Buying and owning a leasehold home

This guide explains what to look out for when buying a leasehold property, and what you need to know if you already own one.

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Our buying and owning a leasehold home guide suggests what you need to ask your developer, estate agent or solicitor if you’re thinking about buying a leasehold home, including:

the number of years left on the lease
if you’ll have the option to extend the lease
if you’ll have the option to buy a share of the freehold
if you’ll have the right to take over management of the property
the ground rent you’ll have to pay now and in the future
the service charge you’ll have to pay
any restrictions in the lease (for example, that you cannot run a business from your property, have a pet or make alterations)

You might need to start taking action if the lease is shorter than 85 years.

If you have any questions about your lease, talk to a solicitor.

What is leasehold?

Leasehold is a form of home ownership (or tenure).

A lease is an agreement between you and the owner. That person or company is the freeholder or landlord. The lease sets out what you can and cannot do as a leaseholder.

If you own a leasehold property, you do not own the land it stands on.

If the property is a flat, usually you do not own the shared parts (like the hallway and stairs) or the structure of the building.

There are two other main forms of ownership:

freehold
commonhold

Flats are usually sold as leasehold. Shared ownership homes always are. New-build houses have also sometimes been sold as leasehold.

Some houses need to be sold on a leasehold basis because the developer does not own the freehold.

Ground rent

If you own a leasehold home, your lease will probably say that you have to pay ground rent to the landlord.

Your lease will set out how much ground rent you'll have to pay.

Ground rents often used to be fixed and were often less than £100 a year. However, some developers and freeholders have been setting ground rents much higher and/or setting escalating rents, which increase in the way set out in the lease. This can mean that the ground rent rises steeply and quickly.

For example, your lease could say the ground rent doubles every 10 years. That means that if you bought a house in 2019 with an initial ground rent of £500 per year, by 2069, you’d be paying £16,000 per year in ground rent.

This may cost you more than you’re expecting. You may also find it difficult to sell, because some lenders may not want to lend on this kind of lease.

If your ground rent is more than 0.1% of the value of a property, or £250, whichever is higher, or if it might increase to this level, you may find it harder to:

get a mortgage
remortgage
sell your home

The government is looking at how to improve the leasehold system, including ground rents, to be fairer to buyers.

Service charge

Your landlord is usually responsible for maintaining and insuring the whole building (although you’ll insure your contents). You’ll have to pay a service charge to cover your share of the buildings insurance and the cost of maintaining the building.

Your lease will tell you how much service charge you must pay initially, and how often. The service charge will usually increase every year, depending on the work that needs to be done.

Your service charge may be paid in advance (based on how much your landlord estimates repairs and maintenance will cost) or paid in arrears (after the landlord has paid for the work). Often you will pay amounts half yearly based on the estimate, and then pay a balancing charge once the actual costs are known.

Some leases require leaseholders to pay into a reserve or sinking fund each year, as well as paying the service charge. This is used to pay for items that may cost a lot to repair or replace, but which may not need work every year, such as replacement of a lift.

Lease length

The first person who buys a leasehold property is given a lease that’s valid for a certain number of years, often 99 or 125 years.

Every time the property is sold, the same lease is passed to the new buyer, so the length reduces.

If your lease is for under 85 years, it could mean:

you cannot borrow as much from a mortgage lender, or get a mortgage at all
your mortgage interest rate increases when you re-mortgage, or you may not be able to remortgage
you find it harder to sell the property
the value of your property decreases

Generally, the shorter the lease gets, the more its value will decrease.

Lease extensions can be made on an informal basis or a formal basis.

If your lease is for 90 years or over, you may not want to extend it immediately, as this may not add much value to your property.

Extending a lease of a flat on an informal basis

If your landlord or freeholder is willing to extend your lease informally, ask a solicitor before you agree the terms of the new lease.

You may pay a lower premium than if you were using the formal process, but sometimes the ground rent may be changed to an escalating ground rent, which may mean you pay more in the end, and you may have difficulties when selling.

You’ll need to pay:

the landlord’s costs
a fee (often called a premium) for extending your lease, which will depend on the length of the lease, the value of the property and the ground rent

If you consult a solicitor, you’ll also need to pay them for their advice, and you may need to pay for a valuation.

Extending a lease of a flat on a formal basis

The formal process is complex and you’ll need the advice of a valuer and a solicitor.

If you own a flat, you’re likely to have the right to extend your lease if:

you’ve lived in the property for at least two years
the original lease was for more than 21 years
the landlord is not a charitable housing trust which is providing your property as part of the charity’s work
the lease is residential and not for business purposes

You’ll need to pay:

for a valuation
for legal advice from a solicitor
the landlord’s costs
a fee (often called a premium) for extending your lease, which will depend on the length of the lease, the value of the property and the ground rent

The extension will usually be for 90 years.

