Freehold vs Leasehold Property in India: Top 7 Key Differences You Must Know

When it comes to property in India, 'freehold' means you own the property along with the land it stands on, whereas 'leasehold' means you own the property for a fixed period, but not the land it is situated on. The fundamental difference between freehold and leasehold lies in the ownership rights and control over the said property. Let’s have a closer look at what freehold and leasehold ownership means, what their differences are, and how it can impact you as a buyer.

Differences in a Nutshell

Let's glance at the differences between freehold and leasehold properties, then explore each concept to better understand how these differences play out in reality.

Aspect	Freehold Property	Leasehold Property
Ownership Duration	Permanent ownership	Fixed term (typically 30 to 999 years)
Initial Cost	Higher purchase price	Lower upfront cost
Recurring Charges	Only standard property tax receipts	Pay ground rent and service charges apply
Modification Rights	Full freedom to alter or renovate	Requires permissions via lease deeds
Loan Availability	Easier approval, better terms	Limited availability, especially near lease expiry
Sale Process	Straightforward and direct	Requires NOC and formal approvals
Long-term Value	Appreciates consistently	Value falls as lease shortens

What is Freehold Property?

Freehold property refers to property where the individual is the complete owner of both the structure and the land on which it is built; both are yours after purchase. Your ownership is documented with the property being legally registered in your name through a sale deed.

Subject to the regulations of your locality, you are permitted to:

• Sell it

• Rent it out

• Renovate or rebuild it

Freehold property benefits include:

• No need to pay ground rent

• No lease agreements

• Typically higher resale value

Due to the absence of lease agreements and ground rent, freehold properties are viewed as clear and permanent ownership. Banks and financial institutions consider this complete ownership to be reliable, reducing the lending risk, which in turn translates into easier loan approvals and better terms for the owners. These properties are ideal for people looking to invest or reside long-term, as the property value appreciates over time.

Also Read: Essential Financial Tips for Managing Mortgage Loans Effectively

What is Leasehold Property?

Unlike the former ownership model, leasehold property doesn't offer absolute ownership. In this scenario, ownership is restricted to the right to occupy or use the property for a finite period of time, from 30 to 999 years. So while you own the flat for this specified lease term, the ground is owned by another party, a government body, or a private entity.

You are permitted to:

• Reside on the premises

• Engage in activities there

• Alter the property (only with approval)

Most government housing and metropolitan flats are based on the leasehold property model and involve ground rent, service charges, and occasional maintenance restrictions.

Freehold vs. Leasehold: 7 Main Differences

1. Length and Rights of Ownership

Owning a property under the freehold system gives you full ownership, and you can pass it on to your heirs after your lifetime. In contrast, leasehold land provides rights only for a specific period mentioned in the agreement. The property can be either renewed or surrendered after the lease period is over.

2. Maintenance Costs & Other Pricing Factors

Freehold properties cost more upfront, and the maintenance responsibility lies with the owners for as long as they own the property. However, there are no recurring charges like ground rent or lease renewal fees to worry about. Leasehold properties are cheaper to acquire than freehold properties, but the ongoing costs such as ground rent, service charges, and maintenance fees can add up over time.

3. Modification Freedom

Leasehold owners can only apply minor alterations to their property; any major changes require approval from the freeholder. These changes come with legal hassles, waiting time, and added costs, which can be frustrating. Freehold owners have the luxury of modifying and redeveloping property without seeking third-party approvals.

4. Sale Process and Transfer

Every step of the sale agreement for freehold property is seamless. Ownership is easily and solely held, and there are no extra approvals or NOCs needed for transfer. With leasehold properties, however, resale often requires a No Objection Certificate, and properties nearing the end of their lease can be harder to sell.

5. Financing Availability

Freehold properties have better mortgage terms and are typically easier to lend money against. Banks and financial institutions are normally unwilling to finance leasehold properties, and can be especially strict on leaseholds with terms under 30 years.

6. Inheritance Planning

Freehold ownership can be easily and strategically assigned to chosen heirs, reinforcing key estate planning principles. In contrast, inheriting a leasehold property depends on the terms of the lease. If the lease period is short or unclear, the process can become uncertain and may involve legal steps or lease extensions.

7. Market Value and Appreciation

Freehold properties, in contrast, are considered a permanent financial investment and appreciate over time. This asset class is preferred among buyers due to a clear title, and the terms of leasing are nonexistent. In contrast, leased properties suffer greatly in value, especially after the term of 50 years, and are therefore a non-viable investment.

Also Read: How to Avail Loan Against Residential Property?

Making the Right Choice

Decide on freehold or leasehold property based on financial aims, lifestyle, and the intended use.

Freehold is appropriate if you want:

• Complete ownership

• Long-term stability

• Easier financing

• Appreciation of property value

Leasehold ownership is preferable if:

• You have a limited budget

• Short-term stay is expected 

• Only leasehold land is offered in the location

• You’re willing to abide by the easement and renewal terms

Remember, whatever the situation, ensuring due diligence in assessing property papers is a must. A property lawyer for guidance on the applicable legal framework and laws is highly recommended.

