Freehold VS Leasehold Property – Differences, Pros And Cons

In the context of purchasing real estate, it is essential to know the difference between freehold vs leasehold property. These two types of land tenure in Australia define the extent of control you may have over the property, the time limit of the property ownership and occupation, as well as the legal obligations attached to the property.

Be it residential land or commercial premises, early advice by property lawyers Perth and commercial lawyers Perth can be all the difference in securing your investment.

What Is Freehold Property?

Freehold property includes full ownership of the land and any structures on it. The title is permanent, i.e., until you wish to sell or transfer the title. This tenure is the most popular in Australia and is regulated by the Torrens Title System, which ensures the title of the land is registered in your name.

The holder of freehold ownership is free to:

• Sell, lease or mortgage the land.
• Renovate, divide or develop the property (subject to local council and planning approvals).
• Bequeath the property by inheritance.

Freehold possession is common with detached houses, strata units, and rural land in Western Australia. Since the owner is the one who has the perpetual title, the land usually gains value with time.

Advantages of Freehold –

• Complete control and security in the long run.
• No risks of lease expiry or renewal.
• Less difficult to fund with banks and lenders.

Disadvantages of Freehold Property –

• Greater initial cost of purchases.
• Ongoing costs like council rates and land tax.

What Is Leasehold Property?

A leasehold property refers to the fact that you are renting the land to another party, usually a government or private owner, over a given duration of time, say 50 or 99 years. You can use the property during that duration according to the terms that were provided in the lease agreement, but not the land itself.

In Australia, the most prevalent types of leasehold land include the Australian Capital Territory (ACT) and portions of coastal or country Crown land. In Western Australia, commercial zones and agricultural leasehold or mining tenements characterise the long-term leasehold.

The lease document outlines:

• The length of the lease term.
• Rent or lease payments.
• Permitted uses of the land.
• Renewal or termination clauses.

On expiry of the lease, the land, and occasionally the buildings, will be returned to the lessor (the landowner or the government). Due to this reason, leasehold properties tend to be of low market value and even more difficult to finance than freehold titles.

Disadvantages of Leasehold property –

• Less initial expense compared to the freehold purchase.
• Economical to companies that require land on a fixed-term basis.
• The possibility of access to well-located land not available for sale.

Potential Drawbacks –

• Decreased control and reduced tenure.
• Lease expiry risk.
• The value is depreciated as the lease term reduces.

Legal Considerations in Western Australia

The property law controls the property law in the WA Act 1969 and the Transfer of Land Act 1893. The leasehold and freehold interests are supposed to be registered and documented by Landgate. The registration of leases longer than three years should be done to secure the interest of the tenant.

Rent reviews, repair and limitation to alteration or subletting are usually stipulated in lease agreements. There can be conflict due to a lack of clarity in terms of the lease or poor negotiation terms on renewing it.

When to Seek Legal Advice

It is necessary to seek independent legal advice before buying or signing any long-term lease. Accomplished commercial lawyers Perth are able to:

• Check title reviews, leases and caveats.
• State law rights and obligations.
• Detect lease clauses, renewals, or rent escalations risks.
• Make sure that zoning and land-use laws are taken into account.

It is beneficial in situations involving a lawyer handling Crown leases, commercial premises, and mixed-use developments, the conditions of which may be confusing.

Conclusion

The distinction between freehold vs leasehold property is very fundamental to anyone investing in real estate in Australia. Freehold provides long-term security and control, which is suitable to homeowners and long-term investors. On the other hand, leasehold may be applicable to business persons or individuals who want to rent out valuable land temporarily but not permanently.

Be very aware of your common law property rights Australia and obligations before signing any agreement. With the help of qualified property lawyers Perth and commercial lawyers Perth, it may be possible to protect your investment and to make sure that your property transactions are within the Western Australian legislation.