Saved
Freehold Property vs Leasehold Property – Differences, Benefits, and Owner Rights
When buying property in India, it’s essential to understand the distinction between freehold and leasehold properties. This blog covers the meaning of each type, their differences, the benefits of owning a freehold property, and the owner’s rights, to help you make informed decisions in the real estate market.
What is Freehold Property?
A freehold property is one where the owner has complete ownership of both the land and the building. There are no restrictions on how the owner can use, modify, or sell the property. You can:
- Build additional structures
- Rent or lease the property
- Renovate as you wish Freehold properties are usually easier to sell or transfer, with fewer legal hurdles, making them a preferred choice for residential buyers.
What is Leasehold Property?
In contrast, a leasehold property grants the right to use a property for a set period (usually up to 99 years). Ownership remains with the lessor (landowner). While you can live in or use the property, you must seek the owner’s permission for major changes or selling. Leasehold properties tend to have lower upfront costs but come with limitations on ownership rights and future value gains.
Key Differences Between Freehold and Leasehold Properties
| Features | Freehold Property | Leasehold Property |
|---|---|---|
| Ownership | Full ownership of land and building | Right to use property for a specific period |
| Period of Ownership | Permanent or until sold | Limited to the lease period (e.g., 30-99 years) |
| Rights | Unrestricted rights to modify, sell, or lease | Permission needed for structural changes or selling |
| Bank Finance | Easier to secure home loans | Financing may be difficult if lease period is <30 years |
| Maintenance Costs | Owner responsible for all maintenance | Major repairs often covered by lessor |
| Restrictions | No usage restrictions | Usage limitations set by the lessor |
Benefits of Freehold Property
- Complete Ownership: You own the land and building outright.
- Fewer Complications: Easier to manage and transfer compared to leasehold.
- Increased Flexibility: You have full rights to modify, lease, or sell the property without external approvals.
- Higher Value: Freehold properties generally appreciate better in the long term.
Disadvantages:
- Freehold properties are more expensive.
- You bear full responsibility for maintenance and repairs.
Benefits of Leasehold Property
- Lower Cost: Leasehold properties often have a lower purchase price since you’re only paying for the building, not the land.
- Less Responsibility: Maintenance and repairs may be handled by the lessor.
- Flexibility in Moving: Leasehold properties work better for businesses that may want to relocate later.
Disadvantages:
- Limited rights and control over the property.
- Leasehold properties can be harder to finance and may not appreciate as much as freehold ones.
Conversion from Leasehold to Freehold
If you own a leasehold property and wish to convert it to freehold:
- Discuss with the Lessor: You must first negotiate with the landowner.
- Documentation: Obtain a No Objection Certificate (NOC) if the property is mortgaged.
- Government Fees: Pay conversion charges to update property status legally.
Freehold Property Owner Rights
As a freehold property owner, you enjoy several rights:
- Full control over property use (residential or commercial)
- Right to make renovations or structural changes
- Right to sell or lease without restrictions
Insurance for Freehold Properties
Since freehold properties are at greater risk (you bear all responsibility for damages), it’s essential to have property insurance. This protects you from financial losses in case of damage due to natural disasters, accidents, or other unforeseen events.
Government Acquisition of Freehold Land
Although you own the property, the government can acquire it for public purposes (e.g., industrialization or urbanization). In such cases, you’ll receive compensation based on the land value.
Selling Freehold vs Leasehold Properties
Freehold: Selling is straightforward and involves registering a sale deed with the sub-registrar. Leasehold: Selling requires additional documentation, including a ‘Memorandum of Transfer,’ issued by the government.
Home Loans for Freehold vs Leasehold Properties
Banks are more willing to offer loans for freehold properties, as they hold more value and ownership is permanent. In contrast, leasehold properties may not always qualify for loans, especially if the lease term is less than 30 years.
Final Thoughts on Choosing Between Freehold and Leasehold Property
Whether you choose a freehold or leasehold property depends on your long-term goals. Freehold properties are ideal for those seeking permanent ownership and greater flexibility, while leasehold properties may be suitable for short-term usage or business operations. Make sure to assess your financial standing and future plans before deciding.
Latest Updates: Recent rulings have made converting leasehold properties to freehold less costly by including conversion charges in the sale consideration. This change eases the financial burden on buyers, making freehold property more accessible.
