The Fine Line Between Freehold & Leasehold Property

Property buyers usually get confused with terms such as freehold and leasehold. Dear buyers, these terms form a significant part of your property agreements, and you cannot afford to stay ignorant.

Let us discuss the difference between the two.

Freehold Property :

To understand it better, read the term by splitting into two i.e. free-hold. This means that the estate you are buying is free from the hold of any entity, besides the owner. So, the owner enjoys complete ownership and can use the land for any purpose (sell, renovate or transfer), keeping the local regulations in mind. Moreover, if one plans to sell such a property, it won’t require any legal or government consent, and, hence, has less paperwork attached. Understandably, freehold assets are more expensive when compared to leasehold assets.

Leasehold Property :

As the name suggests, here the ownership of the land on which the property is built is leased for a certain amount of time to the developer. Generally, the lease period varies from 30 to 99 years.

If you are buying an apartment in a housing complex, it might be possible that the land on which it’s built is leased. The future of such properties after the lease period is over is a bit uncertain, and somehow depends upon the amount paid by the society to renew the contract. Also, it’s a task for the buyer to avail of loan from banks to buy a leasehold property. You would be surprised to know that majority of the housing options in Delhi, Mumbai (especially Navi Mumbai), Noida Extension and Gurgaon are lease-hold properties.

Comparison between Leasehold and Freehold property:

Leasehold	Freehold
Land belongs to the state, leased to owner for a certain number of years	Land belongs to the owner
At the end of the lease period, owners must pay to extend the lease	Ownership is indefinite
Requires state consent (obtained at the land office) to transfer ownership	Does not require state consent to transfer ownership (except in certain specially earmarked properties)
Most banks will not finance a property if the lease period is less than 30 years	Banks finance freehold properties easily

Converting a leasehold into a freehold property

You can easily convert your lease-hold property into freehold if you have the GPA (General Power Of Attorney), a clear sale deed and an NOC (in case the land is under mortgage or rent). In addition to this, you need to pay a conversion charge to the authorities. In Delhi, you can get the status changed using registered agreement to sell and GPA only. You can also get the property converted on the basis of house tax assessment or proof of permanent electricity connection in case of non-sanctioned building plan.

Developers’ view

For a developer, the most important concern while starting off with a project is to control the costs. To do so, they buy lease-hold land. As previously stated, such land is comparatively in-expensive.

Courtesy: Proptiger