend is more urgent (extending a lease can take time too – so don't leave it until the last minute).
As mentioned above, there is no indication yet of when the leasehold changes will become law. If you really need to sell or remortgage (for instance, if you're on an expensive SVR), then you might not be able to wait until the changes take effect before extending.
- My lease still has 90+ years left to run. Where you've got a lease that doesn't urgently need extending, for instance if it has 90+ years left to run, then you've a greater incentive to wait until the new changes come into effect before extending your lease. On the other hand, with every year that is chalked off a lease, it normally becomes more expensive to extend (for example, it'd likely be cheaper to extend a 99-year lease than a 97-year lease). If you're planning on selling, you might also get a better price for a property with a 99-year lease over a 97-year lease.
More details and tips about extending a lease in our Should I extend my lease guide.
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.
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.
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
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