Land Ownership: Understanding Freehold Ownership And Leasehold Ownership

Land ownership is a considerable form of property ownership, navigating the intricacies of which is essential for anyone looking to own or invest in real estate.

Whether you want to build your dream home on a piece of land or simply want to make a real estate investment, your unique needs and requirements play a great role in deciding what type of land ownership is suitable for you. Here is where understanding the types of land ownership becomes important.

Well, there are usually two types of land ownership options: freehold and leasehold. Both these types of ownership have their own pros and cons.

Let’s take a deep dive to understand both freehold and leasehold ownerships more closely so that you choose to have the best-suited land ownership for you.

What Is Freehold Ownership?

Having freehold ownership means you are the sole owner of the land and any buildings on it for all time. So, a freehold property is any estate that is “free from hold” by any entity other than the owner.

As long as the usage of the land complies with local regulations, you have the right to use, modify, sell, and transfer the property without any restrictions. The right to ownership is inherited and is transferable to future generations.

Generally, undeveloped land parcels and many single-family houses are held as freehold properties, granting owners complete control over their real estate holdings.

What Is Leasehold Ownership?

Subject to the terms and conditions of a lease agreement, purchasing the right to use and occupy the land and any structures on it for a certain period is known as leasehold ownership. The lessor or landlord regains ownership of the property from the lessee or tenant after this period.

As payment for using the property, tenants are usually obliged to pay ground rent to the landlord. Ground rent is a fixed amount that is outlined in the lease agreement and is often paid annually or semi-annually.

Due to the scarcity of land and high property values, leasehold ownership is common in metropolitan areas and developments.

Freehold Ownership vs. Leasehold Ownership

To understand whether freehold or leasehold ownership is better for you, you should consider the below key comparable factors and decide which type of land ownership best suits your needs.

  1. Ownership Rights
    As a freeholder, you get the absolute ownership rights of the property. Since you are the property’s sole owner, you have total authority over how it is used, modified, and disposed of. Leasehold ownership grants the right to occupy and use the property for a certain period which is mentioned in the lease agreement.
  2. Tenure
    Under freehold ownership, the owner has a perpetual and constant right to the property. Land Ownership under a lease is temporary and for a specified period mentioned in the lease agreement. Unless the lease is renewed or renegotiated, ownership of the property reverts to the lessor after the end of the lease term.
  3. Cost
    Since you are just buying the right to occupy the property for a certain period, leasehold properties are usually less expensive to buy than freehold properties. Nonetheless, it’s crucial to account for the extra expenses associated with leasehold ownership, such as ground rent and maintenance fees.
  4. Sale And Transfer
    Freeholders can sell, transfer, or lease the property independently. While subject to the lessor’s approval and terms, the lessee has limited rights to transfer leasehold interests.
  5. Decision-making
    Freeholders have the exclusive decision-making authority over the property. Leaseholders are required to adhere to lease terms and guidelines when it comes to decision-making.
  6. Usage Restrictions
    A freeholder has complete freedom to use the property as desired. However, there could be certain restrictions under local regulations. For example, any construction or modification to the property must go by the rules established by the municipality in which the property is situated. In leasehold ownership, the property is still owned by the landlord, who has the authority to impose usage restrictions. Depending on the conditions of the lease agreement, tenants may be restricted from subletting, modifying, or using it for a specific purpose.
  7. Resale Value
    Due to the owner’s total control over the property and the land it is situated on, freehold ownership usually carries a higher resale value than leasehold ownership.

Pros And Cons

Below are some pros and cons of having freehold ownership and leasehold ownership. Have a look!

Pros Of Freehold Ownership

  • Absolute ownership
  • No ground rent
  • Freedom of usage
  • Complete control
  • Potential for capital appreciation

Cons Of Freehold Ownership

  • Higher upfront cost
  • Responsibility for maintenance
  • Property tax liabilities

Pros Of Leasehold Ownership

  • Lower upfront cost
  • Lower maintenance cost
  • Lease extension
  • Access to amenities and facilities

Cons Of Leasehold Ownership

  • Time-limited ownership rights
  • Limited control
  • Restricted usage
  • Ground rent and service charges
  • Mortgage complexities and higher interest rates

Frequently Asked Questions of Land Ownership

  1. Which kind of property is better – freehold or leasehold?
    Freehold properties are appropriate for residential use, investment, and obtaining bank loans. Leasehold properties, on the other hand, are preferable for low maintenance requirements and economical commercial use.
  2. Is investing in freehold real estate safer?
    Given that a freehold property has been registered and is anticipated to appreciate in value, it is regarded as a safer investment.
  3. Who actually owns leasehold property?
    The lessor of the lease agreement holds actual ownership of the leasehold property.

Final Verdict

Your unique situation and preferences will determine which type of land ownership – freehold or leasehold – you should choose.

Freehold ownership is a well-liked option for people looking to make long-term investments because it provides total autonomy and perpetual ownership. On the contrary, leasehold ownership is a more feasible choice for urban residents and commercial enterprises since it offers more reasonably priced access to properties with shorter lease durations.

However, before choosing, it’s essential to carefully understand the advantages and disadvantages of each type of land ownership. You can consult with property experts like Elites Properties, where we can help you make an informed decision. Contact us here.