When you are searching for a property, you will come across two terms – freehold and leasehold. Do not take these terms lightly because they can completely alter the dynamics of your property and ownership.
Let's take a look at what these terms mean and how they differ from each other.
As the name suggests, a freehold property is free from any other entity's ownership rights. The ownership and rights to sell, transfer or renovate solely belong to the purchaser. The land registry bears your name and the title of the property is absolute and indefinite. Moreover, you do not have to pay annual ground rent. However, the responsibility for the maintenance of building lies on your shoulders. When you want to transfer ownership, you do not need to take permission of anyone, except in cases where properties are specially earmarked. All you need to do is follow the process of registration of sale deed.
Do note that flats and apartments cannot be considered freehold properties because they are constructed by real estate builders or developers. If you own a flat or apartment, it is in the capacity of a shareholder.
A leasehold property is an arrangement whereby the lessor gives the land on lease to the lessee for a stipulated period of time. The control and rights of a preleased property remain with the lessor. The lease period is usually for a period of 99 years, but it can range from as short as 30 years and as long as 999 years. The responsibility for the maintenance of the property lies with the lessor. All you have to do is pay the lease amount, maintenance fees, annual services charges any other charges as agreed. Usually, a pre-leased commercial property is an ideal solution for office spaces required by businesses. The lessee can transfer the property, subject to the permission from the lessor.
The disadvantage that lies with a leasehold property is that the lessee may not be able to mortgage – it depends on the financing bank and lease period. Moreover, if the lease period is not renewed, then the lessee has to go through the entire hassle of finding a new leasehold property.
A leasehold property can be converted into a freehold property provided you can furnish some documents like a clear sale deed, general power of attorney and a NOC if applicable.
As you can see both freehold and leasehold properties have pros and cons. However, it really depends on your requirement (residential or commercial) as to which one you want to invest in. It is advisable to take help of real estate and industrial consultants for step-by-step guidance.