Freehold Vs. Leasehold

Freehold vs. Leasehold property has and will always be a highly discussed topic, so how do you know which one is right for you? 

 

Here are some explanations to help you be more informed when purchasing a home.  There are always pros and cons to every situation; weigh them out and you will know what is best for you.

 

 A Freehold type of ownership means:

- You own the building and land it rests upon. This means that you have full use and control of the land and building(s) on it, subject to any rights of the Crown, local land use bylaws and any other restrictions in place at the time of purchase.

- Gives the registered holder ownership of land and buildings for an indefinite period of time.

- Offers the most freedom of choice, from building design to yard work/landscaping, providing it is within zoning, bylaw and permit limitations of the city in which you live.

- Homeowners are responsible for the maintenance of the building interior, exterior and yard including its costs.

 

A Leasehold type of ownership means:

- Ownership of the land, sometimes along with the building(s), remains with the landlord and the lease fee is payable on top of mortgage and property taxes, as well as condo fees, if applicable.

- Gives the holder a right to use and occupy the land and buildings for a defined period of time but they do not actually own it.

- Lenders may require higher down payments for leasehold properties.

- Ownership is often set at 99 years but if you choose to sell your home in ten years the next owner will have leasehold interest now for 89 years and so on.  You can only purchase the remaining portion.  The shorter the remaining portion, the less you or the person who eventually purchases from you will be willing to pay for the leasehold interest.

- The closer you get to the end of the lease the more risk is involved depending on what the owner intends to do with the land/homes (ie: either re-sell a leasehold interest, redevelop, etc.)

- Leasehold ownership is used most often for townhouses or apartments built on city owned land, for single detached houses on farm land or First Nations reserves and for apartments where the owner of the freehold interest of an entire apartment block sells leasehold interests in individual apartment units to other owners.

-At the end of the term of the lease, the use and possession of the lands would revert to the band/owner.

- Cost benefits for buyers; Generally, you do not pay GST on Native Reserves Land when purchasing a new build.  ie: based on a purchase price of $500,000, you would save ~$25,000 in GST.  

- Generally, you do not pay Property Transfer Tax (PTT) on the purchase price that is normally applicable when purchasing Freehold property, when purchasing a Leasehold Interest.  The PTT rate is based on 1% of the first $200,000 of price, and 2% thereafter up to and including $2,000,000 and 3% beyond $2,000,000   ie: if you purchase a home for $500,000, the PTT will be $8,000 if on Freehold Land. 

Typically you would need to have this money available on your closing day in addition to the purchase price and any other fees associated with closing costs such as legal fees/lawyer fees, etc. 

- As a first time buyer, if you purchase a Leasehold interest and then purchase a Freehold Interest at a later date, you will retain your ability to claim the First Time Home Owner’s Grant, making you exempt, or partially exempt from the PTT. (Some exceptions apply and you should contact your mortgage specialist to confirm)

Josh Mikolasek

Josh Mikolasek

REALTOR®
CENTURY 21 Assurance Realty Ltd.
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