Leasehold explained: extensions, right to manage, service charges and ground rent

A leasehold owner owns a lease, which is a wasting asset: the right to occupy a property for a fixed number of years, granted by a freeholder who keeps the underlying ownership. Everything difficult about leasehold follows from that one fact. The lease shortens every year, the freeholder retains rights over the building, and the leaseholder pays for services they do not control.

Parliament has answered that with statutory rights rather than a single code, which is why the law sits in five or six separate Acts. Flats are governed by the Leasehold Reform, Housing and Urban Development Act 1993, houses by the Leasehold Reform Act 1967, management by the Commonhold and Leasehold Reform Act 2002, service charges by the Landlord and Tenant Act 1985, and ground rent on new leases by the Leasehold Reform (Ground Rent) Act 2022. The Leasehold and Freehold Reform Act 2024 amends several of them, but only in part, which is where nearly all the confusion comes from.

This page describes the position in England. Wales shares most of the primary statutory framework but some regulations, including the right to manage model articles, are made for England separately. Scotland abolished long residential leases and has no equivalent regime, and Northern Ireland has its own.

The Leasehold and Freehold Reform Act 2024 received Royal Assent, and that is where most reporting stopped. An Act on the statute book does nothing until its provisions are commenced by statutory instrument, and as at August 2026 exactly three commencement instruments exist: SI 2024/1018, SI 2025/57 and SI 2025/131. Three of the four headline reforms have not been commenced at all.

Status checked against the commencement register on 15 August 2026. We re-check it before updating any leasehold page, and again after the valuation consultation closes on 23 September 2026.

The freeholders challenged the marriage value, ground rent and costs provisions by judicial review. The Divisional Court dismissed the challenge on 24 October 2025, and the Court of Appeal has since given permission to appeal, so a second round is pending. Neither outcome commences or suspends anything: commencement is a purely governmental act, and the government has not exercised it for the valuation provisions.

The practical rule for anyone making a decision this year is simple. Plan on the law as it is, not as it is drafted to become, and price any claim on the assumption that marriage value is payable.

A qualifying flat leaseholder has a unilateral right under Chapter II of the 1993 Act to extend: serve a section 42 notice, and the freeholder must grant a new lease of the existing unexpired term plus 90 years, at a peppercorn ground rent. There is no negotiation about whether it happens, only about the price. Since January 2025 there is no qualifying ownership period, so a buyer can serve notice on the day of completion.

The premium is built from three components, discounted at a statutory deferment rate:

• Term. The value to the freeholder of the ground rent still to be received over the unexpired term.
• Reversion. The deferred value of getting the flat back when the lease ends, discounted at the post-Sportelli 5% deferment rate.
• Marriage value. The uplift in combined value created by merging the freehold interest with a longer lease. It applies only where the unexpired term is under 80 years, and it is still payable, because the abolition in the 2024 Act is not in force.

That third component is the 80-year cliff. Above 80 years unexpired, no marriage value. Below it, the premium steps up sharply and keeps climbing as the term shortens. If your lease is near 80 years, the date you serve notice matters more than anything else on this page.

Costs sit on top of the premium. You pay your own legal and valuation fees and, because the section 60 costs repeal in the 2024 Act is not in force, the freeholder's reasonable legal and valuation costs as well. A realistic all-in figure is commonly 1.3 to 1.8 times the headline premium. An individual flat extension typically runs 6 to 12 months, collective enfranchisement 9 to 18 months.

Houses work differently. Under the 1967 Act a qualifying house leaseholder can either buy the freehold outright or take a 50-year extension at a modern ground rent. In practice almost everyone buys the freehold, because it ends the leasehold structure rather than deferring it. Collective enfranchisement of a block needs at least 50% of qualifying tenants to participate, which is a coordination problem more often than a legal one.

Right to manage under Part 2 of the Commonhold and Leasehold Reform Act 2002 moves the management functions of a building to a company owned by the leaseholders. It is a no-fault right, so there is nothing to prove: no mismanagement, no negligence, no dispute required. What does not move is ownership. The freeholder remains the freeholder, the lease terms are untouched, and ground rent stays payable.

The 2024 Act reforms to right to manage are the ones that did commence, on 3 March 2025 under SI 2025/131, and they changed three things worth knowing. The non-residential floor space limit rose from 25% to 50%, which brings a large number of shop-and-flats buildings into scope for the first time. The First-tier Tribunal is now the first instance forum rather than the High Court. And the old rule that the RTM company paid the landlord's process costs win or lose has gone: the general rule is now no liability, with a narrow exception where a claim is withdrawn and the company acted unreasonably.

