In India, there are two types of land ownership: freehold and leasehold property. Both types of ownership are defined under the Transfer of Property Act, of 1882. As per this act, freehold property is defined as land owned by an individual with no time limit on their ownership. On the other hand, a leasehold property is land leased to an individual for a specific period.
There are several differences between freehold and leasehold property in India. Therefore, it is essential to comprehend these differences before choosing the appropriate form of ownership. In the section below, we will discuss what freehold property means and how it differs from leasehold property.
Let’s get started.
What is a freehold property?
Freehold property is ownership of land or buildings. This type of ownership gives the owner full rights to the land and any improvements made, including the right to sell, lease, or use the property.
Benefits of Freehold Property
- The one who owns the property outright can do whatever they want with it without permission from anyone else.
- There are no restrictions on how long they can live on the property.
- It can be passed down to their heirs.
Owner’s Right on Freehold Property
The owner of a freehold property has the right to do whatever they want with the property within the bounds of planning permission. This means they can live in the property, rent it out, sell it, or even demolish it and rebuild it if they so wish subject to necessary permissions and sanctions from the competent authority.
However, there are some limitations on owners of freehold properties, such that they must not violate any covenants in their title documents, disturb their neighbors, or engage in any illegal activity on the property.
What is a leasehold property?
A leasehold property is a transfer of a right to enjoy a particular property for a certain time, express or implied, or in perpetuity, in consideration of a price. A government agency or other organization that does own the land is often the one to issue the lease. There are many different lease terms, ranging from a few years to 999 years. The land reverts to the owner after the lease expires (unless someone has the right to renew).
Benefits of Leasehold Property
- The lease gives the right to occupy the property for a set period, typically 99 years.
- Leasehold properties are often less expensive than freehold properties.
- One can have more flexibility by subletting or transferring their lease subject to the provisions of their agreement.
Owner Rights of Leasehold Property
A leasehold property is a type of real estate ownership in which the owner has the right to use and occupy the land or property for a specific period, as outlined in the lease agreement. The person giving the lease is called the “Lessor” and the person taking the lease is called the “Lessee”. The Lessee does not own the land or property outright; instead, they have a contractual relationship with the lessor (owner of the land or property). The length of the lease term can vary but is typically 99 years. At the end of the lease term, the ownership rights revert to the lessor, unless there is a clause of renewal in the Lease Agreement.
Difference Between Freehold Property & Leasehold Property
|Basis||Freehold property||Leasehold property|
|Ownership||Absolute possession. The owner is entirely in charge.||During the term of the lease, the lessee does have the ability to use the property but is not entitled to ownership.|
|Time of ownership||The property is owned by the person indefinitely or until it is sold.||During the term of the lease, the lessee may utilize the property.|
|Access to bank financing||People who wish to acquire freehold properties can get financing from banks.||Banks often only fund leasing when the term is more than 30 years.|
|Rights||The owner is free to make any alterations, sell, lease, or rent the property.||The entire home and all of its amenities are available to the lessee. Without the lessor’s approval, Lessee cannot transfer, rent, let out, or perform structural alterations.|
|Limitations on how to utilize the property||There are no limitations on visitors, pets, or leasing out the house.||There could be particular guidelines established by the lessor that must be adhered to as per the Agreement executed by both parties.|
|Costs of maintenance and repair||The whole cost of maintenance, as well as damage charges, shall be the owner’s responsibility.||Major damage and repair expenses will be paid for by the real owner (lessor).|
The Bottom Line
Understanding the distinction between freehold and leasehold ownership is essential for anyone seeking to purchase real estate. Before deciding, it’s crucial to know which option is best for oneself because each one has its own set of advantages and disadvantages.
Disclaimer: This article is based on the information publicly available for general use. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim/disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.