The primary difference between freehold and leasehold property is that of the rights the buyer/lessee has on the respective property. In freehold property, the owner has full rights on the property without any restriction imposed by the seller. On the other hand, in leasehold properties, there could be certain restrictions relating to selling, transfer, use, etc. Let us see more about the freehold vs. leasehold.
What is a Freehold Property?
Freehold property means when you buy a house, you become the owner of the property and have full right to that property. So, the owner is free to make any changes to the property. He won’t have to pay any maintenance charges, rent, or service charges. At the time of selling also, the owner has to go through less paperwork since it doesn’t require any legal approval. In freehold, the ownership is with the buyer until he wants to sell it again.
What is a Leasehold Property?
Leasehold property means you buy a property but don’t have the ownership of the land it’s built on. So, when the lease ends, the ownership goes back to the landlord, and you no longer have rights to the property.
In this type of property, you may have to pay certain charges on a regular basis. These charges include service charges, ground rent, etc. Also, the buyer of the leased property does not have the right to make changes to the property and would need permission before doing so.
In leasehold, the time of lease is mentioned in the contract. The lease period is generally for 99 years. Mostly, the business acquires leasehold property. After the duration gets over, one can renew a lease by making a new agreement.
There are four main types of leasehold properties – the estate for years, an estate from period to period, estate at will, and estate at suffering. The primary difference between these is the duration of the lease.
Estate for years means when the specified time has been mentioned in the agreement, whereas estate from period to period is where only the initial date is mentioned, and then the lease carries from year to year. ‘Estate at will’ depends on the relationship between the lessor and lessee. The estate at suffering is when a tenant continues to occupy the property even after the expiry of the lease.
Difference between Freehold and Leasehold Properties
Rights to Make Changes
The first major difference between both two is that the leasehold property owner does not have full rights to the property. A freehold property owner has full rights to make any changes to the property.
The next difference is the cost. Since there is complete ownership of property in freehold, the cost of acquiring a freehold is more than that of a leasehold.
There is no tenure in freehold as the property belongs to the owner. In leasehold, there is a predetermined duration of the ownership. The owner can extend the lease period after the duration gets terminated.
Duties and Responsibilities
There are certain duties that a leaseholder needs to follow, such as keeping the place neat and clean or not carrying out any construction work without permission. Such duties are not mandatory in the case of the freehold property owner.
A person can easily get a bank loan in case of a freehold property. However, in the case of leasehold, the loan would depend on the duration of the lease.
Both properties cater to the different needs of the people. For example, if a person wants to settle somewhere, then he would buy something for the long term or freehold property. If a person is looking to reside for business purposes or for a temporary period, then getting a place on the lease would suffice.
Leasehold property involves various charges, whereas freehold involves no such charges. These charges can be management charges or service charges like repair and maintenance, etc.
Converting a Leasehold into Freehold
A leasehold property can be converted into freehold by presenting a few documents. These documents are a clear sale deed, no objection certificate (NOC) and power of attorney, and more. The owner will have to pay certain charges for the conversion as well.
If the property involved is owned by the government, then the buyer will have to seek permission from the environment department, fire department, etc.
Which is Better?
Both freehold and leasehold property has their pros and cons. Whether a buyer should go for freehold or leasehold depends on the requirement of the acquirer. For instance, if a person wants to settle permanently, then it would be better to purchase freehold property. Or, if a business wants to purchase land to expand its business operations, it is better to buy that land on lease since it will reduce the cost to the company. At times, personal preferences play a role in selecting one.