Understanding freehold property and leasehold property in India

Freehold and leasehold properties in India offer distinct ownership models. Freehold properties provide absolute ownership of the land and the building, allowing complete control and freedom for the owner. In contrast, leasehold properties get leased for a specific period, with limited ownership rights and reduced maintenance responsibilities.

What Is Freehold Property?

Freehold property is real estate where the owner has absolute and permanent ownership of both the land and the building.

Freehold property refers to real estate in which an individual or entity holds complete and unrestricted ownership rights over the land and any structures built upon it, with no time limit or constraints on ownership. 

Top Advantages Of Freehold Property

Ownership

The freehold property owner gets unrestricted ownership of the property. It means the property is free from hold and does not have any restrictions. So, no renewal documents are required to enjoy its ownership. The owner can rent it, sell it, or pass it for inheritance. 

Period of ownership

As the property is free from hold, there is no restriction on the ownership. The owner’s rights remain protected until they sell it. 

Owner’s Rights

One of the biggest advantages of freehold property is unrestricted usage of property. Owners can make any changes, sell, rent, or lease the property without any worry. 

Finance

Individuals can easily finance a freehold property by getting financial solutions from banking and non-banking financial institutions. ‘

Maintenance Costs

The owners are responsible for all maintenance and damage costs on a freehold property. They have complete ownership and the maintenance cost comes along with it. 

Usage restrictions

There are no usage restrictions on freehold property. The homeowner can rent the property, keep any pet, or build parking space without any restrictions. 

Advantages of Leasehold Properties

Ownership

The lessee has the right to use the property for the lease period but cannot claim ownership. Thus, the ownership has some restrictions.

Period of Ownership

Leasehold property is typically granted for a period ranging from 30 to 99 years. The period of lease depends on the leasing authority or the landowner. When the lease period is expired, the owner need to apply for renewal or extension. 

Rights

Lessees can use the leasehold apartment or land  but need the lessor's permission for structural changes or selling/leasing. They cannot transfer the ownership and must adhere to the lease agreement. 

Finance

Banking and non-banking financial institutions offer financial solutions for leases with a period exceeding 30 years. 

Maintenance Costs

For the leasehold property, the lessor handles significant damages and repair cost. 

Usage restrictions

There are certain usage restrictions on the lessees. One need to read the lease documents to know their usage rights. Some of the restrictions include transfer and sale restrictions, modification limits, subletting, and purpose of use restrictions. 

Difference Between Freehold And Leasehold Properties

Due to greater control and ownership, Freehold properties are often preferred for residential purposes. However, it requires a higher initial investment to acquire them. Commercial players usually opt for leasehold properties, which offer more flexibility and lower upfront costs.

Converting a leasehold property to a freehold property may involve negotiations with the lessor and creating a sale deed. It may also require payment of a conversion charge to change the property's status.

Freehold vs Leasehold

Property insurance is crucial for freehold properties to mitigate risks and expenses in case of damage. It's essential to have both property and contents insurance to protect your investment fully.

While freehold properties offer complete freedom, they can be subject to government reclamation for developmental activities. Owners are compensated based on the land's per-square-foot value in such cases.

Choosing a freehold or leasehold property depends on individual requirements and financial considerations. Freehold properties are suitable for investment, residential use, and obtaining bank loans. In contrast, leasehold properties are better for cost-effective commercial use and low maintenance responsibilities.

Recent changes have relaxed rules on freehold conversion charges, offering more flexibility for property owners looking to convert their leasehold properties.

Process Of Converting Leasehold Property Into Freehold Property?

Converting leasehold property into freehold property in India involves these steps:

Application

The lessee needs to submit an application to the local development authority or municipal body for converting leasehold property to freehold property. 

Documentation

Along with the application, they need to provide necessary documents, including the original lease deed, property tax receipts, and identity proof.

Payment

There are some additional cost included in the process including the conversion fee, which varies based on property value and location.

Verification

A proper verification is conducted by the authorities, which includes document verification and property verification.

Approval

When proper verification is done, the conversion is approved, and a freehold title deed is issued.

Registration

The last step requires registering the new freehold deed with the local sub-registrar’s office. It formalise the freehold ownership. 

The Final Word

Freehold properties grant unrestricted ownership, making them attractive for various purposes. However, property insurance is advisable to mitigate risks. Leasehold properties suit those seeking lower upfront costs and simplified responsibilities. The choice between the two depends on individual preferences.