, Property
A two-bedroom flat in a Victorian mansion block in south London. Asking price £385,000. The particulars say leasehold, 74 years unexpired, ground rent £350 a year rising, service charge £2,400. The buyer's mortgage broker reads the last three of those numbers and says the lender will not touch it.
Nothing about the flat has changed. What has changed is the arithmetic of time.
A lease is a long tenancy with a mortgage attached
Freehold means you own the land and the building on it, indefinitely, subject to planning law and to whatever covenants sit on the title. Nobody charges you for being there.
Leasehold means you own the right to occupy a defined space for a fixed number of years, under a contract with the freeholder that sets out what you may and may not do and what you pay. A 125-year lease granted in 1985 is a 125-year tenancy, and when it runs out the flat reverts to the freeholder. That is not a technicality dressed up in old language. It is what the document says.
Between them sits share of freehold, which is not a third form of tenure. It means the leaseholders jointly own the freehold, usually through a company in which each flat holds a share, while each flat still has its own lease. You are both the landlord and the tenant, which is a much better position because the terms of the lease are now within your collective control.
Commonhold, introduced by the Commonhold and Leasehold Reform Act 2002 as a way of owning a flat outright with a shared management structure, exists in law and has barely been used. Reform has been promised repeatedly. Until lenders and developers adopt it, it is not something you will be offered.
Flats sold with a freehold title rather than a lease are a warning rather than a bargain. Without a lease, the enforcement of obligations between flats, such as the duty to repair a roof or keep quiet at midnight, breaks down, and most lenders will not lend on one.
Ground rent, service charges, and the bits in between
The three payments a leaseholder makes are different animals and worth separating.
Ground rent is pure income to the freeholder for the land. It buys you nothing. For new long residential leases granted from 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 restricted ground rent to a peppercorn, meaning effectively nothing, with retirement properties brought in from April 2023. Existing leases were not affected, which is why older flats still carry rents of a few hundred pounds a year.
The real damage was done by escalation clauses. Leases granted in the 2000s and 2010s that doubled the ground rent every ten or fifteen years produced rents heading towards four figures and beyond, and made the flats hard to sell or mortgage. The Competition and Markets Authority pursued several developers and freeholders over these, securing agreements to remove the doubling terms. If you are buying a lease granted in that period, read the review clause itself rather than the current figure.
Service charge is your share of the cost of running and repairing the building: insurance, cleaning, lighting, lifts, and the major works. It is variable, it can jump enormously in a year when the roof goes, and it is subject to a statutory reasonableness test. A ground rent is a cost. A service charge is a cost plus an unknown.
Then there are permission fees, for subletting, keeping a pet, or making alterations, and the transfer fees a managing agent charges when the flat is sold. They are small individually and they are the ones nobody budgets for.
Eighty years is the cliff
A lease is a wasting asset, and it wastes slowly until it does not.
Lenders set their own rules and most want a comfortable margin: a common requirement is a minimum unexpired term of around 70 to 85 years at purchase, or the mortgage term plus a substantial buffer at the end. A flat with 74 years left falls outside a lot of those criteria, which shrinks the buyer pool to cash purchasers, which reduces the price.
Under the long-standing statutory regime, the cost of extending a lease also rises sharply once the term drops below 80 years, because an extra element called marriage value, broadly half the increase in the flat's value produced by the extension, becomes payable to the freeholder. Crossing from 81 years to 79 years has historically added thousands to the premium overnight.
The Leasehold and Freehold Reform Act 2024 received Royal Assent in May 2024 and is intended to change a great deal of this, including extending the statutory lease extension for flats to 990 years at a peppercorn and abolishing marriage value. Some provisions commenced early, including the removal of the requirement to have owned the flat for two years before claiming, which took effect from 31 January 2025. Much of the valuation reform depends on secondary legislation and was not in force at the point the Act passed. Check the current commencement position before you rely on any of it, because this is an area where the law and the practice have been moving at different speeds.
Buying the freehold, and the rights that come with it
Two statutory rights sit behind all of this.
For flats, the Leasehold Reform, Housing and Urban Development Act 1993 gives qualifying leaseholders the right to a lease extension, and gives a qualifying group of leaseholders the right to buy the freehold together, which is called collective enfranchisement. The collective route needs at least half the flats in the building to participate, and there are conditions on the proportion of the building in non-residential use. For houses, the Leasehold Reform Act 1967 provides a comparable right to buy the freehold.
The price is set by a statutory valuation, and if the parties cannot agree it, the First-tier Tribunal determines it. In practice both sides instruct valuers, there is a negotiation, and a tribunal application is the backstop that concentrates minds. Budget for your own legal and valuation costs and, under the current regime, a contribution to the freeholder's reasonable costs as well.
There is also a right of first refusal under the Landlord and Tenant Act 1987: if the freeholder wants to sell the freehold of a block, qualifying leaseholders must generally be offered it first. Freeholds do change hands quietly, and a notice under that Act arriving through the door is worth acting on rather than filing.
The short version for a buyer: read the lease before you fall in love with the flat. The number of years left, the ground rent review clause, the service charge history for the last three years and whether any major works are planned tell you more about what you are buying than the kitchen does.
Where this shows up in the game
Property and lettings arrive in Business Baron with the Property & Construction Track, an add-on to the full game. A lease in the game is a commitment rather than a monthly cost: you live with the term and the clauses you agreed, and the bills they bring arrive on their own dates. Buying well means reading the paperwork before the offer, which is the same skill the game asks for everywhere else.