What is the difference between leasehold and freehold, and why do leaseholders pay service charges?

Full answer

The distinction between freehold and leasehold affects both your ongoing costs and your long-term security of ownership, and is particularly important for flats, where leasehold is the norm. **Freehold ownership** As a freeholder, you own the property and the land it sits on outright and indefinitely, with no lease to expire and generally no ground rent or service charge obligations to a separate landlord -- most houses are sold freehold, though some (particularly newer estate houses) have historically been sold leasehold, a practice now heavily restricted by recent reforms. **Leasehold ownership** As a leaseholder, you own the right to occupy the property for the remaining term of the lease (commonly originally granted for 99, 125, or even 999 years), while a separate freeholder (sometimes called the landlord) owns the underlying building and land -- as the lease term runs down, particularly below 80 years remaining, the property can become harder to mortgage or sell and increasingly expensive to extend. **Why service charges exist** Because leaseholders share a building (most commonly flats within a shared block), the freeholder or a managing agent typically collects service charges from all leaseholders to cover the cost of maintaining and insuring shared parts of the building -- such as the roof, structure, communal hallways, lifts, gardens, and buildings insurance -- with each leaseholder's share usually set out in their lease. **Ground rent** Separately from service charges, many older leases also require a ground rent payment to the freeholder, though recent leasehold reform has restricted ground rent to a peppercorn (effectively zero) on most new residential leases granted after reforms took effect. **Service charge disputes** Leaseholders can challenge service charges they believe are unreasonable through the First-tier Tribunal (Property Chamber), and freeholders/managing agents are generally required to consult leaseholders on significant works above certain cost thresholds before charging for them. **Extending a lease or buying the freehold** Leaseholders generally have a statutory right to extend their lease or, where enough leaseholders in a building act together, to collectively buy the freehold, both of which can improve long-term security and value, though both typically involve a cost (a premium) payable to the current freeholder. **Practical tip** Before buying a leasehold property, check the remaining lease term, current ground rent and service charge levels, and the building's service charge accounts and any planned major works, since these significantly affect ongoing costs and the property's future saleability and mortgageability.

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