House Tips – Freehold or Leasehold?

Freehold or Leasehold? These never used to be much of a question in the past. However this question comes up a lot more frequently than I ever could have imagined.

Freehold – refers to the type of ownership – in fee simple. In easy to understand terms – you own the land subject to the rights of the government who grants them to you.

Leasehold – as its name implies means “lease”. This type of ownership is a glorified rental agreement for a specific amount of time.

In its infancy, leasehold properties were simple documents. Today they can be quite exotic affairs. Usually there are all kinds of rules and regulations and believe it or not, they can have contingencies for periods of time in the future that can be negotiated at a specific future date, and you could even be agreeing to forfeit your house after a certain period of time passes. They can allow for your lease rate to increase with the cost of living index and all sorts of wonderfully glorious things (glorious for the landlord of course).

Banks used to lend against the value of the home (not including the value of the lot because you don’t own the lot). However, with a spate of leases not being re-negotiated and its resultant headache for the banks, it has become very difficult to obtain financing on these types of properties.

Not to mention the very real risk to you the owner of the home on the lease property. You could be faced with having to pay out your mortgage in full just because now your lender has changed its policy in relation to leasehold agreements.

House Tips   Freehold or Leasehold?

I realize that it seems like a fabulous deal when you can get a gorgeous home for a great price because it is on leased land.

But I caution you to consider the other side of the agreement – the lease itself. If you have your heart set on it – at the very least – get a lawyer proficient in land leases to spell it out for you and understand the risks, before you buy that house. You don’t want to be put out of your home because you never understood the real terms of your purchase agreement.