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Leasehold vs Freehold: Key Differences and Implications for Property Buyers and Investors in 2024
Updated : November 4, 2024
Author :
Table of Contents
Choosing between leasehold vs freehold property is straightforward once you know the basics. Freehold means you fully own the land and building. You have full rights to use, sell, or make changes as you like, with no time limit on ownership. On the other hand, Leasehold allows you to use the property for a set period, typically 30 to 99 years, with limited rights. Once this period ends, ownership usually returns to the original owner unless you extend the lease. Each option has benefits, depending on how long you plan to stay and your future needs.
What is Leasehold Property?
A leasehold property means you own the building but not the land beneath it. The land belongs to the landlord, known as the freeholder, who leases it to you for a set period—often between 30 and 99 years, but sometimes up to 999 years. When this period ends, the property returns to the freeholder unless you extend the lease.
With a leasehold, you might pay ground rent each year and share maintenance costs for areas like pathways or parking spaces. The lease agreement often includes rules, like needing permission for major renovations or property selling restrictions. Each lease is different, so it’s important to know the specific terms for any leasehold property.
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Rights and Responsibilities of a Leaseholder
A leaseholder has the right to use the property during the lease period but must also follow certain rules. Knowing these rights and responsibilities helps maintain a smooth relationship with the freeholder.
Rights of a Leaseholder:
- Right to Live in the Property: Leaseholders can stay in the property for as long as the lease term lasts.
- Right to Sell the Lease: Leaseholders can sell their leases to another person, though some leases may require the freeholder’s permission.
- Right to Request Lease Extension: Leaseholders may ask to extend their lease before it expires, which can help maintain the property’s value.
- Right to Be Informed on Major Works: Leaseholders have the right to be informed and, in some cases, participate in decisions regarding major repairs or upgrades.
Responsibilities of a Leaseholder:
- Pay ground rent: Leaseholders must pay an agreed amount each year as ground rent.
- Contribute to Maintenance Cost: Leaseholders need to follow the terms set in the lease, which might include asking permission for large changes or renovations.
- Follow Lease rules: Leaseholders need to follow the terms set in the lease, which might include asking permission for large changes or renovations.
- Renew the Lease as Needed: If the lease is close to ending, leaseholders are responsible for arranging a renewal if they wish to stay.
Pros and Cons of Leasehold Property
Leasehold properties are often more budget-friendly but have specific rules. Here’s a simple look at what makes leaseholds good and what can be challenging.
| Advantages | Disadvantages |
| Lower Cost – Leasehold properties often cost less than freehold properties. | Limited Time – Leaseholders don’t own the land and only have it for the lease term. |
| Better Locations – Many leaseholds are in central or popular areas with easy access to amenities. | Extra Fees – Leaseholders must pay ground rent and sometimes other fees. |
| Less Maintenance – Major repairs are usually the freeholder’s job, reducing upkeep costs. | Lease Expiration – As the lease gets shorter, the property may lose value. |
| Good for Short-Term – Leasehold is a good choice if you don’t plan to keep the property for long. | Limited Changes – You might need permission to make big changes to the property. |
What is Freehold Property?
Freehold property means you fully own the land and the building. This ownership is permanent, with no end date. You have the freedom to live in, sell, or give away the property whenever you choose, without needing approval from anyone else; plus, there’s no ground rent to pay since no one else owns the land.
With a freehold property, you can also make changes or improvements as long as they follow local rules. While freehold properties tend to be more expensive, they are often a solid investment because they generally increase in value over time. Remember that as the owner, you cover all repair and maintenance costs.
Rights and Responsibilities of a Freeholder
When you own a freehold property, you fully own the land and its buildings. This gives you both control and responsibilities.
Rights of a Freeholder:
- Keep it forever: You own the property without any time limit.
- Change it: You can make changes, like adding a room, if you follow local building rules.
- Sell or gift it: You are free to sell or give away your property anytime.
- Rent it out: You can rent the property if you want to earn rental income.
Responsibilities of a Freeholder:
- Take care of repairs: You are responsible for all repairs and maintenance.
- Pay property taxes: You must pay any local taxes and fees.
- Follow local rules: If you make changes, you must follow zoning and safety laws.
- Insure the property: Protect the property from risks like fire or theft with insurance.
Advantages and Disadvantages of Freehold Property
Owning a freehold property gives you full rights over the land and building. Here’s a simple look at the main upsides and downsides.
| Advantages | Disadvantages |
| Complete Ownership – You own the land and property without any time limits. | Higher Purchase Price – Freehold properties usually cost more to buy upfront. |
| Freedom to Change – You can renovate or modify without needing permission. | Full Maintenance Responsibility – You cover all repair and upkeep costs. |
| No Annual Fees – There’s no ground rent since you own the land. | Property Taxes Apply – You must pay property taxes, which may increase. |
| Good Long-Term Value – Freehold properties often gain value over time. | High Initial Costs – Buying a freehold can be costly at first. |
Difference Between Leasehold and Freehold Property in India
Leasehold and freehold properties differ in how you own and manage them. Here’s a simple freehold and leasehold property difference for your understanding:
| Feature | Leasehold | Freehold |
| Ownership | You own the building for a fixed period only. | You own the land and building permanently. |
| Changes Allowed | Big changes need the landlord’s approval. | You can make changes freely, following local laws. |
| Time Limit | Ownership ends when the lease expires. | Ownership has no time limit; it’s yours forever. |
| Extra Costs | You pay ground rent and shared maintenance fees. | You only pay property taxes. |
| Selling Rules | Selling may have lease conditions. | You can sell anytime without permission. |
How to convert leasehold property into freehold property?
