What is Freehold Property?

Are you considering buying a new property but the terms confuse you? This article will help you answer several key questions. What is freehold ownership? What’s the difference between leasehold property and freehold? Which type of property is better?

There are three main types of property in Canada: freehold, leasehold, and cooperative housing units. Additionally, there are freehold strata and leasehold strata. This guide focuses on the first two types. Let’s begin with freehold ownership.

Definition of Freehold Property

Freehold property is the type of ownership that includes the property and the land it is located on. It means that you own both the building and the land it was built on (and in some cases some additional land around it). Single-family homes are a great example of this type of property.

Types of Freehold Ownership

There are three main types of freehold ownership depending on the limitations that are put on the ownership:

• Free Simple Absolute

Free Simple Absolute is also called freehold estate. It’s an unlimited type of ownership that enables you to do whatever you want with the land as long as you abide by land laws and regulations and pay property taxes. You can path it down in your will.

• Free Simple Defeasible

This type of property comes with some strings attached. A clause in the freehold agreement stipulates what the land can be used for. For example, you can use the land only to build a detached house for yourself. You cannot use it as farmland or to build a store. Violate this clause, and you will lose both the property and the land ownership.

• Life Estate

Life estate is a form of ownership that enables you to simplify the inheritance for your heirs. You can become a grantor of the estate and make your heirs the grantees. In this case, you will have shared ownership that will expire with the death of their grantor.

The grantor or the life tenant will have the responsibility to pay taxes and insurance. They will also be limited in making changes to the property including taking another mortgage or selling it. In this case, they’ll need the permission of the grantee or the “remainderman.”

Benefits of Freehold Ownership

Freehold is considered the best type of ownership because property owners have the least restriction on how they manage their property.

• Full ownership

Unless you have free simple defeasible or life estate, property owners can do whatever they are only limited by local regulations and laws.

• No lease expiration

In the case of leasehold ownership, the lease expires within a certain period. It creates uncertainty in your future, something you will not experience with freehold.

• Appreciation

Since, the real estate market values freehold, the purchase price in most cases doesn’t decrease and in many cases increases with time. Meaning if you want to resell your property, you will be able to earn additional money.

• No additional regular payments

You won’t have to pay rent or any additional fees unlike in other types of ownership. You will only have to pay taxes and mortgage, as well as for repair and maintenance.

• Privacy

People who cherish their privacy and solitude will enjoy the lack of intrusion in their lives.

• Simple mortgage application

Banks prefer freehold ownership, thus it will be easier to get mortgage if you apply for this type of property.

Disadvantages of Freehold Ownership

Although this type of property is highly valued, there are several disadvantages pertaining to freehold estates. Let’s take a quick glance over them:

• Higher purchase price

Because you are purchasing freehold land, the property purchase price is higher since it includes the land fees.

• Higher property taxes

Land ownership increases your property taxes respectively.

• Maintenance and repair

Since you have full ownership over your property, you will have to take care of it in case something breaks down or needs replacement.

• Utilities and infrastructure

You will be also responsible for infrastructure and its maintenance (electricity and water lines, sewage, etc.). It will add additional expenditures.

• Limited Amenities

The amenities (pool, gym, playground, etc.) provided by freehold strata or condos are not available to freehold owners. They will have to build them on their property.

• Building Restrictions

Freehold estates are often associated with complete freedom of building. However, it’s not the case. Freehold land is still subject to local regulations that can limit your building ambitions.

• No Mediation in Neighbourhood Disputes

When neighbourhood disputes arise, leasehold owners can address their issues to the third party that owns the land and can help with fixing the disputes.

• Issues with Selling

Because of higher prices, freehold estates can be harder to sell under certain circumstances like a market recession.

Leasehold Property Ownership

Leasehold property is less prevalent in Canada than freehold. However, you need to be aware of this type of property in case you want to have full ownership over your estate.

Definition of Leasehold Property

Leasehold property has a more complex ownership structure compared to freehold. In a nutshell, there are two separate owners: one for the land and the other for the property.

The owner of the property needs to sign the lease agreement with the landlord and pay ground rent and maintenance fees. The leasehold

In Canada, the lease period usually fluctuates between 40 and 999 years. That’s why you need to pay special attention to the lease agreement when buying property. It is risky to purchase a property with an expiration date too close to the present.

The lease agreement can contain limitations to the ways you use your property, for example, you might not be allowed to make additional changes (like building a second floor).

The Common Landowners in Canada you can have a leasehold agreement with include:

• Municipal or government entities (e.g., City of Toronto).
• Corporations.
• Religious organizations.
• First Nations or Indigenous groups.

Keep in mind, that acquiring First Nations leasehold property means that you will have to abide by a number of additional laws and regulations that govern the land of the Indigenous people of Canada.

Types of Leasehold Properties

There are two ways leasehold properties can be categorized. Let’s take a quick look at it.

The first categorization is by the division of property ownership. This category encompasses two types of leasehold ownership in Canada:

• Leasehold homes

Also known as leasehold condominiums, this type of property belongs to a single owner but stands on the leased land.

