Summary
In India, there are two categories of property: leasehold and freehold. The phrase “freehold” may be familiar to you, as are government moves to convert some land regions from lease to freehold. What is leasehold property all about? In this blog, learn what freehold property is, how it differs from leasehold, and the benefits of freehold property, owner rights, the documentation processes, and more. Knowing how they differ from each other will help you make smart decisions if you are looking to buy, sell, or invest in real estate. So first-time home buyers and seasoned investors need to know this, to be in a better place while dealing with the property market.
- What is Leasehold Property?
- What is Freehold Property?
- Difference Between Freehold and Leasehold Property
- Benefits of Leasehold Property
- Disadvantages of Leasehold Property
- Leasehold Property Example
– Structure of Ownership
– Important Lease Details - Which type of Real Estate is Better Suited for Residential or Business Uses?
- Which is Preferable, Freehold or Leasehold Real Estate?
– Freehold is Preferable If
– Leasehold is Preferable If - Conclusion
What is Leasehold Property?
Leasehold properties are the exact opposite of freehold properties. These are properties you don’t own but lease. The length of the leases might range from one year to 99 years. In this manner, you can use the building for as long as the lease is in effect, but you won’t be able to claim any rights to the land, and you might need to get in touch with the real owner if you want to make any changes to the building. The benefit of a leasehold property is that your responsibilities are limited. You may not have to spend money on major repairs and can avoid regular maintenance costs.
What is Freehold Property?
As the name implies, freehold property is not subject to any form of hold. The land on which the building is situated is owned by the same person or organization that owns the building. As a result, the owner is the sole and unquestioned owner of the property. Freehold property has several advantages, one is that it is simpler to manage if you want to sell or rent it out. The owner has complete authority over the building and is not accountable to anybody else, therefore there are fewer hassles. You can do anything you want with a freehold property after you purchase it like adding more rooms or a floor to the structure or adding features without caring about the rights.
Difference Between Freehold and Leasehold Property
| Features | Freehold Properties | Leasehold Properties |
|---|---|---|
| Ownership | Absolute Ownership. The owner has 100% rights. | The lessee has the right to use the property for the leased periods but cannot claim ownership. |
| Period of Ownership | The property belongs to the owner indefinitely or until it is sold. | The lessee can use the property for the leased period. |
| Rights | The owners have unlimited rights to make the changes, sell, rent, or lease out the property. | The house and all of its amenities are available to the lessee. However, without the lessor's consent, they are unable to sell, rent, lease out, or alter the structure. |
| Availability of Bank Finance | Those who wish to purchase freehold real estate are financed by banks. | Banks usually finance leasing only if the period is > 30 years. |
| Maintenance of cost damage | The owner is entirely responsible for maintenance and damage costs. | The actual owner will handle major damages and repair costs. |
Learn more about the Difference between Leasehold vs Freehold Property
Benefits of Leasehold Property
- Leasehold properties generally come at cheaper prices, because you are the only one buying the building or the land.
- Some agreements allow you to buy the land at a lower annual price compared to a mortgage.
- You own the building and can make improvements even though you don’t own the land.
Disadvantages of Leasehold Property
- Over time, ground rent may rise, potentially becoming costly.
- Financing leasehold buildings is typically more challenging.
- The initial down payment for leasehold payment is often higher.
- You won’t benefit from increases in land value but the landowner does.
Leasehold Property Example
An example of a leasehold property would be an apartment in a high-rise building on leased land. While houses are usually sold as freehold properties, apartments and flats are frequently leasehold, particularly in urban areas.
Structure of Ownership
- The freeholder (the individual or organization that owns the land and building) has leased the apartment for 99 years.
- The start date and the remaining years are specified in the lease.
- As a leaseholder, you have the right to occupy and use the apartment for the duration of the lease, but you do not own the ground on which the building is located.
Important Lease Details
- Ground Rent: The freeholder receives an annual payment from the leaseholder, such as £250.
- Service Fees: The leaseholder pays for major building repairs as well as the upkeep of common facilities including gardens, elevators, and corridors. The lease has an initial term of 99 years and a remaining 75 years. The value of the property may decrease if the lease period is too short (less than 80 years, for example), and the leaseholder may need to negotiate a lease extension.
- Limitations: The lease may contain provisions prohibiting subletting or structural alterations without the freeholder’s approval.
- End of Lease: Unless the leaseholder agrees to an extension or buys the freehold, the property normally returns to the freeholder when the lease expires.
Which type of Real Estate is Better Suited for Residential or Business Uses?
After learning what a freehold property is, you could be persuaded to invest in one if you were considering buying a residential home. You’re not incorrect either. Freehold residential homes have fewer post-purchase issues and offer the customer greater control and ownership. The expensive initial investment might be the only obstacle. You can, however, obtain bank financing for the same.
Since freehold buildings can become quite costly, the majority of business players prefer to purchase leasehold properties. Additionally, commercial players prefer to be able to relocate if they decide to scale up or shut down at a certain point. Thus, leaseholds are more effective.
Which is Preferable, Freehold or Leasehold Real Estate?
Freehold is Preferable If
- You desire total control and ownership of the land.
- You intend to pass it on to future generations or purchase a long-term residence.
- You wish to stay clear of extra costs and lease-related commitments.
- In the future, you intend to add more floors.
Leasehold is Preferable If
- Particularly in a city (where freehold choices are scarce), you are buying an apartment.
- You feel at ease with ongoing expenses and shared maintenance duties.
- You are less concerned with long-term ownership and intend to occupy the property for a shorter time.
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Conclusion
Making informed real estate selections requires understanding the distinction between a freehold and a leasehold property. Freehold properties are more suited for long-term investment and personal use because they grant complete ownership rights with comparatively fewer restrictions. Although leasehold properties are often less expensive, some extra limitations and obligations must be shared with the lessor. Whether you are investing in commercial buildings or buying a home, having comprehensive knowledge can help you make well-informed decisions to maximize investment returns.
