Leasehold vs freehold: meaning and differences explained - what are plans by Labour and Michael Gove?

Housing Secretary Michael Gove previously pledged to end the “outdated” and “feudal” leasehold system, but last week appeared to backtrack on the plans.

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Labour will force a vote on abolishing leaseholds in England and Wales after the government backtracked on its pledge to abolish the them.

Housing Secretary Michael Gove previously pledged to end the “outdated” and “feudal” leasehold system, in a move that would give millions of families greater power to buy their properties. But according to The Guardian, the plans were dropped after an in-government clash in which Downing Street argued there was not enough time to fulfil the promise before the next general election.

Now, the Labour Party is bringing forward a vote on a motion that would call on Gove to stick to his pledge “by ending the sale of new private leasehold houses, introducing a workable system to replace private leasehold flats with commonhold, and enacting the Law Commission’s recommendations on enfranchisement, commonhold, and the right to manage in full”.

Shadow housing secretary Lisa Nandy said it was a “scandal” that the government has “no timetable for ending leaseholds”, despite there being “near-universal agreement” that the system should be “a thing of the past”. Speaking to Sky News, the MP added that “there are five million people in this country who are currently struggling with this feudal, archaic system” - and warned that it is “ruining” lives.

But what exactly is a leasehold, and what does it mean if you have one? Here’s everything you need to know about the system, including how it differs from a freehold, what pledges the government previously made, and what the Labour Party said on Tuesday (23 May).

Lisa Nandy, Labour’s shadow housing secretary. Credit: PALisa Nandy, Labour’s shadow housing secretary. Credit: PA
Lisa Nandy, Labour’s shadow housing secretary. Credit: PA

What is a leasehold?

If you have a leasehold, you buy the property - but not the land it sits on. The land is still owned by the freeholder. Leaseholders also only have ownership of the property for a set period of time. This can range from years to decades to centuries, depending on the length of the lease, but the freeholder has the power over which period of time they want to sell the property for.

Leaseholders also usually have to pay ground rent to the person who owns the land. They also have to pay to extend the leasehold period, meaning very high costs can be accrued. If the lease expires, ownership of the property expires and is passed back to the freeholder.

Leaseholds are most common with flats, but there are leasehold houses too. It is estimated that the leasehold system is used on more than 4.5 million properties in the UK.

What is a freehold?

A freehold then is when you own the property and the land it is built on - essentially, you own your home outright. You don’t have to think about lease periods, ground rent, or any maintenance fees. This is the most common way to buy a house in the UK.

Housing and Levelling Up Secretary Michael Gove. Credit: PAHousing and Levelling Up Secretary Michael Gove. Credit: PA
Housing and Levelling Up Secretary Michael Gove. Credit: PA

What did Michael Gove previously say?

In February, the Levelling Up Secretary indicated that laws to scrap most leaseholds in England would be tabled in the coming months, in a move that would allow flat owners to buy the freehold to their property, even if part of their building is taken over for commercial use.

Under the old rules, people were restricted from buying their homes outright if a small section of the building housed, for instance, a shop - a model which Gove described as “not fair in any way”.

The planned new legislation would also have made it easier for leaseholders of flats to bring their buildings into a common ownership model, meaning they could collectively take over the running of their buildings - saving families from expensive management fees and costly ground rents. Leaseholds would also no longer be a viable form of property ownership moving forwards.

In an interview with The Sunday Times, Gove said: “In crude terms, if you buy a flat that should be yours. You shouldn’t be on the hook for charges that managing agents and other people can land you with.” He also told the newspaper about other housing plans, such as the fact that he has given developers six weeks to commit to fixing fire safety defects in high-rise buildings, or else face being banned from the market.

The MP continued: “We want to introduce legislation in the final parliamentary sessions of this calendar year to change the leasehold system. It’s not easy in legal terms because you’ve got a tangle of deals going back hundreds of years – unstitching all of that is difficult – but the fundamental thing is that leasehold is an unfair form of property ownership. It is an outdated feudal system that needs to go.”

What has the government said now?

However, these plans to abolish the system appear to have been dropped, after a battle between Gove and Downing Street.

In June, Gove is set to announce a range of measures to protect the 10 million people in the UK who own their homes in a leasehold, including by introducing a cap on ground rents, giving tenants more powers to choose their own property management companies, and bringing in a ban on building owners forcing leaseholders to pay any legal costs incurred as part of a dispute.

But the plans will stop short of abolishing leaseholds altogether, after Downing Street said it did not believe the pledge could be carried out before the next general election - due in autumn 2024.

Speaking to The Guardian, who first reported the news, a spokesperson for the Department for Levelling Up, Housing and Communities said: “We are determined to better protect and empower leaseholders to challenge unreasonable costs.

“We have already made significant improvements to the market – ending ground rents for most new residential leases and announcing plans to make it easier and cheaper for leaseholders to extend their lease or buy their freehold. In line with our manifesto commitment, we will bring forward further leasehold reforms later in this parliament.”

What has the Labour Party said?

As Labour announced plans to force a vote in the House of Commons on ending leaseholds, Lisa Nandy, shadow housing secretary, said: “It is nothing short of a scandal that despite near-universal agreement that leasehold is a feudal form of tenure that should be a thing of the past, there is still no timetable for ending leasehold on new builds, and introducing a workable system of commonhold to replace existing leasehold homes.

“We cannot have more delays or broken promises because of rows within government. Today MPs from all parties can join Labour in voting to end the leasehold system, implement the Law Commission’s recommendations in full, and deliver long-overdue justice to millions of families.”

Also, speaking to Sky News, the MP pledged that if Labour wins the next general election, the party would introduce legislation covering England and Wales within its first 100 days in power.

“We’ve said exactly what Michael Gove was proposing in January,” she explained to the broadcaster. “End leasehold for new builds, end leasehold on homes, and for where you’ve got flats with lots of people who need to hold the lease in common, you introduce a form of commonhold so they can take over the lease of their own building together”

She added that England and Wales were outliers for having held on to the system, while commonhold worked in many parts of the world - including Australia and the US. “There’s no reason why it couldn’t work here,” she said.