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This week’s episode of Good Landlording discusses one of the first questions that landlords ask themselves when they’re looking for a buy to let: should they buy a flat or a house?

Richard and Suzanne go through the pros and cons of both flats and houses, drawing on their own experiences as landlords, with Suzanne only now investing in houses, and Richard having only ever bought flats as rental investments. 

Suzanne explains the difference between “leasehold” and “freehold”, service charge, ground rent, and practicalities, before going through what the new Leasehold and Freehold Reform Act 2024 promises to bring now it is on the statute book.

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What’s the difference between leasehold and freehold?

For leasehold properties such as flats and some houses, the building itself  and/or the land it sits on are owned by someone else called the “freeholder”. The freeholder may be the original developer,  or, they might have sold it onto another company.

Each leaseholder enters into a lease with the freeholder to own the flat or leasehold house for a fixed period of time.  And so this is currently typically 99 years or 125 years for residential properties.  The length of the lease decreases each year until it eventually runs out, unless the parties agree to extend the lease.  A lease is therfore an asset that will that goes down in value the closer it gets to the end of the term. 

When someone buys a flat, the leaseholder transfers the lease agreement to the new owner. This is called “assignment”, and the freeholder is likely to need to give consent to the assignment.  And during the the lease agreement, the term of the lease, the leaseholder pays ground rent  and a service charge to pay for repairs and maintenance. 

A leaseholder is a long-term tenant, and a freeholder is a type of landlord. However, to avoid confusion, it is good practice to use the word “leaseholder” to refer to somebody who holds a long term lease, and keep the word “tenant” for someone who has a a tenancy agreement with a landlord.

When someone buys a lease, they pay a “premium” for the lease, which is an upfront payment for the right to occupy the property for the term of the lease.

Ground rent and when it becomes a problem

Leaseholders also pay ground rent, which may be a “peppercorn” (a nominal amount which the freeholder does not collect), or a more substantial sum. Over the last few decades, some developers and freeholders have seen ground rent as a profit centre, and have included onerous ground rent clauses into their leases, which increase over time. Sometimes ground rent doubles every 10, 15, 20 or 25 years.

Onerous ground rent provisions are a big problem as many mortgage companies refuse to lend money on properties which have them. Ground rent above a peppercorn was abolished for new leases a few years ago, and it was supposed to be restricted in the Leasehold and Freehold Reform Act, but it got dropped at the last moment, when the election was called. 

>> Blog post: The Independent Landlord – The latest news on the reform of ground rent

What does it mean when a flat owner has a share of the freehold?

Sometimes the owners of flats in a building (who are leaseholders) club together and set up a company to buy the freehold, which the flat owners have shares in. These leaseholders are said to have a “share of the freehold” in addition to their lease.

However, do be careful, as some leaseholders with a share of the freehold still have to pay service charges (or estate charges) to the freeholder of the estate as they receive services from the estate, eg gardening, parking.

It’s less of an issue when flat owners in (say) a conversion of a Victorian house, jointly own the freehold of the building. They set up a management company and agree on all the repairs. They have a sinking fund, maintain the common parts, and comply with all the fire safety rules. 

Service charge – top tips for leaseholders

Service charges are an area of risk for leaseholders as they currently have little control over the service charges. It can be difficult to get information from the management company that acts on behalf of the freeholder for the development. 

Service charges for large blocks of new build flats tend to be high, particularly if they have added services like concierge facilities, gyms and swimming pools. It is the landlord who pays the service charges, and not the tenant, so a sudden hike in the service charge can hit the bottom line for landlords.

It’s important to have a good look at the accounts before buying a leasehold property to see what works have been carried out and how big the sinking charge is. The service charge will be higher for flats with lifts as they are expensive to repair.

In some cases, service charges can make an investment uneconomic.  And in other cases,  they are fair. Duee diligence is key. For instance, asking to see what invoices have been paid, and how big the sinking fund is. See if it’s likely that the windows will need replacing soon or whether any other big repairs are needed.

The advantages of flats as investments for landlords

Here are some advantages for landlords when they buy flats:

• Flats are usually less expensive to buy than houses, and it can be possible to get good deals if landlords buy more than one in a development.


• Flats tend to be more central, in towns and cities that attract young professionals, especially if they’re near a hospital or a university.


• If there is good management, it saves the landlord from doing repairs to the common parts and the exterior.


• The capital cost for major workers are spread evenly over time if it’s well managed  and, the cost will be shared among the development. 


• They are more secure during voi