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Understanding freehold property and leasehold property in India

by Godrej Properties Limited

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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.

Here's a detailed comparison of freehold and leasehold properties:

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 meaning

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. 

Freehold property

  • Ownership: Absolute ownership with 100% rights
  • Period of ownership: Owned indefinitely or until sold
  • Rights: Owners have unrestricted rights to make changes, sell, rent, or lease the property.
  • Bank finance: Banks provide financing for freehold properties.
  • Maintenance and damage costs: Owners are responsible for all maintenance and damage costs.
  • Usage restrictions: No restrictions on guests, pets, or renting out the property

Understanding leasehold properties

  • Ownership: The lessee has the right to use the property for the lease period but cannot claim ownership.
  • Period of ownership: Limited to the lease period.
  • Rights: Lessees can use the property but need the lessor's permission for structural changes or selling/leasing.
  • Bank finance: Banks generally finance leases with a period exceeding 30 years.
  • Maintenance and damage costs: Lessor handles significant damages and repairs.
  • Usage restrictions: Subject to specific lessor-imposed 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.

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.

 

Frequently Asked Questions

1. Are freehold properties safe to invest in?

Ans: If you verify the seller's details and property documents, freehold properties are safe to invest in.

2. What are the benefits of freehold property?

Ans: Freehold property benefits include complete ownership, unrestricted freedom, and a straightforward documentation process.


 

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