Property ownership can be of the “freehold” or the “leasehold” type. In this article, we will explain what is freehold property, what are the differences between freehold and leasehold property, and how to convert leasehold property to freehold.
What is Freehold Property
A freehold property, as the name suggests is one that is “free from hold”. Here is what this means.
- The owner of a freehold property has absolute ownership, and clear title of the building as well as the land on which the building is constructed.
- There is no encumbrance to the title of the property.
- The ownership of freehold property is forever.
- The owner of a freehold property can do whatever they want with it (of course within the permissible laws of the land.
- The owner can make modifications to the building (with the required municipal permissions).
- The owner can sell a freehold property, without the requirement of any consent of the state or others.
- The owner of the freehold property can will it, or transfer it, or gift it, or donate it.
- A freehold property can be inherited by their heirs of the owner.
- The owner can lease his freehold property.
What is Leasehold Property
A leasehold property, on the other hand, is one in which the property is leased, and not owned.
- If a person has purchased a leasehold property, then they can use the property, and reside there for the period of the lease.
- The lease period is usually 99 years, but can be extended to 999 years, at a much higher cost
- The buyer is neither the owner of the building, nor the land on which the building exists.
- After the lease period is over, the buyer has to vacate the leasehold property and the ownership is given back to the land owner.
Difference Between Freehold and Leasehold Property
Having understood what a freehold property and what a leasehold property is, let us now try to understand the difference between freehold and leasehold property.
Residential property in India is freehold, be it flats/apartments or villas, unlike in a few countries like Singapore, USA, etc, where residential property is leased for 30, 60, 99 or 999 years.
Commercial property in India is either freehold or leasehold. That is to say, people run their shops, business, companies, factories etc., either from space they own outrightly, or they lease it.
Here is a summary of the difference between freehold and leasehold property.
Property belongs to you forever.
Property is only leased to you for a stipulated period.
You can make modifications as you like.
You need the owner’s permission to make any modifications.
Costs more than leasehold property.
Costs are relatively lesser than freehold property.
You are responsible for the maintenance.
The landowner is responsible for the maintenance.
You can easily get a bank loan for a freehold property.
Bank loans are generally difficult to get for a leasehold property.
Residential properties are generally freehold property.
Commercial properties and company guesthouses are examples of leased properties.
Apartments on Leased Land
We mentioned above that residential property in India is usually freehold property. It is important to note here, that some apartments can be built on leased land, as it happens in New Delhi, Mumbai, Noida and Gurgaon, for example. In such cases, after the lease period is over, the society may have to pay the landowner to renew the lease.
In most other cities, however, the apartments are generally constructed on freehold land with a clear title, and the apartment owner is considered as a shareholder of the land.
How to Convert Leasehold Property to Freehold
It is possible to convert a leasehold property to freehold property if the landowner and the leaseholder so wish it. This can be accomplished by executing a sale deed, after which the ownership rights of the property will be transferred from the lessor to the lessee.
Documents needed for Converting Leasehold to Freehold
For converting freehold to leasehold, you would need:
- GPA (General Power Of Attorney)
- A clear sale deed
- NOC (in case the land is under mortgage or rent)
- Pay conversion charges to the authorities concerned
In Delhi, it is possible to get the status updated from leasehold to freehold on the basis of a registered agreement to sell and a GPA only. Status change can also be done on the basis of house tax assessment.
Apart from the documents mentioned above, it is also prudent to get a search report for your own due diligence. A search report is a legal document that serves as proof that the property is free from encumbrances, loans, litigation, and mortgage.
On the basis of all these documents mentioned above, you would need to register a conveyance deed in the Officer of the Registrar. A conveyance deed is a document stating the transfer of authority from the lessor (owner) to the buyer.
Next comes the change in the ownership title of the property from the seller to the buyer, which is called property mutation. This is essential to be documented by the Land Revenue Department, and also for the municipal records for property tax payment. After the mutation process is completed, a Mutation Certificate will be issued to the buyer.
Cost of Converting Leasehold to Freehold
- The cost to be paid to the seller
(determined by negotiation and agreement between the buyer and the seller) Legal expenses
- Stamp duty
- Registration charges
This is how to convert leasehold property to freehold, where the person who had rights to just use the leasehold property is now the freehold owner of the property.