Buying a property is exciting. You no longer have to worry about the recurrent rent bills. However, the search for the property can be confusing. As a first-time buyer, you might come across different property terms. And if you do not take time to understand what you are getting into, you might be in a rude shock after purchase or make a costly mistake.

Freehold and Leasehold properties are some of the most common terms in the real estate sector. And one of the most questions that property buyers ask realtors is ‘what is the variance between leasehold vs freehold properties?’ Understanding the variance is essential, especially when searching for a home, preparing to sell, or looking for a commercial property. Read on to understand freehold vs leasehold properties and find out which type is right for you.

What does Freehold mean?

In property ownership, freehold means the complete ownership of a property and the land it sits on. In some cases, freehold might be referred to as free simple or free absolute. Freehold property owners are responsible for all costs pertaining to the property such as buildings insurance and repairs. This type of property has no maintenance charges unless the property owners share services with the neighbours such as communal gardens. Flats and apartments can never be freehold since they are constructed on the same land. In this case, each apartment owner becomes a shareholder.  

What does leasehold mean?

Leasehold property ownership is the purchase of a property for only the specified amount of time. Freehold vs leasehold Canada laws states that once a property is occupied under a lease, the leaseholder does not own the property. As such, once the lease period expires, the property rights go back to the owner. While most leasehold property agreements can be extended, the tenure of the lease also affects the property value.

What is the difference between Leasehold vs. Freehold properties?

  • Cost

Freehold properties are more expensive compared to leasehold properties. In most cases, freehold leases apply to houses, which are naturally more expensive than flats or apartments. While leasehold properties may be cheaper, they often come with other expenses such as service charges, ground rents, and admin fees, depending on the property owner. This is why it’s vital for any property buyer to do a proper check on the freehold vs leasehold cost before signing the lease.

  • Control

With freehold leases, the property ownership is fully transferred to the buyer. This means that the new owner has full control of the property and the land where it sits. As such, the owner can subject the property to any planning permission and do what they like on the land. However, this is a different case for leasehold properties. While leasehold property owners may redecorate or repaint as they wish, there may be certain restrictions such as making structural changes or even keeping pets. This, however, differs with leasehold property owners. Some may be strict with such restrictions while others may be lenient.

  • Responsibility for the property

With freehold properties, the owner takes full responsibility for the property. This means that they are liable for arranging any work that needs to be undertaken on the property. Things like fixing the roof just before winter is the responsibility of the property owner. This is a different case for leasehold properties. Any work that needs to be done on the property is entirely the responsibility of the freeholder. However, the leaseholder may end up paying a portion of the expenses.

  • Rental yield

While freehold and leasehold properties can be rented, some leasehold properties do not allow the renting of property. Freehold properties, due to the higher entry cost, have a lower rental yield. On the other hand, leasehold properties have a higher rental yield since the entry cost is lower than freehold properties. Also, leasehold properties often have more features, facilities and incentives hence remain competitive when looking for renters.

  • Selling property

Selling freehold properties is easier, more straightforward, and has fewer limitations. This is a different case for leasehold properties which often takes more time since state approval and consent are mandated.

  • Ownership timing

Freehold property owners have full rights to the property up to when they choose to sell it. As such, the value of the property is not affected by the lease period, since it’s permanent. Leasehold property owners, on the other hand, only have control of the property up to the expiry of the lease. The lease period also affects the resale value of a leasehold property. Properties with short leases are not only difficult to sell since their value decreases as the lease end nears. While this does not mean that such properties cannot be sold, applying to renew the lease puts the seller at better chances of getting a good return on investment from the sale.

  • Extra perks

A person who likes extra perks in the community, may not get this with freehold properties. For instance, most apartments or flats have extra facilities such as designated parking, access to communal areas, gyms, and even kid play areas. This is not the case with freehold properties.

Which is the better option: Freehold or Leasehold property

Choosing between Leasehold vs. Freehold property does not have to be a mind-wrenching activity. While most buyers may lean to leasehold properties since they are less expensive, they may end up paying even more compared to freehold properties in the long run.

Freehold properties may be more expensive to buy. However, owners have complete control of the property and the land it sits on. As such, the property can be passed through generations. Even if the initial purchasing cost and the responsibilities tied to the property may be limiting, the variety of new Paradise development freehold properties is something any buyer should check out.  

While leasehold property leases can be extended, they may be more expensive when other recurrent costs are factored in. Also, the buyer does not have full control of the property and must seek permission when making major changes such as remodeling or renovating. Short-lease properties can be problematic and should be avoided.