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Freehold Property and How It Can Affect Your Property Purchase in 2024
Updated : May 8, 2024
Author :
kruthi
Table of Contents
Freehold property is defined as “any estate which is "free from hold" of any entity besides the owner. Hence, the owner of such an estate enjoys free ownership for perpetuity and can use the land for any purposes however in accordance with the local regulations.”
The owner owns this property outright, including the land it's built on, and the right of such property is perpetual. The owner can make use of such freehold property for any purpose under local bodies rules and regulations. For instance, the owner can alter the building in the property without needed permissions and he can even lease his freehold property. Freehold property is more expensive when compared to leasehold property because it does not require approval from local governing bodies and does not need much documentation or paperwork.
Freehold property can be inherited by the descendants of the owner. There are no restrictions on the property owner's right to transfer the property further. In a freehold property, there is no encumbrance to the absolute title of the property. A freehold is not like a co-op wherein the individual unit owner pays a maintenance charge. The registration of the sale deed can transfer freehold property.
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Under the Land Acquisition Law, the State has the complete authority to amass private land to extend infrastructure facilities and industrialization. The government even can undertake private land for urbanization if they provide suitable compensation to the landowner.
What kind of Properties Cannot be Freehold?
Apartments, flats, and homes cannot be considered freehold property as they are built on land owned by the builder or developer.
Right of the owners of Freehold Property
The most significant right that an owner has on his freehold estate, is complete freedom on the property and a property's possessions for an unspecified length of time. There are no particular restraints on the right of an owner on a freehold property. The owner has the absolute freedom to transfer the property, and it can also be inherited. There is no such hindrance to the property's full title. It can be transferred from one person to another by registering a transaction document.
Purchasing a freehold property grants you the rights to anything built on it. What if the property is an apartment? If the property they own is a flat or an apartment, the flat owner becomes a shareholder of the property. In India, houses are sold as freehold properties, but there are also cases where the flats are sold on lease. Nowadays, a visible change can be seen in this scenario where customers are coming forward to buy freehold property.
What is a Leasehold Property?
As the name implies, a leasehold property is a property that is leased and not owned. After the lease period expires, the property's right is given back to the owner unless the lease is extended. Usually, the period of lease varies from state to state.
Buying a Leasehold Property
Before you buy a leasehold property, consider the following:
- The number of years left on the lease
- Cross-check the years left on the lease if you plan to sell the property in the future.
- The budget management for the service charges and other related expenditures.
- The lease's length will also get affected by getting a mortgage and in its property resale value.
Advantages of a Freehold Property V/S Leasehold Property
Any commercial property in India is either freehold or leasehold. In this space, people run their businesses, companies, factories, or shops or lease it.
- In a freehold property, the estate belongs to the owner. While in a leasehold property, the property's actual rights belong to the owner, which he passes to the investor for a decided amount of time.
- Once your lease period ends, you will have to pay again to extend your rights over the property. In comparison, a freehold property belongs to the owner in perpetuity.
- In a freehold property, you can make modifications as you like. But when it comes to leasehold property, you need the owner's permission to make any change or alteration in the property.
- The landowner of a freehold property will bear all the maintenance costs.
- Residential properties are generally categorized under freehold property. Commercial properties are the best examples of leased properties.
- You can quickly get a bank loan for a freehold property. Banks are reluctant to offer loans on leasehold properties.
- The transfer of ownership does not require any legal consent in a freehold property. But in a leasehold property, a property can only be leased only when the State gives permission.
Benefits of Converting Leasehold Property into a Freehold Property
A leasehold property may be converted to a freehold property through a clear contract of the transaction, a general power of attorney, and a no-objection certificate, especially if the land is under lease or rent. You must pay a conversion charge to the relevant authorities. Every state has its own rules for such conversion of properties. Suppose a property owner wants to get the status changed. In that case, they can get it done by registering the agreement to sell the property and attorney general power in Delhi. Meanwhile, in Maharashtra, the state government has set the rate for converting leasehold property to freehold property.
People generally opt to invest in freehold property because of its stability and capital growth chances associated with it. Also, a freehold property gives buyers undivided ownership of the property when compared to a leasehold property. In a leasehold property, the land belongs to the developer or the state, who has purchased the land to construct the project.
Additionally, a freehold title gives buyers complete ownership of the property bought against a leasehold title. The State Authority or the developer will own such property, who has purchased the land to construct the projects to extend infrastructure facilities or industrialization.
Loans for Freehold Property
Freehold properties are considered a safer mode of investment because the registration of freehold property is already done. Freehold properties are expected to rise in value in the long run. The higher the property's market value, the greater the bank's chances of sanctioning a more considerable home loan amount. The freehold property owner has exclusive rights over the property, including the right to transfer, repair, refurbish or exchange the property.
Freehold property is more in demand as compared to leasehold property. The property owner's exclusive right on the property and the increase in the market values are the primary reasons that draw the investors' attention to a freehold property. Freehold property can be inheritable by the descendent of the owner. The documentation process is already done, so it is easy to transfer ownership if needed. No other legal formalities when compared to that freehold properties. They are a great way to invest your money.
If you’re buying a house and are not sure if it is a leasehold property or a freehold property, it is best to consult the right lawyers. NoBroker’s Legal Services can help you out. You get experts who will guide you through the process so that you avoid making any mistakes while purchasing your commercial or residential property.
FAQ's
Ans. Any real estate that is legally 'free from hold' of any entity other than the owner is known as a freehold property.
Ans. The owner enjoys absolute freedom on the property. He can make any renovations to his property.
Ans. The property that belongs to the state that is leased for a specific period of time is called a leasehold property.
Ans. The significant difference between freehold and leasehold properties is with the ownership status.
Ans. Yes, it is possible to change the status of a leasehold property to a freehold property. It takes a fair amount of time and money, but it is possible.
Ans. Through proper documentation, we can convert a leasehold property to a freehold property.
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