Leasehold & Freehold
Posted on: 2014-02-21
| Differences | ||
| LEASEHOLD | FREEHOLD | |
| LAND USES | * Lease duration is usually 30, 60, 99 or 999 years. * Limited by purpose of lease and land legislation. * Stocking levels, cultivation etc. may be restricted by lease conditions. * Limited by environmental and town planning controls. |
Limited by environmental and town planning controls. |
| DUTY OF CARE | * High level of duty of care defined in land legislation. * May be responsible for developing and maintaining improvements. * May be required to engage in property planning. |
Duty of care following common law and as required by some Environmental Protection Acts or its equivalent. |
| TRANSFERABILITY | * Lease transfers require State or its equivalent's approval. * Aggregation * and sub-division |
* Fewer limitations on transfer. * Aggregation and unlimited right to sub-divide and aggregate subject to town planning controls. * Sub-division |
| RETRIEVAL/ RESUMPTION |
Powers to acquire leasehold interest or withhold land when lease expires. |
Some powers to acquire land for public works. |
| SECURITY OF TENURE |
Varies according to lease type but forfeiture for non-performance may be possible. |
Very high level of security. |
Advantages & Disadvantages |
||
| LEASEHOLD | FREEHOLD | |
| Advantages | * Smaller initial outlay. * Less financial exposure than a freehold acquisition. * Rent and any service charge is a business expense spread over the lease term. |
* You own the property outright * You can use the property as you wish, subject only to any planning or other legal restrictions * You have greater control over the management of the property, e.g you choose when to carry out works of repair or decoration * Property may rise in value. |
| Disadvantages | * The lease will usually contain restrictions as to the use of the premises, allowing other parties to use the premises etc. * Unless there is a break option, you are bound to comply with the lease obligations for the duration of the term. * Even if you find another party to take over the lease, you will probably be required to stand as guarantor. |
* A property with poor, limited or no financial history will find it difficult to obtain commercial mortgages. * Cash flow will be affected by the payment of any deposit. * Mortgage costs may increase in line with any rise in bank base rates. |
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