What is the difference between leasehold and freehold?

The lease is a contract as much as it is a form of ownership, and everything that puzzles leaseholders comes out of that. You pay a service charge because the freeholder maintains the structure and common parts and recovers the cost. You ask permission for alterations because the lease says so. The length of the lease matters because it is a wasting asset — and below a certain number of years remaining it becomes markedly harder to mortgage and to sell.

Step by step

1. Establish which you have.The title register from HM Land Registry states it — a freehold title or a leasehold title. Your solicitor's file from the purchase will also have it, and a leasehold property will have a copy of the lease itself.
2. Read the lease, not a summary of it.It sets out the term, the ground rent, what the service charge covers and how it is apportioned, what you may and may not do, whose responsibility each part of the building is, and what permissions are needed. It is the governing document and most disputes are resolved by reading it carefully.
3. Find the unexpired term.Count from the lease start date, not from when you bought. Lenders become cautious as the remaining term falls, and the cost of extending rises sharply once it drops below a threshold that has long been treated as significant in valuation practice.
4. Identify who is who.The freeholder owns the building. There may also be a management company — sometimes a residents' company that leaseholders own shares in — and a managing agent employed to do the work. Knowing which one you are dealing with determines who you complain to.
5. Understand ground rent.A payment to the freeholder for the land, distinct from the service charge and buying you nothing in services. Reform has removed ground rent from most new residential leases and has addressed onerous escalating clauses in existing ones, and the position continues to change — check the current rules rather than assuming.
6. Know what share of freehold means.The flat is still leasehold, but the leaseholders collectively own the freehold through a company. It removes the outside landlord and makes lease extensions much simpler, but it does not remove the service charge or the need to manage the building — it transfers those to you and your neighbours.
7. Understand commonhold, and why you probably do not have it.Commonhold is a form of freehold flat ownership that exists in law but has been used very rarely. Reform intends to make it the default for new flats; almost nothing existing is commonhold.
8. Check the lease before buying, not after.Unexpired term, ground rent and any escalation clause, service charge history and any planned major works, restrictions on pets, subletting and flooring, and whether there is a sinking fund. These are conveyancing questions and a good solicitor asks them; make sure yours reports on all of them.

Questions people ask