Difference Between Freehold and Leasehold Properties

There are two fundamentally different forms of legal ownership — Freehold and Leasehold. The basic difference between a freehold property and a leasehold property is determined by the pattern of ownership and control over the property. In the case of a freehold property, the owner will possess all the legal rights over the property as well as the land over which it has been built. Whereas the ownership over a leasehold property lasts for a period of 40-99 years, as ordained by the government. This period can be extended to 999 years if the original owner or proprietor of the property wishes to this effect. You will, however, need to pay a price for the lease extension.

Freehold Property:

Freehold property refers to any kind of property which is not owned by any other entity except the legitimate owner. The owner of such properties are liable to enjoy the complete ownership rights including sale, renovation or transfer of the property and may also reuse the property while following the local regulations. If the owner wants to resell the property, it won’t attract any legal attention and the paperwork should also be less. Although freehold properties are more expensive than leasehold properties, there are however no restrictions on the right and control of the property. The owner of the freehold property needs to take up the responsibility of the maintenance of the property. These types of properties can be transferred by means of a conveyance or sale deed registration.

Advantages:

  • The owner of a freehold property enjoys complete possession of the property and has the right to make structural changes to the property.
  • It can be transferred down from one generation to the next.

Disadvantages:

  • It includes the responsibilities of maintenance of the property.
  • High-priced

Leasehold Property:

Leasehold property essentially means that you only hold the right to stay or use the property for a particular period of time. In case of a leasehold property, the lessee is required to pay ground rent to the owner of the leaseholder of the property. In lieu of this, temporary rights pass on to the lessee, which also revert to the lessor when the documented duration of the validity of the agreement is up. What must be kept in mind is that the tenure of the lease, that is, the duration for which the agreement remains effective, exerts an influence upon the value of the property. It is, however, possible to extend the lease after the term has expired.

 

Advantage:

  • It can be renewed after the expiration of the term of the lease.
  • The landowner needs to take responsibility for the maintenance of the property.

Disadvantage:

  • One has to take the permission of the landowner before renovating or remodelling the property.

 

The following table will further help you understand the differences between a freehold and a leasehold property:

 

           FREEHOLD PROPERTY          LEASEHOLD PROPERTY
●     Complete ownership of the property. ●     Only the right to have the possession for a definite period of time.
●     One time investment ●     Renewal of the lease after term expiration.
●     More expensive sale price ●     Initially cheaper but service charge and renewal costs are applicable
●     Responsibility for the maintenance of the property ●     No responsibility for property maintenance but repairing charges may apply.
●     Ownership of the land on which the property is built. ●     Ground charges are applicable and might increase from time to time
●     Can be renovated, rented or sold by the freeholder or owner ●     Cannot be renovated, rented or sold without the permission of the owner.
●     Generally a house ●     Generally a flat

 

This article summarizes various information regarding a freehold and a leasehold property. It explains in detail what do the terms leasehold and freehold mean, basic characteristics of leasehold and freehold properties, the pros and cons of holding a leasehold and a freehold property and also presents a clear differentiation between the two.