Leaseholder vs Freeholder: Definitions & Responsibilities Explained

For property investors and property managers it is fundamental to understand the difference between a Leaseholder and a Freeholder. A Freeholder is the full owner of the land and property for whom there is no limited period of ownership. A Leaseholder has the right to occupy a property for a fixed term or under a covenant to pay a rent. Both types of ownership have their own roles, responsibilities, costs and degree of flexibility to make alterations to the property. In this article we will examine the main characteristics of a Leaseholder and a Freeholder and the differences between them.

Understanding Freeholder and Leaseholder Roles

For ease of understanding, we use the terms freeholder and leaseholder to refer to the owners of freehold and leasehold properties respectively. As a freeholder, you will be responsible for sending demands for ground rent and service charges to the leaseholders who live in your property.

For leaseholders, the responsibility for pushing the owner of the freehold for maintenance and repairs ultimately rests with them. In this post we examine the details of this in terms of lease agreements, and look at the responsibilities of Leaseholders and Freeholders.

Freeholder vs Leaseholder: Key Differences at a Glance

Feature / Aspect	Freehold Property	Leasehold Property
Ownership Type	Freehold is where you own the property and the land it sits on, completely and indefinitely.	Instead of purchasing a freehold you can buy a leasehold. This means for a capital sum you pay for the right to use the plot of land for a fixed period of time, commonly 125 years, after which you have the option to extend the lease for a further fixed period or to purchase the freehold.
Typical Properties	Houses are usually sold as freehold property. However some flats are sold on a ‘share of freehold’ basis. This is where the owner of the flat also owns a small strip of land usually of a similar height to a double storey house.	Flats/apartments and some leasehold houses
Duration	Indefinite ownership	Set period (lease term)—can range from 21 to 999 years
Ground Rent	No obligation to pay ground rent	Leaseholders pay for the ground rent (annually) and may also have a charge for the ground rent to the freeholder.
Service Charges	Generally responsible for own costs and communal areas	Pay for charges relating to shared areas, maintenance and repairs.
Responsibility for Repairs	The owner is responsible for repairs and maintenance unless renting through a limited company or managed by an agents management company.	Responsible for maintaining the individual flat; freeholder or management company looks after building and shared spaces
Ability to Make Changes	Regulation – Greater control – Greater control over what can be done with a property and how it can be altered, possibly needing planning permission before making changes.	Must obtain permission from the freeholder for significant changes or lease extensions
When Lease Expires	Not applicable—complete ownership	Once a lease has ended the property reverts back to the freeholder unless agreement has been reached to extend the lease for a further term.
Sell or Mortgage	Can sell or get a mortgage freely	You can sell or remortgage, however the value and terms available will be impacted by the remaining term of the lease and the lenders that we work with.
Management	Is it self managed or via a management company or limited company owned by residents ?	In many developments the freehold of the land that the house sits on is sold with the house and grounds. The owner of the freehold is usually the freeholder or management company but with some schemes the freehold is purchased by the leaseholders collectively (the share of freehold

Freeholder Definition

A freehold is a permanent and absolute interest in land or property. It is a freeholder’s ultimate freedom to do what they like with a property, and they can potentially sell the freehold at any time. A freeholder owns the building and the plot of land that the building sits on. In leasehold vs freehold debates, it is often a private company or individual who holds the freehold. They may be the original developer/builders of the property, or the original conversion, or indeed a property investor who has bought the freehold at some point.

The freeholder does not have to be an individual owner freeholder. Freeholders can be a group of leaseholders who have collectively purchased the freehold to a building under the procedures of collective enfranchisement. As freeholder, the individual or group of individuals would be able to decide issues such as service charges, ground rent and terms and conditions of residential occupancy of the property as well as larger building works.

Leaseholder Definition

In agreements these people are called ‘leaseholders’ and the term they hold is called ‘the lease’. Leasehold refers to the leasing of part of a building, such as a house, a flat or apartment. Leaseholders do not own the building or the land the building sits on but they have a long-term rental agreement for the property. This rental agreement can be for anything from 20 years upwards and will be for the maximum 999 years. The lease is agreed with the freeholder of the property.

In addition to the rent payable under a lease agreement, the leaseholder will also normally be required to pay ground rent and/or service charges under the terms and conditions of the lease. Upon expiration of the term, the whole property will return to the freeholder. However, the lease can be extended for a further term, either by agreement with the freeholder (whether formal or informal).

Freeholder Responsibilities

Find a full breakdown of key responsibilities on the freeholder responsibilities guide.

