Everything you always wanted to know about leases but were too afraid to ask

Devon based conveyancing solicitor, Emma Napper, answers some frequently asked questions about property leases and explores the difference between leasehold and freehold.

Why Do We Need Leases?

Leasehold ownership is a distinct form of property tenure with its own advantages and challenges.

In England and Wales, there are two principal forms of legal interest in land: freehold and leasehold. Freehold lasts indefinitely, while leasehold is time-limited, typically lasting for 99 to 999 years. Even as a freeholder, an owner is subject to planning regulations and restrictive covenants. For leasehold properties, additional constraints and responsibilities will apply.

The Leasehold Reform (Ground Rent) Act 2022

One of the most significant recent reforms is the Leasehold Reform (Ground Rent) Act 2022, which applies to new residential leases in England and Wales. The key provisions include:

• A ban on ground rents for new leases – New leaseholders will not have to pay ground rent beyond a nominal “peppercorn” sum.
• Application to retirement properties – New leases in retirement housing developments are also subject to this ground rent restriction.
• Prevention of ground rent escalation – Existing leaseholders considering voluntary lease extensions can negotiate to reduce ground rent to a nominal level.

The Building Safety Act 2022 and Leaseholder Concerns

The Building Safety Act 2022 introduced major changes that impact leaseholders, particularly in relation to fire safety and the cost of remedial works on high-rise buildings. Some key features that potential buyers need to consider include:

• Liability for Building Safety Costs: Leaseholders were initially facing substantial costs for remedying unsafe cladding and other building safety defects. The Act introduces protections for qualifying leaseholders, ensuring that freeholders and developers bear more responsibility for costs.
• The Building Safety Levy: This applies to developers of new residential buildings, intended to fund remediation efforts. However, concerns remain that costs could still be passed onto leaseholders indirectly through service charges.
• Higher Management and Compliance Costs: New safety regimes require accountable persons and building safety managers, which may increase service charges for leaseholders.
• Lack of Clarity: The definition of a “qualifying leaseholder” excludes some owners, leading to confusion and disputes over liability.

Leaseholders should seek specialist legal advice if they are unsure about their rights and obligations under the Building Safety Act 2022.

Good Leases and Bad Leases

Leasehold properties vary significantly in terms of attractiveness to buyers and mortgage lenders. The key factors include lease length, ground rent, and service charge obligations.

• Good Leases – These typically run for 999 years, with nominal or zero ground rent, making them more comparable to freehold ownership.
• In-between Leases – Generally 125-year or 99-year leases with modest ground rents (e.g., under £250 per year outside London or £1,000 in Greater London). Mortgage lenders generally accept these leases, provided there are at least 80 years remaining.
• Bad Leases – Those with fewer than 80 years remaining can be problematic due to declining value and difficulty securing mortgage financing. Leases under 60 years are often seen as a major red flag.

Lease Extension Rights and Marriage Value

Under the Leasehold Reform, Housing and Urban Development Act 1993, leaseholders have a statutory right to extend their lease. However, leases under 80 years require leaseholders to pay the freeholder 50% of the “marriage value”, which reflects the increase in value when the lease and freehold are combined. This makes lease extensions significantly more expensive when the remaining term falls below 80 years.

The government has announced plans to abolish marriage value as part of broader leasehold reforms, but legislation to implement this has not yet been enacted.

Owning a Share of the Freehold

A leasehold flat sold with a share of the freehold is often seen as an attractive proposition. This can take two forms:

1. Joint Ownership – All leaseholders own the freehold jointly.
2. Company Ownership – A company owns the freehold, and each leaseholder holds a share in the company.

While this arrangement offers more control over management and costs, it also requires cooperation between owners. A freehold company must comply with Companies House regulations, or it risks being struck off, potentially reverting the freehold to the Crown.

Leaseholders’ Right to Manage (RTM)

Under the Commonhold and Leasehold Reform Act 2002, leaseholders in qualifying buildings can take over management responsibilities, even if the freeholder has not breached their obligations, provided that:

• The building contains at least two flats.
• Leaseholders hold at least two-thirds of the flats.
• The resident freeholder exemption does not apply.

A Right to Manage (RTM) company must be formed, and legal formalities must be followed. While this allows leaseholders to control service charges and maintenance, it does not transfer ownership of the freehold itself.

Leaseholders’ Right to Acquire the Freehold (Enfranchisement)

Leaseholders in qualifying buildings can collectively purchase the freehold through a process called enfranchisement. However:

• A majority of leaseholders must agree to participate.
• The purchase price is based on factors like ground rent, remaining lease term, and the potential marriage value.
• The process requires forming a Right to Enfranchisement company and complying with statutory procedures.

Future Leasehold Reforms

The government has announced that it is committed to further leasehold reforms, including:

• Abolishing marriage value to reduce lease extension costs.
• Capping ground rents on existing leases.
• Simplifying the enfranchisement process.
• Promoting commonhold as an alternative to leasehold.

How We Can Help

Leasehold ownership is undergoing significant reform, making it more transparent and fairer for leaseholders. Whether you are considering buying, extending, or managing a leasehold property, understanding the legal position is crucial.

We deal with leasehold property in all shapes and forms nationwide. If you have any questions about leasehold property, flat management, enfranchisement, right to manage, or landlord/tenant disputes that you would like answered, please free to get in touch with us. Alternatively you can contact us for a quote for buying or selling leasehold property or extending your existing lease.

Call 0333 888 0404 or send an email to us at [email protected]

*This article about property leases was reviewed and updated in January 2025.