Leasehold and Freehold are the two forms of legal ownership of a property, whereby freehold property is a property or land, which is owned or inherited for life. As against, when a property is acquired under the lease, it is termed as Leasehold property.
When you are buying a freehold property, it means that you are buying it in full for an indefinite length of time, which covers both the land and the property as well.
On the other hand, the arrangement which confers the right to hold any property for a temporary period to another person or entity is called Lease, and the property which is transferred through a lease is termed as a leasehold property.
Check out this article to know more about the difference between leasehold and freehold property.
Content: Leasehold Vs Freehold Property
|Basis for Comparison||Leasehold Property||Freehold Property|
|Meaning||Leasehold means the lessor purchases the right to occupy and use the property for a stipulated tenure.||Freehold property is the one, on which the owner has the full-fledged rights as to its ownership and use.|
|Ownership||State/Government remains the ultimate owner of the estate leased.||Buyer enjoys the absolute ownership.|
|Tenure||Specific tenure, which can be extended through renewal.||No tenure|
|Rights||Lessor has the right to use, mortgage, rent, transfer for a limited time. However, the transfer may require the approval of the concerned authority.||Owner has the right to use, mortgage, rent and transfer.|
|Mortgage||It is not easy to a mortgage.||It can be easily mortgaged.|
|Alteration||Lessor does not have the right to modify or alter the property, according to his wish.||Owner can make alterations as desired, except structural changes which require the permission of the relevant authority.|
|Annual rent or Tax||Ground Rent or Lease Rent||Property Tax|
|Cost||Based on upfront cost, it is relatively cheaper, however, lease renewal charges are generally high.||Expensive|
Definition of Leasehold Property
In a leasehold, the lease acts as a license for the lessor, in which the freeholder of the land and property grants right to use the property for a stipulated period of time. For this, the lessor is required to pay a price in the form of Lease Rent or Ground Rent, which may include service charges decided on the basis of how a building is managed.
In a lease, the lessee enters into a contract with the lessor granting the right to use the property for a certain period in exchange for a series of payments over that term. The lease defines the rights and responsibilities of both the parties concerned.
In general, the lessor is responsible for the maintenance and improvement of the property alone, whereas the improvement and maintenance of the area surrounding it will be the responsibility of the owner, i.e. freeholder.
Further, the leaseholder is required to pay maintenance fees, annual service charge, annual ground rent etc. at regular intervals. The leaseholder has to take prior permission of the owner to make any major changes in the property.
It must be noted that lease is for a specific period only, which when expired, the ownership of the property reverts back to the lessee, i.e. the freeholder. The lessor can extend the period of the lease, if required, by paying the renewal fees. The term of the lease may vary from 30 years to 999 years. In most cases, the term of the lease is 99 years.
The length of the lease is the basic criterion which decides the worth of the property, i.e. the longer the lease, the higher would be its worth. Further, a leasehold property is a diminishing asset, however, if the term of the lease is longer, it will hold a high value in the longer term.
Definition of Freehold Property
Freehold, as the name itself clarifies, is the ownership of an estate which is free from any hold. Meaning that the person purchasing a freehold property is having complete rights on the physical property, as well as the person is the sole owner of that property and the land on which property is built. The freeholder can use the property or land for any purpose, but as per the regulations of the area where it is situated.
Further, the owner’s name appears on the land registry. One can own a freehold property for an indefinite period, except when he/she sells or transfers it to someone else. The transfer of property is undertaken by registration of sale deed and it does not require any approval from the government authorities to sell/transfer the property.
It must be noted that freehold ownership of a house or building means that you own the property in entirety and also the land it is built on, whereas freehold ownership of apartments means that you own the internal part of your ownership, and the common part like garden, lift, entrance, stairs, roof, corridor, is shared among all the apartment owners in a block.
Key Differences Between Leasehold and Freehold Property
The points given below are noteworthy so far as the difference between leasehold and freehold property is concerned:
- Freehold refers to the permanent ownership on an estate, with the liberty to dispose of it, at own discretion. When you own a freehold property, it means that you own the building/house as well as the land on which it is built. On the other hand, Leasehold is when you hold the property by lease, in which the lessor is allowed to use the property, i.e. house/building for a fixed period.
- State/Government is the owner of the leasehold property. Conversely, buyer enjoys the full-fledged ownership of the property and land, in case of a freehold property.
- The lessor gets the right to occupy and use the property for a stipulated term only. As against, the owner of a freehold property gets the ownership for an indefinite period.
- In Leasehold Property, the lessor obtains the right to use, mortgage, rent, transfer for a limited time. However, the transfer may require the approval of the concerned government body/authority. In contrast, in the case of freehold property, the owner has the right to use, mortgage, rent and transfer, which does not require the consent of any government body/authority.
- The freehold property can easily be mortgaged, whereas the leasehold property is not easy to the mortgage.
- If the lessor wants to make some changes in a leasehold property, he/she has the right to do it. On the contrary, in case of a freehold property, the owner can make the desired changes in the property, except for structural changes, which requires the approval of the relevant authority.
- When it comes to charges, the leaseholder is required to pay Ground Rent/Lease Rent. As opposed, the freeholder has to pay property tax for the property held in his/her name.
- On the basis of upfront cost, a leasehold property is cheaper in comparison to a freehold property. However, the lease renewal charges are usually high.
One of the main difference between leasehold and freehold property is their ownership, i.e. once the lease comes to an end, the ownership of the property reverts back to the landlord or say, freeholder, who granted the rights to use the property for consideration. As against, the freeholder has the ownership of land for an indeterminate period.