Freehold vs Leasehold


April 1, 2015 Facebook Twitter LinkedIn Google+ Information


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In discussing with a number of potential buyers, we discovered that the concept of freehold and leasehold can be a bit confusing to many people. We will attempt to clarify the meaning of the terms so that they can be better understood.

 

Freehold

Ownership tenure is for life

For an estate to be a freehold it must possess two qualities: immobility (property must be land or some interest issuing out of or annexed to land); and ownership of it must be of an indeterminate duration. If the time of ownership can be fixed and determined, then it cannot be a freehold.

If you own a property on a freehold basis, you own the property and the lands that it stands on. This includes the land, any structures, and everything else found on the land. You will have the right to live there as long as you choose, and you have the right to making any alteration and modifications you desire. It becomes part of your estate and can be passed on to your heirs when you die. Freehold properties are usually more desirable than leasehold properties and tend to be worth more. The only potential limitations are to do with planning and other laws.

 

Leasehold

Ownership tenure depends on the governing laws, but usually span around 30, 60, and 99 years.

A leasehold estate is an ownership of a temporary right to hold land or property in which a lessee or a tenant holds rights of real property by some form of title from a lessor or landlord. If you purchase leasehold, you are actually buying a right to occupy the property or use the property for a specified amount of time; you do not own the property. Instead, the freeholder who owns the property and the land will grant you the right to reside in the property, the terms of which will be laid out in the lease. This has elements of contract and property law intertwined, and will stipulate how long the lease will last (usually 99 years), how much ground rent you must pay a year and how ground rent is split among other leaseholders, if any. It is usually possible to extend the lease after it has expired; otherwise, the property will return to the freeholder. The freeholder here may refer to the original owner or the government or any legal entity who sold the land to you.

 

A leasehold thus differs from a freehold where the ownership of a property is purchased outright and thereafter held for an indeterminate length of time, and also differs from a tenancy where a property is rented on a periodic basis such as weekly or monthly.

You should always engage the services of a legal practitioner who specializes contracts, irrespective of the type of property you wish to purchase. This will make things so much easier and will ensure that you avoid the pitfalls associated with contracts.

 

 

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