Explained: Leasehold Vs Freehold Property


By now, most of us know that two types of property ownership exist in India’s urban areas- Leasehold and Freehold.  But not many are well-versed with the various differences and implications of owning a leasehold vis-à-vis a freehold property. 

This table illustrates the broad distinctions between owning leasehold and freehold property

Basis of difference

Freehold

Leasehold

Land Ownership

The owner’s right over the property is complete and unconditional. 

In case of a standalone house, the owner owns the property as well as the land on which it is built. Whereas, in case of group housing, the land ownership is usually divided in proportion to the floor area of each owner.

 

 

In this case, the land-owning agency gives the land on lease to a lessee (individual owner or developer) 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.

 

Duration Of Ownership

The ownership is for perpetuity and passes on automatically to the legal heirs.

The lease generally varies from 30 to 99 years. For 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.

Transfer Of Property

There are no restrictions on the rights of the owner to further sell and transfer that property.

The ownership can be transferred to another buyer through registration of sale deed.

The lessee cannot transfer  property without the permission of land owning authority.

 

For example, if you want to sell your property in Noida, the buyer needs to pay a designated fee to obtain Memorandum Of Transfer from Noida Authority. After receiving this NOC from authority, the buyer and seller proceed to get the property registered.

This can make the transfer more expensive.

 

Property Title

The Title of the property lies in the name of the owner. 

Here, although the Property Title is in the name of the homeowner,  the ultimate owner is the land owning agency.

 

Registration

The registration of the property here happens through Sale Deed.

Here, Deed of Lease needs to be registered in the name of the buyer. Once the duration
of the lease is over, renewal of the lease becomes necessary to continue occupying the property.

Good news is that banks usually don’t discriminate between leasehold and freehold properties when it comes to sanctioning a home loan. It’s entirely hassle-free especially when the bank has already conducted due-diligence on the legality of the project. 

What happens when the lease expires?

There can be three scenarios

  1. Lease gets extended for another designated period on payment of authorized fee
  2. Land gets converted to freehold- in this case, owners are asked to pay a conversion charge
  3. Neither lease extension nor freehold conversion happens- this scenario is hypothetical with no precedence in free India.

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