Difference between Leasehold Land and Freehold Land

In urban areas two types of properties exist — freehold and leasehold.

FREEHOLD PROPERTY

In case of a freehold property (plot or flat), the owner’s right over the property is full and unconditional (within the provisions of the laws of the land). The title paramount (the President of India acting through the land-owning agency) has conveyed the property in favour of the purchaser by conveyance or sale deed. There are no restrictions on the rights of the latter to further sell and transfer the ownership of that property.

In case of a standalone property, the owner owns the property as well as the land on which it stands. In case of a multi-level property, land ownership is usually divided in proportion to the floor area of each owner.

The ownership of a freehold property is transferred to another buyer through registration of sale deed.

LEASEHOLD PROPERTY

In a leasehold property, on the other hand, the land-owning agency gives the land on lease to a lessee for a stipulated period. The land ownership rights remain with the lessor. The lessee pays a lease premium and an annual lease rent as fixed by the lessor. Further, the lessee requires the lessor’s prior permission if he wants to sell the property.

To cite an example, the Noida Authority and other new land-owning authorities in the NCR offer land on lease for 90 years. Same is the case in Navi Mumbai. After the stipulated period gets over, allottees have to renew the lease by paying the lease rent once again.

Leased properties can also be transferred, provided permission has been obtained from the land-owning agency. The buyer pays a stamp duty and a memorandum of transfer has to be executed.

If you are going to buy a leasehold property, a few points need to be kept in mind. Says BP Singh, mortgage valuation expert: “Make sure that the ground rent has been paid up to date.”

Buying a leasehold property has a few disadvantages. Says Singh: “You can’t take a loan on a leasehold property as you can in case of a freehold property.”

Most transactions involving leasehold properties are done through Power of Attorney (POA). Such a transaction does not confer a clear title on the buyer. It also ceases to be effective on the seller’s death. If you are the buyer in such a transaction, ensure that you get a general as well as a special, irrevocable POA, which allows you to transfer the property. Moreover, buying properties involved in multiple POAs is usually fraught with difficulties.