Things to consider
There’s no denying that leasehold ownership has a bad reputation when it comes to buying a home.
Whether it's the ongoing cladding scandal, skyrocketing management fees or money-hungry yet vacant freeholders and landlords, the prospect of taking on a leasehold property can seem intimidating.
But for many it is unavoidable. Leasehold properties are often more affordable than freehold properties, and with a leasehold property the responsibility for the buildings is shared with the freeholder, so some of the costs are also shared with the freeholder.
Latest figures It shows that in 2022-23 there will be 4.77 million leasehold homes in England alone, of which nearly three-quarters will be apartments and the rest detached houses.
A Labour government wants to do more to freshen up the sector, on top of the reforms introduced by the Leasehold and Freehold Reform Act 2024.
The legislation, which applies to England and Wales, was passed just before the general election and also includes a ban on the sale of new leasehold homes, although most of the reforms are not expected to come into force until 2025-26.
Labour ministers have announced plans to strengthen tenant rights regarding lease extensions, regulate ground rents for existing tenants (for example by setting a cap), and restrict the sale of new rented apartments.
However, the bill is still in its early stages and it will likely be some time before it becomes a reality.
If you're hoping to buy, it's worth checking whether there are any recently approved or planned changes to the law that may affect you – a competent conveyancing solicitor (a must if you're buying property) will keep an eye on such things.
What is the lease term?
A leasehold is a type of tenancy where you buy a lease from the freeholder who owns the property and the land, giving you the right to live in it for a period of time set out in the lease.
Leases (written contracts that outline rights and responsibilities) can last for a variety of lengths but typically range from about 99 to 125 years.
“The optimum is 125 years,” says Paula Higgins, chief executive of campaign group Homeowners Alliance. “Anything less than 80 years and you might not be able to get a mortgage.”
If you're interested in a property with a shorter-than-average lease term, you can also ask the seller for an extension, Higgins says.
“The onus is on the seller to extend if they can afford it. Alternatively, if the seller has owned the property for two years they can give the landlord a notice to extend (a section 42 notice).”
If not, you currently must wait until you have owned the property for at least two years before extending your lease.
To get an idea of how much the lease extension process will cost, check out our online lease extension calculator .
Examine the potential costs
Owning a leasehold property will inevitably come with a variety of costs and payment demands, so it’s important to be aware of what these are and to what extent they may escalate before agreeing to buy.
First, ground rent is a periodic payment made by a tenant to a landowner.
While people buying homes on new long leases will not be charged ground rent (this is the result of a ban that came into force in England and Wales in June 2022), this will not apply to most people.
“This is a small amount, usually around £100 a year, paid to the freeholder,” Mr Higgins said.
The thing to be mindful of is how often it increases: “If it doubles every two years, for example, you might find yourself unable to mortgage, so look at the increase over time,” she adds.
You’ll usually have to pay a service charge which covers things like maintenance and repairs, buildings insurance and management fees.
“I would advise buyers to look at service charges over the past five years to see if they have increased and by how much,” says Colin Seccombe, a property lawyer and co-managing partner at law firm Lewis Denley.
Also find out if there is any upcoming work outside of the service fee that you may need to pay for.
Ask if there is a reserve fund. A reserve fund allows the freeholder to collect extra money on top of service fees for infrequent large projects, such as painting common areas.
“If you suddenly need to replace your roof and you haven't collected the upfront payment, it could end up being costly,” Higgins says.
Secombe also advises prospective renters to check who the leaseholder and management company are and whether they have a good reputation.
“For example, do they charge extra for old ropes? Often, if there is a third party managing the building, you have no say. You can find out what they are like by searching online or knocking on doors and asking residents.”
An inspection will give you an idea of how well the property is maintained, but it's also worth visiting common areas such as gardens, lifts and staircases yourself.
Unfortunately, many renters are paying the price for unsafe cladding. As well as considering whether your apartment is a safe place to live, you also need to consider whether there is cladding and whether it could be costly in the future to remove it. A good lawyer can help you with this.
Be aware of limitations
Your lease agreement will detail your responsibilities and rights as a tenant.
Being a renter typically means there are rules you have to follow – for example, you may not be able to have roommates, run a business in the property or make structural changes.
It's really worth going through the lease yourself in detail, as a lawyer may miss things that are important to you, such as carpeting or whether pets are allowed.
Managing or purchasing shares
If the building is run by residents with “right to manage” (RTM) (RTM allows some leasehold owners to take over management of the building) or by a group of leaseholders who have purchased the freehold (which they may be able to buy back at a later date), it's a good sign as they have more control over the direction of the building, says Higgins.
However, if you think this is something you may want to pursue, be aware that either option may be difficult to achieve, especially in larger buildings, as it would require the consent of more than 50% of tenants.
“These may be investors who don't want to be involved, and it gets even more complicated if there is commercial activity in the building, such as shops or offices,” Higgins says.
Buying a freehold share or joining an RTM company can mean a huge amount of administrative work that can become burdensome.
