Difference Between Leasehold and Freehold
The key difference between leasehold and freehold is that in case of the Leasehold, the property is given on lease to the lessee by the owner of the property where there are various restriction for its usage, whereas in case of the freehold owner has the full ownership of the property with no restrictions on its transfer, modification or construction.
The owner of a freehold property has unrestricted, undisputed and absolute right over his property irrespective of time. The owner is free to gift, sell or transfer the property or responsibility of the land to whomsoever he wants. The owner can construct any structure in the freehold property. In a way buying freehold property is true of buying any real estate property. When someone owns a freehold property he is free to modify or renovate the property without taking permission from anyone. That is the reason why buying a freehold property requires more capital, than owning a leasehold property.
A leasehold property is different from a freehold property. In the case of a leasehold property, there are two parties involved, one of them is the owner or lessor who sells the property and the other party is the lessee who buys the property. In a leasehold property, the owner (lessor) gives permission to the lessee to hold the property for a limited period of time. This is how a lessee owns the leasehold property. A leasehold property can be leased for any duration of time. The lessee may be required to pay for the maintenance and improving the property and also contribute to the planning of the property depending on the clauses applicable.
The lease period can vary from 30 years to as high as 999 years. Any lease with a duration of fewer than 90 years can cause a problem as it affects the valuation of the property adversely. Moreover, a lease whose duration left is less than 30 years will face a problem to warrant any bank finance, that’s why the lessee should ensure that the tenure is increased.
Leasehold vs Freehold Infographics
- In the case of freehold property, the owner has a full undisputed and unrestricted right over the property whereas in leasehold property the lessee does not have unrestricted and absolute right over the property.
- For freehold property, the owner does not require anyone’s permission or authorization to make any modifications whereas in leasehold property the lessee needs to take permission and refer to the rights in the agreement to make any alterations.
- A freehold property does not have any term or time frame associated but a leasehold property is leased for a specific time period.
Leasehold vs Freehold Comparative Table
|Ownership rights||The owner gives permission to the lessee to hold the property for a limited period of time.||Owner owns the property outright|
|Tenure||Generally, the lease is for a period of 30,60,99 or 999 years||Once owned, the owner has the right to the property perpetually.|
|Approvals||The lessee needs to adhere to the conditions set by the lessor in order to modify or construct in the leasehold property||Has full authority to modify or construct without any permission|
|Transfer rights||Requires permission from the state or any other relevant authorities to transfer the property||Does not require any permission from the state or any authority to transfer the property|
|Purpose of Investment||There is risk attached with buying leasehold properties as the lease may not get extended and also the lessee doesn’t have the freedom to modify the property to suit his needs||As an investment purpose its advisable to invest in freehold properties|
|Costs involved||The cost is generally lesser given the conditions and tenure applicable to hold the property||Generally costly to buy in comparison to leasehold property|
|Bank Finance||Most banks do not finance project in a leasehold property whose lease tenure is less than 30 years||It is easier to fetch finance from banks for freehold properties|
The basic difference is designated by the freedom one has. As a lessee one is bound by the restrictions put by the lessor and needs permission whenever the lessee wants to modify or construct anything in the property. A freehold property has no restrictions on whom to transfer what to modify and construct in the property. Moreover once bought the right of the property is with the owner forever.
On the other hand, leasehold comes with a number of restrictions, clauses from the lessor. The lessee has got right to the property only for the duration of the lease period which is subject to extension. The investor in a leasehold property needs to take care of a lot of moving parts which encompasses factors like the lease period, valuation of the property, transfer clause, availability of the bank finance, approvals from the state authorities and other relevant agencies wherever applicable.
Due to all these factors wherever possible it’s better to buy a freehold property than to buy a leasehold property, though most of the time the owner do not have a choice if he wants to buy a property in a preferred location as the properties of that entire location can be bought only as a leased property.
This has been a guide to Leasehold vs Freehold. Here we discuss the top difference between leasehold and freehold property along with infographics and comparison table. You may also have a look at the following articles –