Property Law: Freehold vs Leasehold Property in Kenya

Some of you contemplating to purchase a property may be overwhelmed at the outset, with the thought of having to undergo a plethora of formalities, legal procedures, and terms. A couple of such terms that we hear and read mostly are “Freehold” and “Leasehold” properties. So what do they mean? Are there any legalities attached to them which you should be aware of while buying property? And what actually is the basic difference between the two and is one better than the other?The main difference between the two kinds is the land ownership and control. As the owner, you can mostly do what you wish with your home provided you keep within local planning rules. Inleasehold; the ownership is mostly given by the government for a tenure of 99 years. It is possible to extend the leasehold to up to 999 years, if the owner, that is the State in most of the cases wishes to extend the lease and you have to pay a price for a lease extension.

Freehold Property
If you have purchased a freehold property thenyou own the land it is built on and also the house. In a case of apartments, the owner of the house becomes a shareholder in the property. You can live there for as long as you desire. You will have the right to make alterations in the house or redo some parts of the house. You might have to take permission from authorities if you have to make structural changes, particularly with old buildings. In India, most of the houses are sold as freehold property, however, apartments are mostly on lease. This too is changing as many flats are getting sold as freehold too.

In freehold property, there is a Property Tax component which needs to be deposited every year, while the leasehold rent component is comparatively quite low and infrequent.

Leasehold PropertyIn case you have purchased a leasehold property, then you have the right to live in a property for a stipulated period of time. Here the buyer is not the owner of the property or the land it is situated upon. In case of a leasehold property, you will have to pay ground rent to the owner or theleaseholder. Once the set period in the lease expires, the ownership of the property is given back to the land owner. Most leases are roughly given for the period of 99 years. If anyone isbuying a leasehold property, it is important to find out how long the lease is for as it will influence the value of the property. It is possible to extend the leasehold to up to 999 years and you can actually purchase the leasehold property, but by paying a price for it.

What kind of properties cannot be freehold?
Flats or apartments can never be freehold because they are dwellings constructed on the same land owned by the builder/developer, which each apartment owner is a shareholder in.

Which properties are preferred more by the buyers?
Buying a freehold property is more preferred to the leasehold property as freehold are more stable and are likely to increase in value in the longer term.

it is preferable to invest ina freehold alternative, given the better clarity on the future. It is also easier to leverage a freehold property to procure funds in case of future requirements.Buyers generally prefer buying a freehold property as it gives them complete ownership rights of the property bought as against leasehold in which the land belongs either to the State Authority or the Developer who has bought the land to construct the project.

Buyers usually prefer freehold properties because registration is already done. There is a mental block when it comes to leasehold properties that after 99 years the flat will be taken away. A freehold property is considered as a safer investment, because you know the property does not need renewal