Leasehold vs Freehold

Publication Date :

23 Dec, 2018

Blog Author :

Edited by :

Reviewed by :

Table Of Contents

Difference Between Leasehold and Freehold

The key difference between leasehold and freehold is that in the case of the Leasehold, the property is given on lease to the lessee by the owner of the property where there are various restrictions for its usage, whereas in the case of the freehold owner has the full ownership of the property with no restrictions on its transfer, modification or construction.

The freehold property owner has unrestricted, undisputed, and absolute rights over his property. The owner is free to gift, sell, or transfer the ownership or responsibility of the land to whomever he wants. The owner can construct any structure in the freehold property. In a way buying freehold property is true of purchasing any real estate property. When someone owns a freehold property, he can modify or renovate the property without taking permission from anyone. That is why buying a freehold property requires more capital than owning a leasehold property.

A leasehold property is different from a freehold property. It is how a lessee owns the leasehold property. In the case of a leasehold property, there are two parties involved. One of them is the owner or lessor who sells the property, and the other party is the lessee who buys the property. In a leasehold property, the owner (lessor) permits the lessee to hold the property for a limited period. A leasehold property can be leased for any duration of time. The lessee may be required to pay for the maintenance, improvement, and planning of the property depending on the clauses applicable.

The lease period can vary from 30 years to 999 years. Any lease with a duration of fewer than 90 years can cause a problem as it adversely affects the property's valuation. Moreover, a lease whose duration is less than 30 years will face a challenge to warrant any bank finance. That’s why the lessee should ensure that the tenure is increased.

Difference Between Leasehold and Freehold

Leasehold vs. Freehold Infographics

Key Differences

In the case of freehold property, the owner has a full undisputed and unrestricted right over the property. In a leasehold property, the lessee does not have unrestricted and absolute right over the property.
The owner does not require anyone's permission or authorization to modify freehold property. In a leasehold property, the lessee needs to take permission and refer to the rights in the agreement to make any alterations.
A freehold property does not have any term or time frame associated, but a leasehold property is leased for a specific period.

Leasehold vs. Freehold Comparative Table

Nature	Leasehold	Freehold
Ownership rights	The owner permits the lessee to hold the property for a limited period.	The owner owns the property outright.
Tenure	Generally, the lease is for a period of 30,60,99 or 999 years.	Once owned, the owner has the right to the property perpetually.
Approvals	The lessee needs to adhere to the conditions set by the lessor to modify or construct in the leasehold property.	Has full authority to modify or construct without any permission
Transfer rights	Requires permission from the state or any other relevant authorities to transfer the property	It does not require any permission from the state or any authority to transfer the property
Purpose of Investment	There is a risk attached to buying leasehold properties as the lease may not get extended, and also the lessee doesn’t have the freedom to modify the property to suit his needs.	As an investment purpose its advisable to invest in freehold properties
Costs involved	The cost is generally lesser given the conditions and tenure applicable to hold the property.	Generally costly to buy in comparison to a leasehold property.
Bank Finance	Most banks do not finance projects in a leasehold property whose lease tenure is less than 30 years.	It is easier to fetch finance from banks for freehold properties.

Conclusion

The primary difference is the lessee's freedom and restrictions put by the lessor and permission needed whenever the lessee wants to modify or construct anything on the property. A freehold property has no restrictions on whom to transfer what to alter and build in the property. Moreover, once bought, the right of the property is with the owner forever.

On the other hand, leasehold comes with several restrictions and clauses from the lessor. The lessee has got rights to the property only for the duration of the lease period, which is subject to extension. The investor in a leasehold property needs to take care of many moving parts, which encompasses factors like the lease period, valuation of the property, transfer clause, availability of the bank finance, approvals from the state authorities, and other relevant agencies wherever applicable.

Due to all these factors, it's better to buy a freehold property than to buy a leasehold property. However, most of the time, the owner does not have a choice if he wants to buy a property in a preferred location as the properties of that entire location can be bought only as leased property.