When stepping into the property ownership, you're likely to encounter two key terms: freehold and leasehold. These concepts, while seemingly straightforward, carry significant implications for homeowners. Understanding the difference between freehold and leasehold property is crucial in making an informed decision about your real estate investment.
What is freehold property?
Freehold property represents the most complete form of property ownership. As a freeholder, you own both the building and the land it stands on indefinitely. These time limitations do not burden this ownership. It empowers you to design or renovate your property (subject to planning permissions and regulations) without seeking approval from a landlord.
What is a leasehold property?
Picture it as a long-term rental agreement where you have the use of a house, but you don't own the land it's built on. In India, this arrangement is particularly with flats and apartments. As a leaseholder, you're responsible for paying charges the property owner charges, like ground rent and maintenance fees. At the end of the lease, which can range from 30 to a staggering 999 years, the property reverts to the owner.
Advantages and disadvantages of freehold property
Explore the benefits and considerations of owning your property outright and the implications it has on your autonomy and finances.
Advantages:
- Complete control: As a freeholder, you have total autonomy over your property, a key aspect in the freehold vs leasehold debate.
- No extra charges: Unlike leasehold land, owning freehold property means no ground rent or service fees.
- Long-term financial benefit: Freehold properties generally appreciate more over time, highlighting the difference between freehold land vs leasehold land value asset ownership, which allows you to pass the property down through generations.
Disadvantages:
- Higher purchase cost: Freehold properties often come with a higher initial price tag than properties.
- Maintenance responsibilities: Owning the land means you're solely responsible for all maintenance, a significant difference between freeholder and leaseholder.
- Less flexibility in the short term: Freehold properties are more of a long-term commitment, potentially less suited for those seeking short-term housing solutions.
Advantages and disadvantages of leasehold property
Understand the trade-offs of leasehold ownership, from cost savings to restrictions, and how it impacts your property rights and investments.
Advantages:
- Lower initial cost: Leasehold properties typically have a lower entry price, a factor in the leasehold property vs freehold consideration.
- Less maintenance responsibility: Major repairs and maintenance are often the responsibility of the freeholder. So, as a leaseholder, you do not have to worry about the additional responsibility.
- Flexibility: Leasehold is ideal for those not ready for the long-term commitment of a freehold, underlining the difference between freehold and leasehold.
Disadvantages:
- Decreasing lease: The value of a leasehold property can diminish as the lease gets shorter, a critical point in the difference between freehold vs leasehold property.
- Challenges in financing: Properties with shorter leases (less than 30 years) may face difficulties in securing a home loan, a unique aspect in the difference between freehold and leasehold.
Difference between freehold and leasehold property
Understanding the distinction between freehold and leasehold properties is essential for informed real estate decision-making. Here's a comparative table to illustrate their primary differences:
| Aspect |
Freehold Property |
Leasehold Property |
| Ownership Duration |
Perpetual ownership with no time limit. |
Ownership for a fixed term, often decades to centuries. |
| Control Over Property |
Full autonomy in management and modifications. |
Requires landlord's approval for major changes. |
| Financial Obligations |
No ground rent; the owner bears maintenance costs. |
Ground rent and service charges are applicable. |
| Property Value |
Tends to appreciate over time. |
It can depreciate as the lease shortens. |
| Maintenance Responsibility |
The sole responsibility of the owner. |
Often shared or handled by the freeholder. |
| Inheritance |
Can be passed down through generations. |
Leasehold rights can be transferred but are limited by lease duration. |
| Ideal For |
Long-term investors seeking full ownership. |
Those looking for a shorter-term investment or less maintenance responsibility. |
How to convert a leasehold property into a freehold property?
Converting your leasehold property into a freehold is an appealing option, given the numerous benefits of freehold ownership. To navigate this transition, here's what you need to do:
- Government Properties: Begin by submitting an application for conversion to the relevant government authority overseeing the property.
- Private Properties: Draft a sale agreement detailing the terms between you (the leaseholder) and the property owner.
- Conveyance Deed Creation: Prepare the final conveyance deed on non-judicial stamp paper, reflecting the agreed sale considerations.
- Deed Registration: Take the crucial step of registering this conveyance deed at the local registrar's office.
- Property Mutation: Finally, ensure the property is officially transferred to your name in the local civic body's records.
Legal aspects regulations apply to leasehold and freehold properties
Leasehold and freehold properties are governed by distinct legal structures, each with its own set of rules and regulations:
Agreements: Central to both leasehold and freehold arrangements are the agreements that outline the rights and responsibilities of all parties involved. For leasehold properties, this includes lease duration, rent specifics, and maintenance obligations. Freehold agreements, while less restrictive, still define property boundaries and usage rights.
Rights and obligations: Leaseholders have the right to use and occupy the property within the lease's terms, which includes paying rent and maintaining the property. While having broader ownership rights, freeholders must adhere to local laws and regulations regarding property use.
Leasehold Valuation Tribunal (LVT): The tribunal can make decisions on matters like lease extensions, fair service charges, and other leaseholder rights, ensuring a balanced approach to leasehold management and ownership.
Documents needed for converting leasehold property to freehold
Transitioning from a leasehold to a freehold property requires specific documentation to ensure a legal and smooth process:
- Original lease agreement: This document is crucial as it details the existing lease terms.
- No Objection Certificate (NOC): Obtained from the property's lessor or developer, indicating their consent for conversion.
- Property title deeds: It is essential to prove your current ownership of the leasehold property.
- Sale agreement: Drafted for the transfer, outlining terms and conditions between you and the freeholder.
- Conveyance deed: Legal document prepared on non-judicial stamp paper for property transfer.
- Local authority approval: Documents from relevant local civic bodies endorsing the conversion.
- Latest property tax receipts: Proof of up-to-date tax payments on the property.
Also Read: Smart ways to reduce your Home Loan EMI
Conclusion
Whether you opt for a freehold or leasehold property, the key to a smooth ownership experience is understanding the legalities and preparing the necessary documents.
As you chart the path towards property ownership, financial support becomes a cornerstone of your journey. With the Axis Bank Home Loan, you can fulfil your home-buying aspirations. Offering loans starting at just ₹3,00,000 with flexible tenures of up to 30 years, Axis Bank ensures your dream home is within your reach. The attractive interest rates, both floating and fixed, cater to your financial flexibility, while features like smaller EMIs, no prepayment charges, and a minimum loan requirement of just ₹3 lakhs make it a compelling choice.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
