Freehold and leasehold are two types of formal or legal ownership of a property. In simple terms, a freehold property is inherited for life, whereas a leasehold property is inherited for a specific period of time or lease.
Definitely, standard definitions do not define these legal titles very ‘clearly’. You will get a better idea through the thorough discussion made and their difference as leasehold vs freehold properties in the piece below. Keep reading to know more.
A freehold property, as the term defines itself, is property which is 'free from any hold' or limitation. An owner acquires the rights of the land and property for a lifetime. The rights also extend to future selling of the property to another buyer or transfer of ownership to their legal heir.
A leasehold property, as can be comprehended from the term itself, is a property under a lease or an agreement for a specific period of time. In case of a leasehold property, the ownership of only the property is transferred for a period of anywhere between 30 to 99 years, not the land on which it is built.
Most buyers prefer freehold property over leasehold property for obvious reasons. Freehold property transfers entire ownership of a property, along with the land as well. It is also a good investment if you consider reselling in future.
Here in the following table, you will find the differences between a freehold and leasehold property.
|
Parameters |
Freehold Property |
Leasehold Property |
|
Ownership |
Buyer becomes the ultimate owner of the property and enjoys rights of the same. |
The State or Government remains the owner of the property on lease. |
|
Rights |
An owner has rights to modify, transfer, mortgage and resell the property. |
A lessor owns rights to use, transfer, and mortgage the property but may need the concerned authority's approval. |
|
Ownership Duration |
Has no duration as this is a permanent ownership transfer. |
Has a specific duration according to the contract, which is renewable. |
|
Cost of Acquisition |
This can be expensive. |
Relatively cheaper, but lease renewal costs are usually higher. |
|
Mortgage |
Easier to mortgage. |
Relatively difficult to mortgage. |
|
Annual Rent or Tax |
Property tax |
Lease rent |
|
Modification |
An owner has rights to modify the property only except for structural changes, which will require the permission of a higher authority. |
A lessor doesn’t have rights to make any modification to the property. |
Converting a leasehold property to a freehold property requires minimal documentation and some charges to be paid to the authority. You should have the General Power of Attorney, sales deed and a NOC in case your property is under mortgage or rent. If you're residing in Delhi, you can get it done only by submitting the General Power of Attorney and a registered agreement to sell. In case of a non-sanctioned building plan, you can get the property converted on the basis of house tax assessment or proof of permanent electricity connection.
You will need to submit the documents mentioned below to convert a leasehold property into a freehold property:
Apartments or flats cannot be freehold property. They are built on the same land where every apartment owner is a shareholder.
When it comes to comparing leasehold and freehold properties, it is not easy to determine which is better and mostly depends on the owner. However, following are some of the advantages of both types of properties, based on which you can make your own decision.
Scenarios where leasehold property will be a more feasible option:
Scenarios where freehold property would be a better option:
Now that you have gained clarity on the two types of property and also on leasehold vs freehold, you can make your investment choices more precisely.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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