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Leasehold

Also known as: Leasehold Property, Leasehold Interest

Definition

Leasehold is a form of property ownership where you own the right to occupy a property for a fixed number of years (typically 99-125 years) but the land belongs to a freeholder (landlord).

Understanding leasehold is essential for will-making because your beneficiaries inherit both the remaining lease term and the ongoing financial obligations associated with the property.

What Does Leasehold Mean?

Under English and Welsh law, leasehold is one of two main forms of property ownership, alongside freehold. When you buy a leasehold property, you're purchasing the right to occupy that property for a set number of years under a legally binding contract called a lease. The freeholder (also known as the landlord) owns the land and the building structure. Almost all flats in England and Wales are sold as leasehold because multiple owners share the same building and communal areas. Common lease terms are 99 years, 125 years, or 999 years, though some properties have shorter leases.

As a leaseholder, you typically pay annual ground rent to the freeholder (usually £50-500 per year) and service charges for maintaining communal areas like hallways, gardens, and building exteriors. These service charges vary significantly—from £1,000 to £5,000+ annually for flats depending on the building facilities and maintenance requirements. Your lease will also contain restrictions requiring the freeholder's permission for alterations, subletting, or keeping pets. The Leasehold Reform, Housing and Urban Development Act 1993 and the Leasehold and Freehold Reform Act 2024 (Royal Assent 24 May 2024) establish your rights and protections as a leaseholder.

When you die, your leasehold property passes to your beneficiaries just like any other asset. They inherit the remaining lease term along with all associated rights and responsibilities. Your executors must notify the freeholder of your death and settle any outstanding ground rent or service charges from your estate. If your lease has dropped below 80 years, property value falls significantly—beneficiaries may need to extend the lease immediately to preserve the asset's worth. Under statutory rights, leaseholders can extend their lease after two years of ownership, adding 90 years for flats and 50 years for houses at a peppercorn (zero) ground rent. These extension rights transfer to your beneficiaries when they inherit.

Common Questions

"Can I leave a leasehold property in my will?" Yes, leasehold properties can be left in your will just like any other asset. When you die, the remainder of your lease passes to your beneficiaries along with all remaining years, plus associated rights like lease extension and responsibilities like ground rent and service charge obligations.

"What happens to a leasehold property when the lease runs out?" When a leasehold expires, ownership returns to the freeholder unless you or your beneficiaries extend the lease beforehand. Leaseholders have statutory rights to extend their lease, typically adding 90 years for flats and 50 years for houses, though this requires paying the freeholder a premium plus legal costs.

"Do my beneficiaries have the same rights to extend the lease after I die?" Yes, beneficiaries who inherit leasehold property retain the same lease extension rights. Your executors or beneficiaries can start the statutory lease extension process shortly after your death, either through your personal representatives or once the property is registered in the beneficiary's name at the Land Registry.

Common Misconceptions

Myth: "I own my flat, so I own the property and the land beneath it"

Reality: If you own a leasehold flat, you own the right to occupy the property for the lease term, but the freeholder owns the land and building structure. You have exclusive possession during your lease, but not perpetual ownership of the physical land itself.

Myth: "Ground rent and service charges are profit for the freeholder or managing agent"

Reality: Service charges should only cover actual costs of maintaining communal areas, building insurance, repairs, and management fees—there should be no profit element for managing agents. Leaseholders have the right to challenge unreasonable service charges through the First-tier Tribunal (Property Chamber).

  • Freehold: Contrasting ownership type—freehold means you own both the property and land indefinitely, while leasehold is temporary with land owned by the freeholder.
  • Ground Rent: The annual fee leaseholders pay to the freeholder for occupying the land, typically £50-500 per year depending on lease terms.
  • Service Charge: Maintenance fees for communal areas in leasehold properties, covering building insurance, repairs, cleaning, and management costs.
  • Land Registry: Where leasehold titles are registered—beneficiaries must update ownership registration after inheriting leasehold property.
  • Main Residence: For most flat owners, their leasehold property is their main residence and typically the largest asset in their estate.

Need Help with Your Will?

If you own a leasehold property, understanding how to leave it in your will is essential for protecting your beneficiaries' inheritance. Whether it's a flat or house, getting the wording right ensures a smooth transfer.

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Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.