Finance
Leaseholds and Freeholds: What’s the Difference and Does It Matter?
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Discover the key differences between leaseholds and freeholds in property ownership and how they affect offshore real estate investments.
By Luigi Wewege is the Senior Vice President, and Head of Private Banking of Belize based Caye International Bank
When purchasing offshore property, you may here the terms leasehold and freehold. Discover if either is the best way to help you own property in another country.
Purchasing offshore real estate is one of the most practical investments that one can make. The key is to determine where to find the right type of commercial or residential property and identify what it would take to make the purchase.
Since laws regarding real estate ownership vary from one country to the next, finding out if you can own property and what type of ownership is possible must take place before you begin looking. The good news is that there are countries, with Belize being a good example, that make it possible for persons other than citizens to purchase real estate.
As you learn more about owning offshore property, you are likely to hear the terms leasehold and freehold mentioned. The differences are significant, so make sure you understand the meaning of each one. Here is some information that will help.
What is a Leasehold?
You are probably familiar with the term “lease.” This will help you understand what is meant by a leasehold. Essentially, this type of property ownership conveys the property to you for the timeframe set forth by the purchase contract. At the end of this period, the property is once again fully in the control of the person or entity that sold the property to you.
One of the characteristics of a leasehold is that you are considered the owner for the duration of the contract. Even so, the seller maintains a stake in the property and is considered an owner. In the event you should default on the contract terms, the property will revert to the seller. This is true even if there are still years to go before the contract duration is completed.
How a Leasehold Works
You may purchase a leasehold outright or you may secure a mortgage and make installment payments according to the mortgage contract schedule. In some instances, there may be no need to secure a mortgage. The property owner, usually called the freehold owner, may set up a series of payments that you make directly. These payments may continue for a certain number of years before the financial obligation is set.
The duration of your leasehold is found within the agreement governing the ownership. For example, you may be extended a duration that ensures the property remains in your possession for the rest of your life. It may also specify a specific number of years and allow for the transfer of the leasehold to your descendants. The leasehold duration generally ranges between a decade up to 99 years.
Leasehold Property Maintenance and Upkeep
While you have control of the property, the freehold owner may still have some obligations that must be met. These often have to do with general property maintenance and upkeep. Those responsibilities are usually specified in the contract terms and conditions.
It is not unusual for the freehold owner to continue to take care of structural issues with any buildings on the property. That means if the roof needs replacing, the freehold owner will manage that rather than the leasehold owner. Damage to the building’s framework would also remain the responsibility of the freehold owner.
Don’t assume that the leasehold owner will not have some responsibilities. Taking care of the landscaping and basic tasks common to upkeep will likely be his or her responsibility. The contract is likely to assign specific tasks to the leaseholder even as some are reserved for the freehold owner.
Making Use of a Leasehold Property
Since the ownership is temporary rather than permanent, it is not a good idea to assume that you can do anything that you want with the property. There are likely to be limitations on what can be done in terms of adding new structures, making permanent changes to the existing ones, or making any drastic changes to the property itself.
That does not mean you couldn’t make changes to the property. If the freehold owner agrees, you can certainly do so. Just remember that it is not a unilateral decision.
Understanding Freehold Property Ownership
With a freehold, you purchase the property in perpetuity. That is, the property will not revert to the previous owner at some point in the future. If you fulfill the financial obligation to the seller, you are free to do with it as you please.
With this type of purchase, the previous owner relinquishes all claims to the property, or any buildings found within the property boundaries. The upkeep, repairs, and maintenance of the property is now firmly your responsibility. The same is true for maintaining insurance and paying any taxes due.
What Can Be Done with a Freehold?
A freehold means that you can develop, alter, or add to elements on the property at will. There is no need to seek permission from anyone other than the local government. Any building or property codes that apply must still be observed. Other than that, feel free to add on to an existing structure, demolish everything and build something new, or whatever else you would like.
A freehold property can be conveyed to anyone that you like. That means you can prepare a last will and testament that leaves the property in the hands of a family member, a friend, or anyone else. It is yours to pass on in whatever way you would like.
Choosing the Right Country for Your Offshore Property Holdings
Look closely at what is required by national governments as it relates to the ownership of real estate. Some nations are more welcoming than others to foreign ownership. For example, you may find it difficult to secure freeholds in some countries while leaseholds are more common.
At other times, you’ll find that there are few if any barriers to expats or citizens of other nations purchasing freeholds. That happens to the be the case in Belize. You can continue to be a citizen of countries like the United States or Canada and still purchase property that’s completely yours.
Remember that financing a freehold or leasehold purchase is simpler when you approach a lender within that nation. Mortgages for foreigners are often available at terms that are competitive with other approaches to financing.
Consider establishing checking or other accounts that will make remitting payments on the mortgage all the easier. Once everything is in place, all that’s left to do is enjoy your property.
This is a Sponsored Feature
The article discusses the differences between leaseholds and freeholds in property ownership.
A leasehold is a type of property ownership where the owner has rights for a specified period as per the contract.
A freehold refers to permanent ownership of a property without any time limit.
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