Converting a leasehold property into a freehold gives you complete ownership. Here’s who qualifies and what paperwork is needed.
Eligibility Criteria
- You Own the Property- You must be the legal owner of the leasehold property.
- Lease is Active- The lease cannot be expired.
- Local Rules Allow It- Some areas may have specific rules, so make sure conversion is permitted where you live.
Documentation
- Lease Document- These papers show your current lease details.
- Any Sales Agreements- If you have a sale agreement, include it.
- No Objection Letter (NOC)- If required, get a NOC from the original property owner.
- Property Tax Receipts- Make sure all property taxes are paid and have the receipts as proof.
- ID and Address Proof- These verify your identity as the property’s owner.
Conversion Charges
If you own a leasehold property and wish to convert it to a freehold, you will need to cover conversion charges.
Conversion Charges and Fees for Leasehold to Freehold Conversion
| Factors Affecting Conversion Charges and Fees | Details |
| Property Location | Conversion charges are usually higher in prime locations. |
| The market value of the property | Conversion charges are calculated based on the market value of the property. |
| Leasehold duration | Conversion charges may be higher if the leasehold period is shorter. |
| Type of property | Conversion charges may be higher for commercial properties than residential properties. |
| Other fees | Other fees may include stamp duty, registration fees, legal fees, and administrative fees. |
Considerations When Choosing Between Leasehold and Freehold
Deciding on leasehold or freehold depends on what’s best for you. Here are some simple things to think about:
- How Long You Will Own It: Freehold means you own it forever. Leasehold only lasts for a set number of years.
- Freedom to Make Changes: Freehold lets you make changes when you want. With a leasehold, you might need permission for big changes.
- Cost Differences: Freehold costs more upfront. Leaseholds can come with extra fees like ground rent.
- Location Options: Leasehold properties are often in busy areas, and freehold might be harder to find in these spots.
- Selling Options: Freehold is usually easier to sell without restrictions. Leases can have rules for selling.
- Value Over Time: Freehold properties tend to increase in value more, which can make them a good investment.
Freehold Conversion Initiative Brings New Opportunities for Property Owners
The Ministry of Home Affairs (MHA) has announced that it is at an advanced stage of implementing the Indian government's initiative to allow the conversion of leasehold properties to freehold properties. This decision will grant leasehold property owners complete ownership of the properties, which they previously did not have, providing them greater flexibility to sell or mortgage their properties as they see fit. The move is expected to significantly impact the real estate market in India, boosting property demand and attracting more investors, particularly in prime locations. Property owners can also benefit from higher loan amounts and better interest rates.
However, the conversion process may not be smooth sailing for everyone, and property owners may have to pay conversion fees and other associated costs, which can vary depending on the state and property location. Before initiating the conversion process, it is crucial to fulfil all legal formalities to avoid any legal disputes in the future.
Simply put, the Indian government's freehold conversion initiative is a positive step towards empowering property owners and boosting the real estate market. To make the most of this initiative, property owners must understand the associated costs and legal formalities. The move is expected to attract more investors to the market and provide a much-needed boost to the real estate sector in India.
How NoBroker Simplifies Your Property Search?
The choice between leasehold and freehold properties in India is not always straightforward. It depends on several factors, such as your budget, investment goals, and personal preferences. While freehold properties offer complete ownership and greater flexibility, leasehold properties can be more affordable, especially in prime locations.
At NoBroker, we understand that finding the perfect property can be daunting, especially if you are a first-time homebuyer or investor. That's why we offer various services to make your property search more straightforward and hassle-free. Whether you're looking to buy, sell, or rent a property, NoBroker can help you find the best deals in your preferred location. Our property listing services allow you to connect directly with property owners and avoid brokerage fees. We also offer legal assistance for property buyers to ensure a smooth and transparent transaction.
So, if you're in the market for a leasehold or freehold property, visit NoBroker today and discover the best options for your needs. With our comprehensive services and expert guidance, you can find your dream home or investment property without stress or hassle. Click on this link to explore the wide span of NoBroker's property buying and selling services.
Frequently Asked Questions
Ans: Leasehold property is a type of property ownership in which the land is leased from the government or a landowner for a specific period, usually ranging from 30 to 99 years. In contrast, freehold property is a type of property ownership in which the owner has complete ownership of both the land and the building constructed on it.
Ans: Leasehold properties are often cheaper than freehold properties, especially in prime locations, making them a more affordable option for homebuyers or investors. Additionally, leasehold properties often come with lower maintenance costs, as the landowner or the government is responsible for maintaining the property.
Ans: The major disadvantage of a leasehold property is that it comes with limited tenure, which means that the property ownership reverts to the landowner or government once the lease period expires. Moreover, leasehold properties are often subject to rent or renewal charges, which can increase over time and add to the overall cost of owning the property.
Ans: Yes, a leasehold property can be converted into a freehold property through a legal process known as conversion. The process involves paying a conversion fee to the government or landowner, and once the conversion is complete, the owner will have full ownership of both the land and the building.
Ans: The choice between a leasehold and a freehold property depends on various factors such as your budget, investment goals, and personal preferences. If you are looking for a more affordable option and don't mind limited ownership, then a leasehold property may be a better choice. On the other hand, if you want complete ownership and flexibility, then a freehold property may be the way to go.
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