Comparing Leasehold vs Freehold?
For those unfamiliar with the term “leasehold,” it’s not a big surprise considering that there are not as many leasehold properties available on the market as there are freehold properties across the lower mainland. However, significant factors make leaseholds attractive; Leaseholds are priced significantly lower than freehold properties; They are often located in prime neighbourhoods like False Creek, UBC, SFU and parts of Richmond. These are increasingly determinant factors, and many clients who love these neighbourhoods consider ownership without having seen a leasehold agreement before.
What is Freehold?
Owning a property on a freehold basis means you own not just the building itself but the land it stands on.
You are responsible for looking after everything to do with the property, from your possessions inside to the walls and roof of the building’s outside structure.
As a result, if you want to make any changes to the property’s structure ‒ such as adding an extension ‒ you are free to do so, as long as you have any necessary planning permission from the local council.
Tips to get freehold property
When it comes to freehold properties, a few tips can help you obtain one:
- Find a realtor or Vancouver condo management company that specializes in freehold properties. They can make the process easier.
- Consider the property lease, as the longer the lease, the less time you will have to pay for it.
- Talk to your bank or mortgage broker before putting an offer in to see if you qualify based on the leasehold property you are thinking of purchasing. The lease length may also affect whether or not you can be eligible.
- Ensure that the lease is prepaid. If it is not, then make sure that you can handle the annual payments with the property.
What is leasehold?
Leasehold is somewhat different. You effectively lease ownership of a property for a specific period. This tends to be over a long period but can vary between 40 to 999 years.
You will have a contract with the freeholder of your property, which sets out precisely what you are responsible for. You will likely be required to pay certain annual costs, such as ground rent, while you will also be required to contribute towards maintenance and service charges.
Tips to get leasehold property
When it comes to leasehold properties, a few tips can help you obtain one:
- Check the shortest lease your mortgage lender will allow so that you aren’t stuck in one for the long term.
- Double-check to make sure you can sell your lease if you wish.
- A leasehold allows some people to buy into a neighbourhood they love without paying the same premiums of a freehold.
- Leaseholds provide a housing alternative to people who do not want to be paying expensive rent that can cost as much as mortgages.
WHAT TO WATCH OUT FOR…
- There is no guarantee that the landlord will renew the lease agreement.
- The landlord has the right to increase rent on the use of the land at the end of the lease term unless stated otherwise in the lease.
- The landlord has the right to sell the land on which the leasehold property sits at any point in time unless stated in the lease contract.
- Fewer lenders are willing to finance leasehold properties, primarily privately owned properties.
- The market value is not significantly appreciated compared to freehold property and may even drop as it gets closer to the expiry date.