DIFFERENCE BETWEEN LEASEHOLD PROPERTY AND FREEHOLD PROPERTY

Date:- 04.03.2016   28th UPDATE TO BLOG


DIFFERENCE BETWEEN LEASEHOLD PROPERTY AND FREEHOLD PROPERTY

Some of you contemplating to purchase a property may be overwhelmed at the outset, with the thought of having to undergo a plethora of formalities, legal procedure and terms. A couple of such terms that we hear and read mostly are "Freehold" and "Leasehold" properties. 

So what do they mean?

Are there any legalities attached to them which you should be 

aware of while buying property?

And what actually is the basic difference between the two and 

is one better than the other?

The main difference between the two kinds is the land ownership and control. As the owner, you can mostly do what you wish with your home provided you keep within local planning rules. In leasehold; the ownership is mostly given by the government for tenure of 99 years. It is possible to extend the leasehold to up to 999 years, if the owner, that is the State in most of the cases wishes to extend the lease and you have to pay a price for lease extension.

Freehold Property

If you have purchased a freehold property then you own the land it is built on and also the house. In case of apartments, the owner of the house becomes a share holder in the property. You can live there for as long as you desire. You will have the right to make alterations in the house or redo some parts of the house. You might have to take permission from authorities if you have to make structural changes, particularly with old buildings. In India mostly houses are sold as freehold property but apartments are mostly on lease, however, this too is changing as many flats are getting sold as freehold too. According to Manish Tyagi, who has recently purchased a house in Noida, “I feel buying freehold property is better because it gives me freedom of mind as i don’t have to pay any kind of rent or charges to anyone”. According to Manish Thakur a Lawyer with the High Court, “In freehold property there is a Property Tax component which needs to be deposited every year, while the leasehold rent component is comparatively quite low and infrequent”.

Advantages of Freehold Property

1.    Owners of Freehold Properties don’t have to pay annual ground rent.

2.   If you hold Free hold property , you are in charge of  maintaining  the building and don’t have to depend on anyone.

3.   You enjoy the complete ownership right of the property

Leasehold     Property    

In case you have purchased a leasehold property, then you have the right to live in a property for a stipulated period of time. Here the buyer is not the owner of the property or the land it is situated upon. In case of a leasehold property, you will have to pay ground rent to the owner or the leaseholder. Once the set period in the lease expires, the ownership of the property is given back to the land owner. Mostly leases are roughly given for period of 99 years. If anyone is buying a leasehold property, it is important to find out how long the lease is for as it will influence the value of the property. It is possible to extend the leasehold to up to 999 years and you can actually purchase the leasehold property, but by paying a price for it.

Advantages of Leasehold Property


     1.  Relatively cheaper prices than Freehold Properties as the land cost to the
         developer is invariably less.

     2. Leasehold properties are safer to buy as they have clear titles, and the
        developers credentials are also intricately verified.

    3. The responsibility to maintain the project usually lies upon the developer of the 
         project or the State Government, whoever is in charge.

What kind of properties cannot be freehold?

Flats or apartments can never be freehold because they are dwellings constructed on the same land owned by the builder/developer, which each apartment owner is a shareholder in.

Can leasehold property be converted into freehold property?

Yes, some states like Delhi allow you to convert the leasehold property into freehold. And if there is such an opportunity, you should definitely go for it. Every state has different set of rules for such conversions.

Which properties are preferred more by the buyers?

Buying a freehold property is more preferable than the leasehold property as freehold are more stable and are likely to increase in value in the longer term. According to Ramesh Nair, COO Buisness, JLL India, “Given a choice - and if the budget permits - it is preferable to invest in a freehold alternative, given the better clarity on the future. It is also easier to leverage a freehold property to procure funds in case of future requirements.” Buyers generally prefer buying a freehold property as it gives them complete ownership rights of the property bought as against leasehold in which the land belongs either to the State Authority or the Developer who has bought the land to construct the project.

Comparison between the two kinds of properties

Thanking You.