Difference Between Freehold and Leasehold Property

The complex landscape of property ownership will present you with the terms of freehold and leasehold at least two or three times. These ideas are fundamental to real estate transactions and significantly shape your ownership rights, responsibilities, and long-term property value. It is important to understand what is the difference between freehold and leasehold when searching for property, as this can help inform buying decisions for first-time buyers as well as seasoned investors. Entitlements, at their most basic, differ from each other in the extent to which the property and land it contains is yours to control. With freehold possession you own the building and land outright and have a lot of control; whereas leasehold involves being held to a fixed-term tenancy with fewer rights, usually with a renewal or agreed conditions.

This blog is here to demystify these terms and break down their legal and practical meanings, as well as how to decide which type of ownership is best for you.

Freehold property refers to a type of real estate ownership where the owner has complete and indefinite ownership of both the land and any structures on it. This means that the owner is "free from hold" of any other entity, such as a landlord or government, allowing them to use, modify, sell, or transfer the property without restrictions, as long as they comply with local regulations.

Key Features of Freehold Property:

a) Full Ownership

The land belongs to you as well as the physical structure on the land.

b) No Time Limit

You have as much time as you want and need to own them.

c) Freedom to Modify

You can redecorate or rearrange the property (depending on the laws of the country you live in).

d) No Ground Rent

There are no annual lease charges to make or grounds rent to be paid like with other property companies.

A leasehold property is a type of real estate ownership where you buy the right to use a property for a specified period, but you do not own the land on which it stands.

Here’s how leasehold works:

Ram and His Lease Apartment

a) Lease Agreement

Ram decides to buy an apartment on a leasehold basis for 99 years. This means he can live in and use the apartment for the entire duration of 99 years.

b) Ownership of the Building

While Ram owns the apartment, he does not own the land it sits on. The land is owned by someone else, known as the freeholder. So, Ram has the right to use his apartment, but the land belongs to the freeholder.

c) Ground Rent

Every year, Ram has to pay a fee called ground rent to the freeholder for using the land. This is like a rental payment for the land beneath his apartment.

d) End of Lease

After 99 years, when the lease ends, ownership of the apartment typically goes back to the freeholder. If Ram wants to keep living there, he would need to negotiate an extension or renewal of the lease before it expires.

Key Features of Leasehold Property:

a) Limited Ownership

You own the property means you own the house but not the compound.

b) Fixed Term

The term of the lease is a certain number of years.

c) Ground Rent

You give rent to the free holder on a yearly basis.

d) Permission Needed

You may require permission from the freeholder where extensive modifications are required.

Let us understand difference between freehold and leasehold.

Ownership Rights

a) Freehold Land

You own the land absolutely which means there could be no additional rights on the part of another, either feudal or other.

b) Leasehold Land

You pay a rental fee of the land for a particular period and have to renegotiate the lease after that period elapses.

Investment Value

a) Freehold Land

Flaunting higher long-term value since you fully own the item.

b) Leasehold Land

May decline over time as the lease duration gets lesser, thereby not so attractive for purchase.

Benefits of Freehold Properties

Freehold properties offer several benefits, making them a popular choice for buyers:

a) Complete Control

You have all the rights related to the use and alteration of the property in any way, which you desire.

b) No Renewals

The beauty of it is you can avoid new leases or covenants for testing the terms.

c) Better Investment

Basically, freehold properties are known to increase in value more than leasehold properties in the long run.

These advantages, when discussing freehold and leasehold property, can more often than not put freehold property ownership as the advantaged side.

Benefits of Leasehold Properties

Leasehold properties, while not as flexible as freehold, also have their merits:

a) Lower Initial Costs

As a general rule, the leasehold properties cost less than the freehold properties which in most cases all the expenses are included in the rent.

b) Shared Responsibilities

Tidiness of the corridors and all other areas shared between tenants are the freeholder’s or a management company’s responsibilities.

c) Ideal for Apartments

Leasehold arrangements can be found, particularly where it is not possible for ownership of the land to be split between individual units.

But it is crucial to understand what freehold and leasehold mean to decide whether these advantages match your objective.

The biggest issues with a freehold compared with a leasehold have to do with ownership, financial considerations, and restrictions. Thus, the acquisition of a freehold property is more preferable for people who seek maximum control of the premises and desire to get one for the long-term investment. In contrast, leasehold property may be ideal for those with an eye on cost and the provision of a space where duties are divided.