Leasehold and Freehold in London: What Every Homeowner Needs to Know

Freehold ownership means you own the property and the land on which it stands outright, without time limit and without paying a superior landlord. You are the absolute owner.

Leasehold ownership means you own the right to occupy the property for a fixed period of time (the "term" of the lease) which begins on the original date of the lease grant. When the lease expires, ownership of the property reverts to the freeholder. Most London leaseholds were originally granted for 99, 125, or 999 years. The shorter the remaining lease term, the lower the property's value and the harder it is to mortgage.

Ground rent: traditionally, leaseholders paid an annual ground rent to the freeholder. Under the Leasehold Reform (Ground Rent) Act 2022, all new residential leases in England must have a ground rent of zero ("peppercorn rent"). However, many existing leases still contain ground rent obligations, and ground rents that double at intervals (doubling clauses) have caused significant problems for leaseholders.

Service charges: leaseholders in managed buildings (particularly blocks of flats) pay service charges to cover the costs of maintaining, repairing, insuring, and managing the building's common parts. Service charges can be contentious — the leaseholder has the right to challenge unreasonable service charges at the First-tier Tribunal (Property Chamber).

When a lease has fewer than approximately 80 years remaining:

• Mortgage lenders become increasingly reluctant to lend (most require a minimum of 80 to 85 years remaining, and some require longer)
• The value of the property is affected — buyers expect a significant discount for a short lease
• Extending the lease becomes more expensive (the mathematical basis for calculating the premium changes once a lease drops below 80 years, adding a "marriage value" element that significantly increases the extension cost)

For this reason, London leaseholders should generally extend their lease before it falls below 80 years remaining.

Leaseholders of flats (and qualifying houses) have statutory rights to extend their lease or acquire the freehold under the Leasehold Reform Acts.

Statutory lease extension for flats (under the Leasehold Reform, Housing and Urban Development Act 1993, as amended): a qualifying leaseholder of a flat is entitled to extend their lease by 90 years on top of the unexpired term, and to have the ground rent reduced to zero ("peppercorn"). The leaseholder must have owned the flat for at least 2 years.

The process:

1. The leaseholder serves a Section 42 notice on the freeholder, specifying the proposed premium (the price offered for the lease extension)
2. The freeholder serves a Counter-Notice
3. Parties negotiate to agree a premium; if they cannot agree, the matter is referred to the First-tier Tribunal for determination
4. Once agreed, the new lease is executed

Premium calculation: the premium for a statutory lease extension is calculated by reference to the "relativity" between the short lease value and freehold value, the capitalised ground rent, and (for leases below 80 years) marriage value. The calculation requires specialist advice from a leasehold valuation surveyor (RICS-qualified with lease extension experience).

Indicative premiums for a typical London flat:

• 90 years remaining: relatively modest premium (£5,000 to £20,000 for a typical flat)
• 80 years remaining: moderately significant premium (£15,000 to £50,000)
• 70 years remaining: substantial premium (£30,000 to £100,000+)
• 60 years remaining: very significant (£60,000 to £200,000+)

These are broad indicative ranges — the actual premium depends heavily on the flat's value, location, and the specific lease terms.

Where a block of flats meets qualifying criteria, the leaseholders collectively have the right to purchase the freehold of the building (collective enfranchisement). The right to enfranchise requires:

• The building must be a self-contained building or part of a building (with its own access)
• At least two-thirds of the flats must be held on long leases
• No more than 25% of the building's floor area may be used for non-residential purposes
• At least 50% of qualifying leaseholders must participate in the claim

The process is similar to lease extension — a notice is served, a premium is negotiated, and the collective may refer to the First-tier Tribunal if no agreement is reached.

Collective enfranchisement gives leaseholders control over the management of the building, removes the freeholder, and typically results in very long (usually 999-year) new leases being granted to all participating leaseholders.

Ground Rent Act 2022: prohibited ground rents above zero on new residential leases from 30 June 2022. This affects new leases only — existing leases with ground rent obligations are unaffected unless extended under the statutory process (where the extended lease will have a peppercorn ground rent).

Leasehold and Freehold Reform Act 2024: this significant legislation (receiving Royal Assent in May 2024) made several important changes:

• Extended the standard lease extension term from 90 years to 990 years
• Removed the 2-year ownership requirement before a lease extension claim can be made
• Changed the calculation of lease extension premiums to make them fairer to leaseholders (removing marriage value for leases with 80 years or more, or for qualifying leaseholders)
• Made it easier to extend leases and enfranchise
• Increased transparency requirements for service charges
• Extended the right to challenge unreasonable service charges

Note: many provisions of the 2024 Act require secondary legislation (regulations) to come into force. Check the current status of implementation when undertaking a lease extension — a specialist leasehold solicitor will be up to date.

What service charges cover: maintenance of common parts (hallways, roof, lifts, gardens), building insurance, management fees, reserve fund contributions (for major future expenditure like roof replacement).

The right to challenge: leaseholders have the right to challenge service charges they believe are unreasonable, excessive, or for works not properly carried out, at the First-tier Tribunal (Property Chamber). The tribunal can determine the reasonableness of costs and, where management is seriously defective, appoint a manager to replace the freeholder's managing agent.

Section 20 consultation: for major works costing more than £250 per leaseholder, the freeholder must follow a consultation procedure (Section 20 consultation under the Landlord and Tenant Act 1985) before carrying out the works or entering into a long-term maintenance contract. Failure to follow this procedure limits the leaseholder's liability to £250 per qualifying works transaction.

Right to Manage (RTM): qualifying leaseholders can collectively take over the management of their building (without purchasing the freehold) through an RTM company. The RTM takes over the management responsibilities from the freeholder's managing agent, giving leaseholders control over service charges and the appointment of contractors.

1. Check your remaining lease term now: if below 85 years, consider extending soon. The cost increases as the term reduces.
2. Review your lease for onerous ground rent clauses: doubling clauses (ground rent doubling every X years) are particularly problematic and can affect mortgage eligibility.
3. Keep service charge demands and receipts: retain evidence of all service charges paid, and request a summary of relevant costs if you have concerns.
4. Get specialist advice early: lease extensions and enfranchisement are complex legal processes. Use a solicitor with specific leasehold expertise and a RICS-qualified leasehold valuation surveyor.
5. Check what alterations your lease permits: most London flat leases require landlord's consent for structural alterations, changes to the layout, or subletting. Carry out alterations without consent and you may be in breach of your lease.