Both leasehold and freehold properties are real estate related terms. In a leasehold property, the land is taken for a lease and the buyer is not the original owner of the property. In a freehold property, the buyer is the owner of the property and has the complete rights over the property.
Leasehold vs Freehold Property
The main difference between Leasehold property and Freehold property is about the ownership of the property. In a leasehold property, the buyer is not the owner and has limited rights over the property whereas, in a freehold property, the buyer becomes the owner of the property and hence has complete rights over the property.
A leasehold property is one that is left to the tenant for a lease. Generally, the government leases a property for 30- 99 years. In this period the lessee can use this property as he/she wishes. After the lease period this property is to be given back to the government. Private owners are also capable of giving a property for lease.
A freehold property is where the buyer becomes the owner of the property. After buying the property for an amount, he/she has the full rights for the area and this is not limited for a certain period. If the owner wishes, he/she can even sell the property.
Comparison Table Between Leasehold and Freehold Property (in Tabular Form)
| Parameter | Leasehold Property | Freehold Property |
|---|---|---|
| Ownership | In a leasehold property, the lessee is not the original owner. He/she has only leased the property. Their rights are limited. | In a freehold property, the buyer becomes the owner. They can use the property as they wish. |
| Period | The lessee can have the property only for a limited amount of time. This will be fixed at the time of the lease. | As the buyer becomes the owner of the property, he/she can have the property for a lifetime. There is no fixed period for this. |
| Payment | The payment at the time a property is leased would be extra if the lease period increases. | The payment would be in bulk if the property is bought and after the transfer of ownership, there is no extra payment needed. |
| Support | The bank supports financially only if the lease period is over 30 years. | Bank supports financially if a property is bought and bank loans are available for the same. |
| Rent | For a leased property, there are different sorts of rents that are unavoidable such as ground rent, maintenance fees, and much more. | If a person has ownership over a property, he/she does not have to pay rents to anyone other than the tax-related to it. |
What is Leasehold Property?
A property which is leased for a fixed period is called a leasehold property. The person who leases such a property is called a lessee. The basic principle behind leasing a property is that the lessee can enjoy the property for a fixed amount of time and the property has to be given back to the original owner when this period expires. This will be a legal agreement between the owner and the lessee.
The difference between a rental property and a leased property is that the period of a rented property is lesser than that of a leased property. The similarity between them is that the tenants are not the real owners of the property. In case if the payment is not paid according to the agreement, the owner has the right to terminate them.
A lease period which is less than 30 years or if the period is restricted for some years, it is called a periodic tenancy. If the agreement during the lease is such that the owner or the tenant can terminate this according to their wish, it is called a tenancy at will. Tenancy at sufferance occurs when a tenant does not leave a property even after the expiry period.
What is Freehold Property?
When a person buys a property, by all means, he/she becomes the owner of the property and ultimately the property becomes freehold. In a freehold property, the owner has the right to perform his wishes that abide by the law. There is no fixed time limit for the ownership, it can extend lifetime until the person wishes to sell it.
If the owner wishes to sell any property, no consents are required from anyone. He/she has the full rights regarding this. A freehold property can be inherited and there are no legal formalities that exist for the transfer of rights. These factors constitute for the label that is ‘free of hold’.
When compared to a leased property, a freehold property is more expensive. This is due to the access to more rights than what is accessible in a leased property. The rate of a property gets gradually increased when the economy of a country increases. This is an advantage for the owner of the property since he/she can sell the property at a higher rate and acquire a larger profit.
Main Differences Between Leasehold and Freehold Property
- A lessee is not the owner of a property, the person has only leased the property whereas, in a freehold property, the buyer becomes the owner of the property and has the complete rights over it.
- A lessee can enjoy a property only for a fixed amount of time and can be extended if the owner wishes, but this is not an infinite extension. There is no time limit for the owner of a property; they can use the property for an unlimited time.
- The payment for a leased property would be extra if the lease period extends. After the transfer of ownership no more payment is to be paid for a freehold property.
- The financial support from a bank is less for a leased property and can be obtained only if the period is more than 30 years. Bank loans can be acquired easily to buy a freehold property.
- For a leasehold property, rents such as ground rents are unavoidable while only government taxes are to be paid for a freehold property.
Conclusion
A leasehold property is a property that is leased to a lessee by the owner of the property. In real estate, a property is given for a lease for a specific time. After this period, the rights of the lessee are terminated and the agreement has to be extended for enjoying the rights for more years.
A freehold property is bought by a buyer from a seller and then the buyer becomes the owner of the property. There is no specific time for this legal procedure. The owner has complete rights over the property and can legally use the property for anything he/she wishes.
References
- https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6229.2009.00241.x