Leasehold vs. Freehold: Understanding the Key Differences and Avoiding ‘Fleecehold’ Traps
When purchasing a property, one of the most crucial decisions buyers face is whether to opt for a leasehold or freehold property. While both types of ownership come with their own advantages and responsibilities, it’s essential to understand the key differences—especially for landlords and investors.
Additionally, recent concerns around ‘fleecehold’ properties have made it even more important for buyers to do their due diligence before committing to a leasehold purchase.
What is the Difference Between Leasehold and Freehold?
Freehold Property: Full Ownership
✔ When you buy a freehold property, you own both the property and the land it stands on indefinitely.
✔ You are fully responsible for all maintenance and costs.
✔ There are no additional ground rents, service charges, or lease restrictions.
✔ Freehold properties tend to offer more security and long-term value.
🏡 Example: A detached house with its own garden and driveway is usually sold as freehold, meaning the owner has complete control over it.
Leasehold Property: Limited Ownership
✔ With a leasehold property, you own the property for a set number of years but not the land it sits on.
✔ The land and building are typically owned by a freeholder (or landlord), and you must pay ground rent and service charges.
✔ You may need the freeholder’s permission to make alterations or sublet the property.
✔ When the lease expires, ownership reverts back to the freeholder, unless you extend or purchase the freehold.
🏢 Example: Many flats and apartments in the UK are leasehold, meaning you pay ground rent and maintenance fees to the freeholder.
The Problem with ‘Fleecehold’ Properties
The term ‘fleecehold’ is used to describe unfair leasehold agreements that place unreasonable financial burdens on homeowners. These agreements often involve:
🚨 High and escalating ground rents – Some leases include clauses that allow ground rents to double every few years.
🚨 Expensive service charges – Leaseholders may be forced to pay excessive fees for maintenance and shared services.
🚨 Hidden fees for permissions – Some agreements charge leaseholders high fees just to make alterations or even sell the property.
🚨 Leaseholds on new-build houses – In some cases, developers have sold new houses as leasehold instead of freehold, leaving buyers with unexpected ongoing costs.
💡 Did you know? The UK government has taken steps to reform unfair leasehold practices, including banning leaseholds on most new-build houses and capping ground rents on new leases. However, many existing leaseholders are still affected by costly and restrictive agreements.
How to Avoid Fleecehold Properties
If you're considering buying a leasehold property, here are essential steps to protect yourself from unfair agreements:
🔍 Check the Lease Terms Carefully
Look at the length of the lease (a short lease under 80 years can be difficult and expensive to extend).
Review ground rent clauses—avoid properties where the rent doubles every 10-15 years.
Understand your rights and restrictions under the lease.
💰 Calculate Ongoing Costs
Consider service charges, maintenance fees, and potential increases over time.
Speak to other leaseholders in the building to see if they have experienced unfair charges.
📜 Look Into Leasehold Reform Options
You may be able to extend your lease or buy the freehold if the freeholder agrees.
The UK government is working on new reforms that may give leaseholders better rights and protections.
🏡 Seek Professional Advice
Always get legal advice from a solicitor experienced in leasehold property before buying.
Work with a trusted property management company like Banbury Property Management to navigate leasehold complexities.
Should Landlords Buy Leasehold or Freehold Properties?
For landlords, freehold properties often provide greater flexibility and fewer ongoing costs. However, leasehold properties (such as flats) can still be profitable rental investments if the lease terms are reasonable.
Before purchasing a leasehold property as a rental investment, consider:
✔ Can the service charges be passed onto tenants?
✔ Is subletting allowed under the lease?
✔ How will leasehold costs affect rental yield?
At Banbury Property Management, we help landlords evaluate leasehold investments, manage service charges, and handle tenant relationships, ensuring a smooth rental experience.
Final Thoughts
Buying a property—whether freehold or leasehold—is a major financial decision. While leaseholds can still be a good option, it’s essential to understand your obligations and avoid fleecehold-style agreements that could lead to unexpected costs and restrictions.
If you're a landlord looking for guidance on leasehold property management, Banbury Property Management is here to help. We also want to re-define what a property manager should do. We don’t want to just be the phone that rings when the sink leaks but the team that can help landlords scale their portfolio and provide you with creative finance information to help you get closer to your goals. If you want to find out more please get in-touch with us by clicking here.
