People who want to buy property often get confused with terms like “Freehold” and “Leasehold”. Here, we will discuss what each of these terms mean, the legalities associated with them that you should be aware of, a comparison of the two, developers’ view, and the latest that is happening on that front.

The key difference between freehold property and leasehold property is about control and ownership of land. As the owner, you are free to do what you like with your home, of course as long as you comply with the local planning rules. The government gives a tenure of 99 years for ownership of leasehold land. This leasehold can be extended to 99 years if the property owner (which can be the State in many cases) wants to extend the lease and there is a price that should be paid for this lease extension.

What is a Freehold Property?

If you have bought a freehold property, you are the owner of the land the house stands on as well as the house. The house owner becomes a shareholder in the property in case of apartments. You can then live at the freehold premises for as long as you want. You are also within your rights if you want to renovate or make any changes to the house. You may need permission from the authorities if you want to make structural changes, especially if the building is old. Most houses in India are sold as freehold property but this scenario is changing as many apartments are also sold now as freehold.

What is a Leasehold Property?

If you buy a leasehold property, you get the rights to live in it for a specified period of time. In this case the property buyer is not the property owner nor owns the land the house is built on. In fact, you must pay ground rent to the leaseholder or owner. Once the specified period in the lease is over, the ownership reverts to the owner of the land. Most leases are given approximately for 99 years. If you opt for a leasehold property, it is important that you know the lease period because this has an effect on the property value. You can extend the lease to 999 years.

What type of properties cannot be Freehold?

Apartments or flats can never be freehold because they are structures that are built on the same land that is owned by the developer or builder, and in this scenario all owners of apartments are shareholders.

Can you convert a Leasehold property to Freehold Property in India?

Some states and places like Delhi make it possible for you to convert a leasehold property so that it becomes a freehold one. If you find that such an option is available, you should definitely decide in favor of the conversion. However, remember that the rules for these conversions vary from state to state.

You need three documents to convert your leasehold property easily:

• Document #1: The General Power of Attorney or GPA
• Document #2: A clear sale deed
• Document #3: A No Objection Certificate or NOC if the land is rented or under a mortgage.

Additionally, you must pay a conversion fee to the authorities. It is possible to change the status of the land using only the GPA and the registered agreement to sell in Delhi. You can also go for the property conversion on the basis of the tax assessment for the house or a proof of permanent electricity connection if there is a non-sanctioned building plan.

What are the types of properties that buyers prefer?

People who want to buy property typically prefer to invest in freehold property because of the chances of possible capital growth and stability that are associated with it. Also, buyers get total ownership of the property when the title is freehold as opposed to a leasehold title, in which case the State Authority or the developer, who has bought the land to develop the building project is the real owner of the land.

From a Developement Viewpoint

The most important factor for a developer when starting a new building project is controlling the costs. One way of controlling costs is to buy leasehold land. This type of land is usually less expensive than freehold land.

From our viewpoint

We recommend, that if you are offered a choice, the better option is to choose freehold properties because they have a better clarity when it comes to future prospects for the land and the property.

The most recent Developments

For your benefit, here are some of the most recent developments in this respect:

• People who operate businesses or live in leased or rented properties for many years in Lutyen’ Delhi now have the choice of purchasing them in 11 out of the 27 markets that belong under the ambit of the New Delhi Municipal Council.
• From April of 2017, buyers must shell out more money to convert their leasehold properties into freehold ones in the top locations of the capital city, which have been leased out to the land and development office governed by the urban development ministry. Even the property owners who did this conversion from leasehold to freehold for their properties between 2000 and 2017 must pay the revised rate, pertaining to the year in which the deed got the approval.
• Owners of approximately 50,000 leasehold properties of various sizes in Chandigarh will soon be able to become the only owner of the houses. The rates have also been finalized.

To sum it up, the duration of a lease in case of a leasehold property is 30, 60, 99, or 999 years, and transfers of lease need the approval of the State or an equivalent body. You can just use the home or property for the specified number of years because you only have a lease from the landlord or freeholder. The duration of a freehold property is decided by the town’s planning authorities and there are very less limitations on property transfer. When you buy a freehold property, you own the building and the land that it is built on, without any time limitations. Before you buy a property, make sure which type you are buying so that you understand all your options.