Leasehold or Freehold: Which Property Type is Right for You?
Published: Jan 2025
Leasehold and freehold are the terms that are quite frequently used in the Indian real estate business. If you are new to these terms and are unfamiliar with the meaning and confused about it? You have landed in the right place. It is not as complicated as you think might be!
The major differences between these two (Leasehold and Freehold) lie in the issues with ownership and land control. To understand them clearly, Leasehold - Here, the property is given for the lease for a particular period with the required restrictions on the property rights and ownership whereas Freehold - here, the property is given without any restrictions related to modifications, transfer, and construction to the property owner. It is also easy to move from leasehold to freehold property if you would like to. Keep reading to understand more about it!
What is a Leasehold Property?
To define leasehold property, it is a type of property that is rented to a lessee or tenant for an agreeable period. A long-term rental property. It is similar to having a house for yourself but only for a set period without owning the land. However, the hook here is that the property will eventually belong to the property’s original owner. In India, most of the flats and properties are left for lease by the owners.
You, as a tenant, should pay the ground rent, service charges, and maintenance charges to the lessor and should also return the property once the lease has expired. Then, the property is leasehold. However, it is important to note that leasehold property charges are comparatively lesser.
The duration of the leased property: It tentatively can vary from 30 years to 999 years. The property value gets increased with the increased tenure of a lease for a property. In short, the longer the lease tenure, the higher the property’s value.
What is a Freehold Property?
A freehold means in property, the ownership is given completely. To define freehold property, it is the most complete form of property ownership. You need to understand that the owner gives the buyer the complete rights to manage, transfer, and modify the property including the ownership, without any obligation. This can be done simply with a sales deed, the property can be transferred to anyone they would like to.
The property value of a freehold property charges are a bit costlier than a leasehold property. If you are planning to buy freehold property, understand that freehold properties are more beneficial as they give complete ownership, more control over the property, and potential for resale without any lease restrictions.
Related Blog : Why Buying Flats in Chennai is a Smart Move
Key Differences: Leasehold vs Freehold
| Aspect | Freehold Property | Leasehold |
|---|---|---|
| Ownership Duration | Freehold property rights - Perpetual ownership with no time limit. | Leasehold property rights - Ownership for a fixed term, often decades to centuries. |
| Control Over Property | Full autonomy in management and modifications | Required landlord’s approval for major changes |
| Financial Obligations | No ground rent; the owner bears maintenance costs | Ground rent and service charges are applicable. |
| Property Value | Tends to appreciate over time. | It can depreciate as the lease shortens. |
| Maintenance Responsibility | The sole responsibility of the owner. | Often shared or handled by the freeholder. |
| Inheritance | Can be passed down through generations | Leasehold rights can be transferred but are limited by lease duration. |
| Ideal For | Long-term investors seeking full ownership. | Those looking for a shorter-term investment or less maintenance responsibility. |
Pros and Cons of Leasehold Properties
Pros of Leasehold Properties
Now that you understand the meaning of leasehold properties, it's time for you to know the pros and cons of leasehold properties.
- ⮚ Cheaper Price
- ⮚ Alternative Finance Option
- ⮚ Become a Home Owner
Cons of Leasehold Properties
- ⮚ Continuously Re-Assessed Rent
- ⮚ Higher Down Payment
- ⮚ Difficulty Gaining Finance
- ⮚ No Benefit from the Increasing Land Value
Pros and Cons of Freehold Properties
Pros of Freehold Properties
- ⮚ Greater Freedom & Flexibility
- ⮚ Complete Ownership & Control
- ⮚ Great Capital Appreciation
Cons of Freehold Properties
- ⮚ High Initial Investment
- ⮚ Maintenance & Repair Cost
- ⮚ Government Acquisition of Land
Related Blog : Why RERA Approval Matters: Understanding the Importance and Benefits
Factors to Consider When Choosing Leasehold or Freehold Property
The following are the key factors for you to consider when choosing a property (Lease or Freehold)
1. Ownership and Control:
a. Freehold Properties: you gain complete control over both the land and the structure. You can make extensive modifications without permission from a third party.
b. Leasehold Properties: leasehold properties grant you rights to occupy the property for a specified duration (Typically between 30 to 999 years) whereas your land remains under the control of the lessor. If it exceeds 100 years, it is said to be a long leasehold property. Any modifications may require approval.
2. Financial Considerations:
a. Freehold Properties: This requires a higher initial investment since you are purchasing both the land and the building.
b. Leasehold Properties: This often comes with lower initial costs but may involve additional fees such as ground rent, service charges, and potential costs for renewing the lease.
3. Investment Potential:
a. Freehold Properties(Long-term Investment): These are typically seen as better long-term investments due to their potential for appreciation in value.
b. Leasehold Properties (Short-term Flexibility): This might appeal more to those looking for temporary living arrangements or investment opportunities with lower Initial payment.
4. Maintenance Responsibilities:
a. Freehold Maintenance: As a freehold owner, you are responsible for all maintenance and repairs, which can be both a burden and a benefit depending on your willingness to invest time.
b. Leasehold Maintenance: Leaseholders often have fewer responsibilities for major repairs, as these may fall under the lessor.
5. Stay Duration:
a. Freehold Properties: Freehold ownership offers indefinite tenure, allowing homeowners to stay as long as they wish.
b. Leasehold Properties: Leasehold arrangements last from 30 to 99 years, with some leases extending up to 999 years.
6. Property Transfer:
a. Leasehold Properties: Leaseholders have the right to occupy the property for the duration specified in the lease but must comply with the terms laid out in the agreement. Additionally, leaseholders cannot transfer ownership or sublet the property without the landlord's consent.
b. Freehold Properties: Freehold properties benefit from broader legal protections under general property laws, which can provide more security against disputes or claims by third parties.
Conclusion
Hence, understanding the fundamental differences between freehold and leasehold properties is essential for anyone looking to invest in the Indian real estate market.
Freehold properties provide complete ownership and long-term security, making them an excellent choice for individuals seeking stability and greater control over their assets.
In contrast, leasehold properties may offer a more affordable entry point and are often more common in certain regions. However, they come with inherent limitations and ongoing costs.
When deciding between freehold and leasehold options, prospective buyers should thoughtfully assess their long-term objectives, financial circumstances, and the specific terms associated with the property in question.
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