In addition, it's important to keep up with governmental rules and policies on the same. For instance, as reported by the Times of India, the Maharashtra government has allowed the conversion of leasehold land to freehold subject to a premium payment. This conversion would be important for people who have been long-term residents on leasehold land.

To Conclude

For every property owner and buyer in India, understanding the difference between these two types of ownership is crucial. Choosing freehold would give you more security and complete ownership, while leasehold saves you some money but has its own limitations. Understanding the terms and conditions, thoroughly knowing the paperwork and costs, irrespective of whether you pick a freehold house or leasehold property, is a must. 

At Poonawalla Fincorp, we offer tailored loan solutions, from Personal Loan for Home Renovations to loans against property. Explore more on the Poonawalla Fincorp website today!

Frequently Asked Questions

What makes freehold property different from other types of ownership in India?

Freehold property represents the most complete form of property ownership. It means the buyer has full rights over the land and the structure, with no time limit or external control, making it ideal for long-term investment and use.

What does leasehold property mean in the Indian real estate context?

Leasehold property is like a long-term rental agreement where you have the use of a house but do not own the land. The land remains with a government body or private owner, and your rights last only for the lease period.

In freehold vs leasehold property, what is the main difference?

In a leasehold arrangement, you own the building but not the land beneath it. With freehold, you own both the land and the structure, offering full ownership without time restrictions. Under freehold, there is no ground rent to pay as no one else owns the land.

Are freehold and leasehold properties regulated under the same legal framework?

Freehold and leasehold properties are governed by distinct legal structures. This means the rights, responsibilities, and legal processes involved differ significantly between the two types of ownership.

How are the roles and responsibilities of owners defined in leasehold and freehold properties?

Agreements define the rights and responsibilities of all parties involved in both leasehold and freehold arrangements. These legal property documents outline what each party can and cannot do with the property.

What extra costs should buyers be aware of when purchasing leasehold property?

Buyers should consider the cost of ground rent and maintenance fees in leasehold properties. These ongoing charges can add up over time and impact the total cost of ownership.

Are leasehold properties more affordable than freehold ones?

Leasehold properties are often cheaper than freehold properties, especially in prime locations. This makes them an attractive option for buyers with a limited budget or those looking for short-term use. On the other hand, higher price tags and bigger loan requirements are some risks associated with freehold properties.

Is the process of selling a leasehold property different from selling a freehold property?

Selling a leasehold property usually requires additional documentation compared to selling a freehold. This may include obtaining a No Objection Certificate (NOC) and approvals from the landowner or authority.

Which is better in freehold vs leasehold?

It depends on your needs and goals. Freehold property offers full ownership of land and building, long-term stability, and easier resale or financing. Leasehold property is generally more affordable and suited for short-term use but comes with restrictions, ground rent, and limited control. If you're planning a long-term investment, freehold is usually the better choice.

Can freehold property owners use their property however they want?

Freehold ownership gives you more control over the property, but that doesn’t mean complete freedom. Freeholders must adhere to local laws and regulations regarding property use despite their broader ownership rights. This ensures that any changes or use of the property align with community guidelines and legal requirements.

How is property ownership defined in India?

Property ownership in India is governed by various laws that outline ownership rights and responsibilities. These laws help ensure clarity, transparency, and legal protection for property owners.

Can a leasehold property be converted to freehold?

Yes, leasehold properties can often be converted to freehold by following the legal process. The process for converting leasehold to freehold often involves paying a conversion fee to the government or landowner. Once completed, the buyer gains full ownership rights over the property and the land.

Are there any restrictions on leasehold properties?

Yes, leasehold properties usually come with certain conditions set by the landowner. Leasehold agreements often include rules regarding major renovations and selling restrictions. These terms must be followed throughout the lease period.

Do leasehold property owners have to pay any ongoing charges?

Yes, leasehold owners often have recurring costs in addition to maintenance fees. Owners of leasehold properties usually have to pay ground rent for the land they do not own. This amount and its terms are defined in the lease agreement.

Who is responsible for maintaining a freehold property?

In a freehold setup, the owner has full control over the property. Freehold property owners are solely responsible for the property's maintenance and any associated costs. This includes repairs, upgrades, and general upkeep.

Why do most home buyers choose freehold properties?

Most home buyers prefer freehold properties for complete ownership. This gives them long-term security and more control over their property.

What is the difference between freehold and leasehold properties?

The main difference lies in ownership rights. Leasehold and freehold properties differ in that freehold offers complete ownership of the land and building, while leasehold gives ownership for a set period without owning the land. This impacts how the property can be used, sold, or passed on.

What does converting leasehold property mean?

It refers to changing the ownership from leasehold to freehold. Converting leasehold property usually involves a legal process and paying a conversion fee to the government or landowner. This grants the owner full rights over both the land and the structure.