Leasehold vs Freehold Property: Differences & Conversion
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.
What Is Freehold Property?
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.
What Is Leasehold Property?
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.
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Difference Between Freehold and Leasehold Property
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. |
How to Convert a Leasehold Property to a Freehold 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.
Documents Required to Convert a Property From Leasehold to Freehold
You will need to submit the documents mentioned below to convert a leasehold property into a freehold property:
- General Power of Attorney
- No Objection Certificate if the property is mortgaged
- Copy of sub-lease deed or lease deed
- Copy of sale of agreement
- Demand letter as provided by the Government
- Proof of ownership such as property tax receipts
- Copy of power of Attorney
What Kind of Properties Cannot Be Freehold?
Apartments or flats cannot be freehold property. They are built on the same land where every apartment owner is a shareholder.
Which Is Better - Freehold Property or Leasehold Property?
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:
- You wish to live in an easily accessible place in the city but cannot afford the cost of a land in such areas.
- You do not have clear concepts of the legal aspects and do not want to get involved in any legal hassle.
- There is a possibility of you moving from one place to another.
- You are a business owner and need a spacious land housing a building to run operations.
Scenarios where freehold property would be a better option:
- You plan to invest in a property.
- You have a family and future plans to settle in.
- You need a property from where you can earn in future by keeping it as a mortgage or by renting it out.
- You plan to modify the property you want to invest in.
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.
Frequently Asked Questions
Can a lessee sub-lease or sell the property?
A lessee doesn’t have the right to sell a leasehold property but may be able to sub-lease the property with the owner’s agreement.
Which type of property is usually preferred by the homebuyers?
Homebuyers usually prefer freehold property due to the future clarity, ownership rights and capital growth opportunity associated with it.