The decision of buying a freehold or leasehold property depend on the purpose behind it. Both of these properties have various differences and knowing them will be helpful while taking the right decision. Read this article to understand the freehold vs leasehold property differences and the advantages of each of them.
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- What is Freehold Property?
- What is a Leasehold Property?
- Difference between Freehold vs Leasehold Property
- Advantages and Disadvantages of Freehold vs Leasehold Property
- Exceptions of Freehold Property
- Freehold vs Leasehold Property Conversion
- Can a Leasehold Property be sold?
- What do buyers prefer over Freehold vs Leasehold Property?
What is Freehold Property?
Freehold property is a ‘free from hold’ of any entity except the owner of the property. The freehold property owner will have free ownership of the property forever.
The owner can utilize the property for any purpose within the local regulations. You can sell the freehold property at their will without gaining any consent from the state.
The owner can also transfer the property without any restrictions. You is also free from payments like service charges, ground rent, maintenance charges, etc.
This also helps owners to know the exact amount to pay while buying the property.
What is a Leasehold Property?
A leasehold property is a property where a tenant contracts for rent from the lessor or the property owner for the decided period.
The tenant holds the right to the property for a fixed period & completes the payment for use of the property. So, a leasehold property is a temporary right for the lessee or tenant.
The contract between the lessee and the property owner clarifies the planned years for the lease and the payment process.
The tenant of the leasehold property has to complete charges like service charges, ground rent, maintenance charges, etc.
Over the end of the lease duration, the leasehold property will return to the owner of the property.
Difference between Freehold vs Leasehold Property
| Freehold Property | Leasehold Property |
| The freehold property owner holds the property outright. | The landlord allows the lessee to own the leasehold property for the decided period. |
| The owner has the property rights for forever. | The lease period is for 30, 60, 99, or 999 years. |
| The owner has the right to upgrade or construct in the land without any permission. | The tenant has to follow the conditions set by a landlord to upgrade or construct in the property. |
| You doesn’t need permission from any authority to transfer the property. | For transferring the property permission from the state or relevant authority is a must. |
| Freehold property is a good option for investment purposes. | The risk in buying the leasehold property is the chance of the lease not getting extended and not being allowed to modify the property. |
| Compared to leasehold properties, freehold properties are costly to buy. | The cost is lesser based on the conditions and duration allowed to hold the property. |
| Banks easily agree to finance for freehold properties. | A huge number of banks don’t finance in leasehold property that has less than 30 years to lease tenure. |
Also check-out – Buying A Home In 2024: Top 10 Crucial Things To Remember
Advantages and Disadvantages of Freehold vs Leasehold Property
Buying a freehold or leasehold property has its separate advantages and disadvantages. And these also clarify which is the best option for you to buy. The below-mentioned are some of the must-know advantages and disadvantages of these properties.
Advantages of Freehold property
- You will have the property and land ownership. As you are paying off the mortgage repayment and completing the total payment over the period.
- You will don’t need to pay service charges, admin fees, or ground rent to the landlord.
- You can leave in their house as they want within the guidelines of the local authority.
- You doesn’t have to continuously check on the duration of the lease.
Disadvantages of Freehold property
- Freehold property is costly to buy as you have to buy the land as well as the property.
- Freehold properties are mostly houses, not flats. If you are looking for a flat then this is not the right choice for them.
- You will be responsible for every maintenance cost of the property and cover every payment of building insurance.
Advantages of Leasehold Property
- Leasehold properties are cheaper compared to freehold properties. This is based on the risks involved in it.
- The lessee in the leasehold property has fewer responsibilities to manage compared to freehold property owners.
Disadvantages of Leasehold Property
- The tenants rent from the freeholder. They will don’t have ownership over the property.
- Other than the mortgage, you will have to cover the charges like services charges and ground rent. If these charges are not covered then the house will be taken back.
- Some leasehold property owners don’t allow to have pets.
- Running a business from leasehold properties is also not allowed in some places.
Exceptions of Freehold Property
Flats or Apartments can never be considered as freehold property. Because such apartments are built on the same land which belongs to land owned by the developer.
And each of the apartment owners will be a shareholder.
Freehold vs Leasehold Property Conversion
Delhi has allowed the leasehold property to convert into freehold property. This has proven as an advantage to property owners in various ways. Each of the states has different rules regarding this.
Can a Leasehold Property be sold?
No. This right doesn’t come under the hands of the lessee or tenant. Selling the leasehold property is only possible through the lessor or owner of the property.
What do buyers prefer over Freehold vs Leasehold Property?
The freehold property is chosen over the leasehold property by the buyers. This is because of the capital growth and entire ownership available in a freehold property.
This decision depends on your goals. If you have short-term goals then leasehold property is beneficial for you. But if you have a long-term plan then freehold property is the best option.
FAQs
| What is the main advantage of buying freehold property?
The important advantages of buying freehold properties are landlord will have the property rights forever and banks also easily agree to finance for such property. |
| Which property ownership is better between freehold and leasehold?
Freehold property ownership is the best option if you have a plan for long-term investment. Whereas leasehold property is for short-term investment as the main purpose here is for giving it for lease. |
| What happens over the end of the lease period?
The lessee is allowed to own the leasehold property for a fixed period. Over the end of the lease period, the ownership will once again return to the actual property owner. |
| Can the lease period get extended if needed?
The lease period extension will depend on the approval from both lessee and the property owner. If both agreed then the lease extension will be trouble-free. |
