What is the main difference between leasehold and freehold property? Leasehold property is where the lessee holds the right to use and occupy the property for the lease duration while freehold property is where the owner holds complete ownership rights to the property.
Real estate is becoming a cash cow business across United States and Europe. Leasehold and freehold property are two different types of property ownership. They can impact your rights, obligations, and financial considerations.
Many people find it challenging to choose the right option since they do not have clue about these property ownership rights. We wrote this post to highlight the difference between freehold and leasehold property ownership.
Difference between Leasehold and Freehold Property with Table
|Basic Terms||Leasehold Property||Freehold Property|
|Ownership||Ownership is for a specific duration, typically long-term but with an expiration date.||Ownership is indefinite, with no time limit; the owner has full rights indefinitely.|
|Tenure||Involves leasing or renting the property from the freeholder or landlord.||Involves owning the property outright, with no landlord or lessor involved.|
|Ownership Rights||Limited ownership rights for the lease period, subject to lease terms and conditions.||Full and absolute ownership rights with the ability to sell, alter, or transfer the property.|
|Lease Agreement||Involves a lease agreement outlining terms, duration, rent, and other conditions.||No lease agreement; the property is purchased outright.|
|Rent Payment||Leaseholders typically pay rent to the freeholder or landlord.||No rent payments; property taxes may apply.|
|Renewal||Leaseholders may have the option to renew the lease at the end of the term, subject to conditions.||No need for renewal; ownership is perpetual.|
|Alterations||Leaseholders may require permission from the landlord for substantial alterations.||Freeholders can make alterations without seeking permission, subject to local regulations.|
|Resale Rights||Leasehold properties may have restrictions on resale or transfer of ownership.||Freehold properties have no restrictions on resale or transfer.|
|Responsibility||Leaseholders may share property maintenance costs with the landlord.||Freeholders are solely responsible for property maintenance.|
|Investment Value||Leasehold property values may depreciate as the lease term nears expiration.||Freehold property values tend to appreciate over time.|
|Ownership Transfer||Leasehold ownership can be transferred during the lease period, subject to lease terms.||Freehold ownership can be transferred without restrictions.|
|Ownership Duration||Leasehold ownership is for a fixed duration, often decades.||Freehold ownership is perpetual and can extend through generations.|
|Landlord’s Role||Landlord or freeholder retains certain rights over the property.||No landlord or freeholder involvement in property use.|
|Maintenance Costs||Leaseholders may share the cost of property maintenance with the landlord.||Freeholders are solely responsible for property maintenance costs.|
|Depreciation||Leasehold properties may depreciate as the lease term shortens.||Freehold properties generally appreciate in value over time.|
|Equity Building||Leaseholders build limited equity, mainly through lease payments.||Freeholders build substantial equity in their properties.|
|Security of Tenure||Leasehold properties offer limited security of tenure, subject to lease terms.||Freehold properties offer complete security of tenure.|
|Property Control||Leaseholders have limited control over property alterations and usage.||Freeholders have full control over property alterations and usage.|
|Legal Rights||Leaseholders have fewer legal rights compared to freeholders.||Freeholders have full legal rights and ownership status.|
What Is Leasehold Property?
Leasehold Property refers to a type of real estate arrangement in which an individual or entity holds the right to use and occupy a property for a specified duration, as outlined in a lease agreement with the property’s owner, known as the freeholder or landlord.
In a leasehold arrangement, the leaseholder essentially rents the property for a predetermined period, often decades, but without owning it outright. The lease agreement sets forth various terms and conditions, including the lease duration, rent payments, maintenance responsibilities, and any restrictions on property use or alterations.
Leasehold properties are commonly found in condominiums, apartments, and certain types of commercial real estate. When the lease expires, ownership of the property reverts to the freeholder, unless the lease is renewed or extended as per the terms of the agreement.
What Is Freehold Property?
Freehold Property, also known as fee simple property, represents a type of real estate ownership where the individual or entity has complete and indefinite ownership rights over the property.
In a freehold arrangement, the property owner, often referred to as the freeholder, possesses full control and possession of the property, including the land and any buildings on it, without a predetermined lease period.
Freehold properties offer long-term ownership, potentially spanning generations, and do not require ongoing rent payments to a landlord. The owner is responsible for property taxes, maintenance, and other associated costs.
Freehold ownership provides a high degree of security, control, and the potential for property appreciation, making it a sought-after form of property ownership in many regions.
Main Difference between Leasehold and Freehold Property
- Freehold ownership means permanent ownership with full control. You own both the building and the land.
- Leasehold is when you hold a property by lease for a fixed time, with the government as the owner.
- In leasehold, you can use the property for a set term only, while freehold offers indefinite ownership.
- Leasehold rights are limited and may require government approval for transfers. Freehold rights are broader and don’t need such approval.
- Freehold property can be easily mortgaged, but leasehold property is not as mortgage-friendly.
- For changes, leaseholders can make alterations, but freehold owners can make most changes without needing authority approval.
- Leaseholders pay Ground Rent/Lease Rent, while freeholders pay property tax.
- Leasehold properties are cheaper upfront, but lease renewal charges can be high.
Similarities between Leasehold and Freehold Property
- Both involve real estate ownership.
- They can be used for residential or commercial purposes.
- Both types of properties may appreciate in value over time.
- Owners of both leasehold and freehold properties are responsible for property maintenance.
- They can be bought and sold in the real estate market.
- Both may be subject to property taxes and other local regulations.
- Owners of both types of properties may have rights and responsibilities outlined by the law.
- Both can be inherited or passed on to heirs.
- They offer potential for equity building over time.
- Both leasehold and freehold properties can be used as collateral for loans or mortgages.
Final Thoughts from Experts
Leasehold and freehold properties represent distinct forms of real estate ownership. Leasehold ownership involves a time-limited right to use a property, with ownership eventually reverting to the lessor or government. It offers less control and indefinite ownership.
Freehold ownership provides full and permanent control over both the property and land, with no lease restrictions or time limits. While leasehold properties can be cheaper initially, they often come with higher renewal charges.
Freehold properties offer more autonomy but typically involve property tax payments. Understanding these differences is crucial when considering real estate investments and the rights and responsibilities that come with each type of ownership.
People Who Read This Also Read:
- Difference between Article and Journal
- Difference between ATL and BTL Marketing
- Difference between Judgement and Decree
- Difference between Commercial Banks and Development Bank