The difference between a freehold and a leasehold is quite simple. When you purchase a property on freehold, you own the physical land it sits on and the buildings that are built on it. This means that you have the right to use the property for as long as you want and also have the ability to sell it or pass it down to your descendants.
On the other hand, a leasehold gives you the right to use the property for a specific period of time as per the lease agreement. Once the lease period is over, the property returns to the owner. Leasehold is becoming popular in densely populated cities where the availability of freehold land is scarce.
Leasehold vs. Freehold Property
| Leasehold Property | Freehold Property |
|---|---|
| The leaseholder owns the dwelling on the property (but not the land itself) for a predetermined period of time called the lease period. | Freehold properties are those in which the property owner has complete ownership and there is no time limit on this ownership. |
| They come with certain restrictions and obligations, such as the payment of ground rent to the property owner. | Once owned, the owner has the right to the property without any obligations or restrictions. |
| Generally, the lease is for a period of 30,60,99 or 999 years. | The owner owns the land perpetually until he resells it. |
| Selling leasehold properties usually take more time since state approval and consent are required. | Selling freehold properties is easier, more straightforward, and have fewer limitations. |
| The lessee needs to adhere to the conditions set by the lessor to modify or construct in the leasehold property. | The owner has full authority to modify or construct without any permission. |
| Purchasing a leasehold property carries a potential hazard, as the lease agreement may not be renewed, leaving the lessee with uncertain tenure. | As a prudent investment strategy, it is recommended to consider investing in freehold properties. |
| The expenses associated with leasehold property are lower comparatively. | The expenses generally associated with freehold property are high comparatively. |
| Banks may not finance property with less lease period. | It is generally easier to get financing from banks for freehold properties. |
What is a Leasehold Property?
A leasehold property is a type of property ownership in which the buyer has the right to occupy and use the property for a fixed period of time, as specified in the lease agreement. This differs from freehold ownership, where the buyer owns the property and the land it sits on outright.
In a leasehold property, the buyer must pay an annual ground rent to the freeholder, which can significantly impact the cost of ownership. At the end of the lease period, the ownership of the property reverts back to the freeholder.
However, the lease can usually be extended by the leaseholder at a cost, either by negotiation or through the legal process. It’s common for leasehold houses to have a lease of 999 years, providing long-term security for the owner.
If you are looking to buy a leasehold property, it’s important to consider the cost of extending a lease and the implications of ownership of a property on a leasehold basis when applying for a mortgage.
Pros and Cons of Leasehold Properties
Leasehold properties are an option for those who want to own a property but don’t want to deal with the responsibilities that come along with owning a freehold. They are owned by the leaseholder for a set number of years, typically between 99 and 999 years.
One of the pros of owning a leasehold property is that it tends to be more affordable compared to freehold properties. However, a major disadvantage is the ground rent which can increase annually, resulting in higher costs for the leaseholder. Another potential con is that when the lease is up, the leaseholder may struggle to sell the property or even extend the lease. Also, the remaining time left on the lease can impact the property prices. A potential solution to the cons of owning a leasehold property is to buy the freehold if possible.
The Types of Leasehold Ownership
There are various types of leasehold ownership, including fixed-term lease, periodic lease, and assured shorthold tenancy.
In a fixed-term lease, the tenant has the right to occupy the property for a fixed period of time, which is usually a few years. Once the lease expires, the tenant may have the option to renew it.
In a periodic lease, the tenant rents the property on a rolling basis, which means that the lease renews every month or week.
An assured shorthold tenancy is a type of lease that is commonly used for residential properties. The tenant has the right to occupy the property for an agreed period, usually six months or a year.
What is a Freehold Property?
Freehold is a term used to describe the ownership of a property and the land it sits on. When someone owns a freehold property, they have complete ownership of both the property and the land, which also means they are responsible for any maintenance or repairs needed. Freehold may refer to a specific type of property, such as a house or apartment, and it is typically regarded as one of the most desirable types of property ownership.
A freehold property owner has more control over their property than someone who owns a leasehold property, as they can make changes to their property without seeking the permission of a landlord. Therefore, when someone is looking to purchase a property, they may prefer to buy one that is freehold because it offers a greater sense of ownership and control.
Pros and Cons of Freehold Properties
Freehold properties refer to properties that include both ownership of the property and the land it sits on. In contrast to leasehold properties, freehold properties give the owner complete control over the land and property. This means that freehold properties can be passed on to future generations, enabling long-term ownership and stability.
Also, many freehold properties do not require the payment of ground rent, which can make them more cost-effective in the long run. However, freehold properties do come with downsides, such as the responsibility for all maintenance and repairs falling on the owner, who may also incur higher initial purchase costs due to the inclusion of both the land and property.
In other words, while freehold properties offer greater control and ownership, they may also come with added responsibilities and costs.
The Types of Freehold Ownership
There are three types of freehold ownership: fee simple absolute, fee simple defeasible, and life estate.
Fee simple absolute gives the owner complete control and rights to their property for an indefinite period of time. Fee simple defeasible includes specific conditions that must be met for the owner to maintain ownership. Lastly, life estate allows the current owner to use the property until their death, after which it passes on to another owner.
Key Differences Between Freehold and Leasehold Properties
