Is Leasehold Property a Bad Investment in London
Leasehold ownership is one of the most debated topics in London property. For international buyers and even many domestic purchasers, the concept can feel counterintuitive. You buy the home, yet not the land beneath it. You own the property, but only for a defined period.
This naturally raises a critical question. Is leasehold property actually a bad investment in London, or is the concern overstated?
The answer, as with most aspects of the capital’s property market, is nuanced.
Why Leasehold Exists in London
Leasehold ownership is deeply rooted in London’s history. Much of the city’s prime residential stock sits on land owned by long established estates, charitable trusts or institutional landlords.
These estates historically retained freehold ownership to maintain architectural control, long term stewardship and income stability. As a result, leasehold became the dominant structure for apartments and many period conversions.
According to research commentary from Savills and Knight Frank, leasehold tenure remains standard across large parts of prime central London, particularly for flats in mansion blocks, lateral apartments and heritage buildings.
In other words, leasehold is not an anomaly in London. It is the norm.
Why Leasehold Gets a Bad Reputation
Leasehold concerns usually stem from four areas:
Short remaining lease terms
Escalating ground rents
High or opaque service charges
Limited control over management decisions
These risks are real, but they are not universal. Problems arise when buyers fail to assess lease quality rather than lease type.
A poorly structured lease can undermine value. A well structured lease often has minimal impact on long term performance.
Lease Length Matters More Than Leasehold Status
The single most important factor in leasehold investment is remaining lease length.
Properties with long leases, typically above ninety years, are generally treated by the market as equivalent to freehold in value terms. Mortgageability, resale liquidity and buyer confidence remain strong.
As lease length shortens, value erosion accelerates. Below eighty years, extension costs rise sharply due to marriage value. Below sixty years, liquidity drops significantly.
Savills Research consistently highlights lease length as a primary driver of pricing differentials in leasehold property.
Leasehold is not the issue. Short leasehold is.
Prime London Leasehold Performs Differently
In prime and super prime London, leasehold behaves differently from the mainstream market.
High quality leasehold flats in Mayfair, Knightsbridge, Chelsea and Kensington often:
Retain value well across cycles
Attract international buyers accustomed to leasehold structures
Trade based on lifestyle and location rather than tenure
Benefit from professional estate management
Knight Frank analysis shows that many of London’s most expensive apartments are leasehold, yet remain highly liquid due to rarity, views and address prestige.
At the top end, buyers focus on quality, not semantics.
Service Charges and Management Are Critical
One of the biggest determinants of leasehold value is how the building is managed.
Well run buildings with transparent service charges, strong sinking funds and professional managing agents are viewed positively by buyers and lenders.
Poorly managed blocks with unpredictable costs or neglected maintenance can quickly become value traps.
For investors and owner occupiers alike, the building matters as much as the flat.
Leasehold risk often comes from management failure, not ownership structure.
Ground Rent Is Becoming Less Relevant
Historically, escalating ground rents were a major concern. However, regulatory changes have significantly reduced this risk for new leases, and many prime properties now have nominal or peppercorn ground rents.
For existing leases, ground rent terms must still be scrutinised, but they are rarely the deciding factor in prime London transactions unless unusually aggressive.
Savills commentary notes that ground rent has become a secondary consideration compared to lease length and service charge quality.
Investment Performance Compared to Freehold
Freehold property is often perceived as inherently superior. In some cases, that is true.
Freehold houses typically offer:
Full control
No service charges
Long term structural ownership
Greater appeal to family buyers
However, leasehold flats often outperform freehold houses in terms of liquidity, particularly in central locations where demand for high quality apartments is constant.
From an investment perspective, the better asset is the one that is easiest to resell to the widest buyer pool.
In many parts of London, that remains leasehold apartments with strong fundamentals.
When Leasehold Can Be a Bad Investment
Leasehold becomes problematic when multiple risk factors combine, such as:
Short lease without extension plan
Uncooperative or opaque freeholder
Poor building maintenance
High and unpredictable charges
Limited resale market
In these cases, the discount is not a bargain. It is a warning.
Experienced buyers either price these risks accurately or avoid them entirely.
When Leasehold Works Well
Leasehold can be a sound investment when:
The lease is long and extendable
The building is well managed
Service charges are proportionate and transparent
The property sits in a strong micro location
Demand is driven by lifestyle and scarcity
Many UHNW buyers actively prefer leasehold apartments because they offer convenience, security and lock up and leave living without ownership burden.
What Savvy Buyers Do Differently
Sophisticated buyers do not ask whether a property is leasehold. They ask whether the lease is good.
They review:
Remaining lease length and extension terms
Freeholder profile and reputation
Service charge history and reserve funds
Management quality and governance
Exit liquidity and buyer appeal
According to Knight Frank Private Office insights, the most successful buyers treat leasehold analysis as due diligence, not deterrence.
Final Thought
Leasehold property is not a bad investment in London. Poorly structured leasehold property is.
In a city where some of the world’s most valuable homes sit on leasehold land, tenure alone does not define quality or performance.
The right lease, in the right building, in the right location, remains a highly investable asset.
In London property, ownership structure is just one layer.
Value lies in understanding how all the layers work together.