Building Maintenance and Repair

The Freeholders are responsible for the structure of the building (including repairs) and any external repairs required to the building such as roof and external walls, foundation and any structural work. They are also responsible for any works to the lobbies, stairs, entry system, plant rooms, lift and the communal garden. These works will be carried out by the Freeholders and the cost recovered from the leaseholders through the building’s service charge. The Freeholders will be responsible for the repairs and maintenance of any central heating and utilities systems.

Cleaning and Maintenance of Communal Areas

Freehold property can include a block of flats. The freeholder will be responsible for all areas of the property that are shared by all the leaseholders. This can include internal communal areas (such as entrance halls and staircases) and external communal areas (such as lifts, entrance doors, balconies and other shared structures). The freeholder will recover the cost of the works and maintenance from the leaseholders within the building through the service charge.

Calculating Ground Rents and Service Charges

There has been recent criticism of some freeholders imposing high ground rent charges on the sale of their long leases. For those selling a property on a long lease, there are two payments made by the leaseholder to the freeholder for the right to use the land. The ground rent is an annual payment for the right to use the freeholder’s land. In addition to the ground rent, freeholders also charge a service charge which must be clearly outlined by the freeholder as to what it includes. The service charge is usually an annual payment, however it can be bi-annual or monthly as specified in the terms of the lease.

Arranging Buildings Insurance

Freeholders require full building cover in order to be able to carry out any necessary repairs in the event of a tragedy occurring.

Management Reports

Freeholders must produce management reports for leaseholders showing how the money taken from ground rent and service charges has been spent.

Leaseholder Responsibilities

See a detailed overview of common leaseholder duties in the leaseholder rights and obligations article.

Maintenance of the Property

The leaseholder is responsible for internal fixtures and fittings such as bathrooms, kitchen units, wall and floor coverings, internal painting and decoration. They are also responsible for keeping the house and all parts of the property that they have use of, clean and in good repair.

Paying Ground Rent and Service Charges

Leaseholders pay ground rent and service charges as set out in their lease. Leaseholders who believe maintenance charges are unfair can apply to the First Tier Tribunal to challenge any proposed increases in those charges.

Obtaining Permission for Significant Property Changes

Depending on the terms of the lease some significant changes to a property will require the freeholder’s consent as the lessee only has a lease to the property.

To Be Respectful to Other Leaseholders

Leaseholders in a communal property must be considerate of neighbors and maintain communal areas.

Summary and Key Takeaways

When a property has been owned by a Freeholder and subsequently leased to a Leaseholder, there are two key individuals and their roles that the property owner or potential buyer need to understand. In this short guide we explain the Leaseholder and Freeholder roles.

• Ownership: Freeholders have indefinite ownership of both land and property; leaseholders possess rights to occupy a property temporarily.
• Financial Obligations: Leaseholders must pay ground rent and service charges, while freeholders manage these charges and require comprehensive building insurance.
• Property Management: Freeholders handle maintenance for structural and communal areas; leaseholders maintain their property’s interior.
• Control Over Changes: Freeholders have greater autonomy to alter properties; leaseholders need permission for significant changes.
• Lease Expiry: Leaseholders must negotiate extensions; otherwise, property reverts to freeholders.

Knowledge of these elements will enable the property owner to manage their property whether they choose to remain as a leaseholder or take the opportunity to purchase the freehold.

For those interested in transitioning from leasehold to freehold, The Freehold Collective offers freehold purchase services to facilitate this process, potentially reducing service charges and eliminating ground rents.  For those considering a transition, use the freehold purchase calculator for an instant estimate.

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Frequently Asked Questions

Can a leaseholder be a freeholder?

Yes, a leaseholder can become a freeholder by purchasing the freehold, either individually (for leasehold houses) or collectively with other flat owners through a process known as collective enfranchisement. A group of flat owners can also purchase the freehold of their properties collectively as freeholders, giving them control of the property and the land on which it stands.

What does it mean if a property is freehold but still has a lease?

A freehold with a lease is more commonly referred to as a share of freehold. A property with a share of freehold is a freehold property where a number of freehold titles are held by a limited company and the individual flats in the building are leasehold. Share of freehold properties are most commonly found in flats.

Which is better: leasehold or freehold?

The term freehold is used to describe when a property owner has complete control of a property for as long as they need. Freehold properties are owned permanently by the owner and ground rent is not normally payable, though a property may cost slightly more to purchase than a similar leasehold property. 

However, there are no service charges unless the property is part of a shared structure, and there are no restrictive covenants or ground rent charges to worry about, as the owner holds the freehold itself. However for properties such as flats, there is an alternative option for owners where they hold a share of freehold together. This means that all the owners of a particular set of flats jointly hold a share of the freehold for the property, giving them control of any matters which may arise and generally allowing them to pay fewer service charges than would be the case with a typical leasehold property.