The mechanics are strict and the deadlines are statutory. The RTM company must be a private company limited by guarantee using the prescribed model articles, membership at the point of service must cover qualifying tenants of at least half the flats, and the claim notice must allow the landlord at least one month to serve a counter-notice. Get a notice wrong and the claim fails on procedure rather than on merit.

Service charges are governed by the Landlord and Tenant Act 1985, not by the 2024 Act, because the transparency provisions in Part 4 of the 2024 Act have never been commenced. The 1985 Act gives four levers that matter: costs must be reasonably incurred and the work of a reasonable standard, major works need formal consultation, demands are time limited, and the First-tier Tribunal can determine liability.

The consultation thresholds are the ones most often misquoted. Consultation is required where qualifying works would cost any one leaseholder more than £250, and where a qualifying long term agreement would cost any one leaseholder more than £100 in an accounting period. Both figures are per leaseholder, not per building or per project. Where the landlord fails to consult, the recoverable amount is capped at those figures, although the tribunal can dispense with consultation where leaseholders suffered no real prejudice.

There is also an 18-month rule. A landlord cannot demand a service charge more than 18 months after the cost was incurred, unless it notified leaseholders within that 18 months that the cost had been incurred and a demand would follow. The notification limb is what turns the rule from a hard bar into a conditional one, and it is where most 18-month arguments are actually won or lost.

Tribunal applications carry a fee. From 6 July 2026 an application to determine service charge liability costs £114 to issue and £227 if it goes to a hearing.

Almost every ground rent question resolves once you separate three things that most coverage runs together.

• New leases: law. The Leasehold Reform (Ground Rent) Act 2022 limits ground rent on new qualifying residential long leases to a peppercorn. Commenced by SI 2022/694 on 30 June 2022, and on 1 April 2023 for retirement home leases. A prohibited term is automatically treated as a peppercorn, and an enforcement authority can impose a penalty of between £500 and £30,000 per breach, with refund orders on top.
• Existing leases: unchanged. The 2022 Act does not touch a lease granted before it commenced. A doubling clause or an RPI-linked escalator in a 2015 lease is enforceable exactly as drafted. The statutory escape route is a lease extension, because a statutory extension takes effect at a peppercorn.
• The £250 cap: not law. It sits in the draft Commonhold and Leasehold Reform Bill. It is not in the 2024 Act, it has not been enacted, and it should not appear in any calculation you rely on.

One historic worry has genuinely closed. A long lease with ground rent above £250 a year, or £1,000 in Greater London, could technically fall within the assured tenancy rules, which caused years of lender caution about doubling clauses. Fixed-term tenancies exceeding 21 years are now excluded from assured status regardless of the rent level.

Stamp duty on an extension premium. A statutory lease extension is treated for stamp duty land tax as a surrender of the old lease and the grant of a new one, so the premium is chargeable consideration. Rent at a peppercorn contributes nothing to the net present value calculation, so in practice the premium is the charge. The trap is the additional dwellings surcharge: where the premium reaches £40,000 and you already own another residential property, the 5% surcharge applies to the whole premium. That catches a meaningful share of London and South East extensions, and it is routinely missed until the return is prepared.

Collective enfranchisement is calculated differently. The total consideration is divided by the number of qualifying flats, the rates are applied to that per-flat figure, and the result is multiplied back up. Because the per-flat fraction often falls in or below the nil rate band, the charge is usually far lower than applying the rates to the aggregate price. Buying the freehold of a house is a straightforward purchase taxed in the ordinary way.

Capital gains tax. The leaseholder has no capital gains tax charge on extending or enfranchising, because money is going out rather than coming in. The premium is capital expenditure that increases the base cost of the property for a future disposal, so keep the paperwork. The freeholder is the one making a disposal, taxed at residential rates of 18% and 24% for an individual or within the corporation tax charge for a company.

Deductibility on a let flat. Ground rent and service charges are revenue expenses and come off rental income in the normal way. The extension premium does not: it is capital, and the distinction is absolute rather than a matter of degree. If the flat is held in a company and a revaluation after extension pushes it over £500,000, check the annual tax on enveloped dwellings position before the next valuation date.

Find the unexpired term first, from the lease itself or the title register, and work out how far it is from 80 years. That single number decides whether this is urgent or merely important. Under 85 years and you should be getting a valuation now, because a claim served before the term passes 80 avoids marriage value entirely.

Then decide the route: extend, enfranchise, take over management, or do nothing for now. They answer different problems. Extension protects value and mortgageability. Enfranchisement removes the freeholder. Right to manage fixes bad management without buying anything. Doing nothing is a real option on a lease with 120 years left and a competent managing agent.

Our side of it is the tax: the stamp duty on the premium, whether the surcharge bites, what is deductible against rent, and how the premium affects the eventual gain. The valuation and the notices are a surveyor and a solicitor. Getting all three lined up before serving notice is what stops a claim becoming expensive.