Extending your lease can be expensive. The shorter your lease is, the more it will cost you to extend it. Before you start the process, check the Leasehold Advisory Service online calculator. It estimates the premium for extending your lease.

If you’re buying a flat with a lease of less than 85 years

You may want to ask the seller to extend the lease before you buy. You may be asked to contribute to the costs of this. You do not have to agree to do this – it’s a matter for negotiation.

If the lease qualifies for extension, you will not have the right to extend it yourself until you’ve owned the flat for at least two years.

Your freeholder may agree to an extension before then. If they do, ask a solicitor and a valuer for advice, because if you deal informally rather than formally, you are unlikely to have the protection of the law in relation to the new terms of the lease, including those relating to ground rent.

Extending the lease of a house

If you own a leasehold house, you may have the right to extend your lease if:

the original lease was for at least 21 years
you’ve held the lease for at least two years
the lease has not been extended before

The extension will usually be for 50 years.

You may not have to pay a premium to extend the lease on your house, but you’ll need to pay:

for a valuation of your lease
for legal advice from a solicitor
the landlord’s costs

If you’re thinking about buying a house with a lease of less than 85 years, you may want to ask the seller to extend the lease before you buy. You may be asked to contribute to the costs of this.

You do not have the right to extend it yourself until you've owned the house for at least two years, although your freeholder may agree to an extension before then. If so, you should ask a solicitor for advice.

If you meet the requirements for extending the lease of your house, you’re also likely to meet the requirements for buying the freehold (or enfranchising), which may offer more advantages. You should take professional advice on the likely costs and benefits.

Covenants and restrictions

All types of homes can have covenants, but there are often more of them in leases for flats.

There are two types of covenants in a lease:

restrictive covenants
positive covenants

Positive covenants are something someone must do. For example, the landlord might have to paint the outside of the building every five years, and the tenant must pay rent and service charges.

If your landlord does not do what is required under a positive covenant in your lease, ask a solicitor for advice about what to do next.

Restrictive covenants (also called restrictions) stop you from doing certain things which might affect the ‘use and enjoyment’ of the building for other leaseholders in the building. These could include:

renting out a room or the whole flat
laying hard flooring (or taking up the carpets)
running a business from home
making noise after certain times
keeping a pet
making structural alterations or renovations

Check the restrictions in the lease carefully to make sure they do not prevent you from using the property in the way you want to.

The lease may say that you can ask for permission to do something prevented by a restriction. You’ll need to ask the landlord (or managing agent) for permission (also called consent), and the lease will usually say that the landlord should give consent where it would be reasonable to give it. The landlord will usually charge for this. A solicitor can help you apply for permission.

If you do not comply with the restrictions or the terms of any permission, your landlord may be able to take legal action against you. They can also take action if ground rent or service charges are not paid.

Leasehold enfranchisement

If you own a flat, you may also own a share of the freehold.

If you do not already own a share, you may be able to get together with other leaseholders to buy the whole of the freehold. This is called leasehold enfranchisement or collective enfranchisement.

The current process can be quite complicated, but the Law Commission is looking to see how this can be made simpler.

You’ll need to set up a management company, with the other leaseholders, which will buy the freehold. Every flat-owner who has agreed to apply for enfranchisement owns shares in the company. You should ask a solicitor to help you with this.

The benefits of owning a share of the freehold include:

being able to set the length of the leases and extend them
being able to make collective decisions about repairs and maintenance works
not having to pay ground rent

There are certain requirements to qualify for this right. These rules are complex, and you should take specialist advice, but in general:

the building must contain at least two flats
at least two-thirds of the flats must be owned by tenants whose leases were over 21 years when first granted
no tenant can own more than two flats in the building (either jointly or solely)
at least three-quarters of the building must be used for residential purposes
at least half of the qualifying tenants must apply for enfranchisement

If you meet the requirements, you can apply to the landlord to buy the freehold. This is complex and can be expensive, so ask a solicitor for advice.

If you own a leasehold house, you may have the right to buy the freehold. Each case is different, but generally, to qualify:

the original lease must have been for at least 21 years
you must have owned the house for at least two years

The government is looking at how to make enfranchisement simpler and quicker, particularly for leaseholders. Find out more about what’s changing.

The right to manage

If you own a leasehold flat, you may also qualify for the right to manage. This means that you and the other leaseholders can take over managing the building, through a management company, but you will not own the freehold.

The owners of leasehold flats may use the right to manage as a ‘stepping stone’ on the way to enfranchisement.

However, it’s also an option for flat-owners who may not be able to buy their freehold – for example, because they cannot afford the purchase price. If you and your fellow leaseholders are interested in doing this, ask a solicitor for advice, to see if you’re eligible and what it would cost.