• Leasehold strata property

These are apartment buildings that are located on the leased land. This type of property is divided between multiple owners.

Another categorization of leasehold ownership depends on the prepayment of the land:

• Prepaid leasehold property

Usually, it has higher property value, because as it is obvious from its name, the ground rent has been already paid in advance by the previous owners.

• Non-prepaid leasehold property

In this type of property, you will have to pay rent for the land as it hasn’t been paid in advance.

Advantages of Leasehold Ownership

In this section, we discuss the advantages of leasehold in Canada.

• Lower purchase price

This is the main benefit of leasehold property. Because you do not purchase the land, the purchase price is more affordable.

• Location

In many cases, the location of a leasehold property is what they call “prime.” It’s unavailable for freehold.

• Flexibility

If you need a property for a short-term period (for example, as a temporary housing solution before you can buy something more permanent), leasehold ownership can be a great option due to its lower upfront cost.

• Taxes

Often, you only pay ground rent, but not land taxes.

• Good investment

Typically leasehold requires less initial capital, easing entry into the real estate market.

Disadvantages of Leasehold Ownership

Leasehold has plenty of disadvantages and pitfalls and we recommend you consult with your real estate agent before making a purchase.

• Dependence on the land title office

The landlord can charge high maintenance fees while providing a low level of service

• Changeable leasehold agreements

When the lease expires landlord might want to renegotiate land fees. Furthermore, leasehold landlords can decide to sell or repurpose the land forcing you out.

• Difficulties getting mortgage

Lenders may be hesitant to finance leasehold properties, especially if the lease term is nearing its end, leading to higher interest rates or stricter lending criteria.

• Limitations on property use

Leasehold agreements can contain straight restrictions on how you can use the property and what changes you can make.

Key Differences Between Freehold and Leasehold

In this section, we summarise what we’ve learned about freehold and leasehold properties and show how they are different.

Ownership Rights and Responsibilities: Freehold vs Leasehold

Freehold:

• Rights:
  • Ownership of the land and property.
  • Freedom to modify or renovate the property as desired (within local regulations).
• Responsibilities:
  • Solely responsible for maintenance, repairs, and property upkeep.
  • Obligated to pay property taxes on both the land and the structure.

Leasehold:

• Rights:
  • Ownership of the building or improvements but not the land.
  • Right to occupy and use the property as per the lease agreement.
• Responsibilities:
  • Responsible for maintaining the property during the lease term.
  • May need to pay ground rent and lease-related fees.
  • Must adhere to lease terms, including restrictions on property use.

Property Taxes and Fees: Freehold vs Leasehold

Freehold:

• Owners pay taxes directly to the municipality based on the assessed value of both the land and the building.
• No recurring lease or ground rent fees.

Leasehold:

• Leaseholders may pay property taxes, but only on the structure (not the land, which remains the landowner’s responsibility).
• Ground rent or lease fees are an additional cost, often increasing over time.
• In some cases, the landowner may include property taxes for the land within the lease agreement.

Maintenance and Repairs: Freehold vs Leasehold

Freehold:

• Owners are fully responsible for all maintenance, repairs, and renovations for both the property and the land.
• This includes exterior upkeep (e.g., landscaping) and infrastructure (e.g., sewage and water lines).

Leasehold:

• Leaseholders are responsible for maintaining and repairing the structure they own.
• Landowners typically handle the upkeep of the leased land unless stated otherwise in the lease agreement.
• Restrictions on modifications or repairs may apply, requiring landowner approval.

Making the Right Choice: Freehold vs Leasehold?

Choosing between freehold and leasehold ownership depends on your lifestyle, financial situation, and long-term goals. Each ownership type has unique advantages and disadvantages that cater to different needs. Let’s dive into the key factors that can help you make the best decision.

Factors to Consider When Choosing Freehold vs Leasehold

When considering freehold and leasehold options, we suggest considering the following criteria:

1. Cost
2. Ownership duration
3. Control over property
4. Ongoing costs
5. Resale value
6. Location
7. Community and amenities
8. Maintenance fees
9. Mortgage financing.

Which Option Is Best for You?

Let’s summarise what we know about freehold and leasehold ownership to see what is best for you.

Choose Freehold If:

• You value undivided ownership and long-term stability.
• You prefer autonomy in how you use and manage your property.
• You want to build equity over time and maximize resale value.
• You’re prepared for the financial responsibilities of maintenance, taxes, and repairs.

Choose Leasehold If:

• You’re looking for a more affordable entry into ownership.
• You’re interested in living in a prime location where leasehold is more common.
• You don’t mind sharing responsibilities for land or common area maintenance.
• You have short- or medium-term property needs, making the term of lease sufficient.

Freehold Strata or Freehold Condos

In Canada, one of the popular types of ownership is freehold condos. In British Columbia it is called freehold strata property.

What’s Freehold Strata?

Freehold condos are a middle ground between freehold and leasehold types of ownership. You still own the property and the land (and you need to bear all the maintenance and repair costs).

At the same time, you are a part ofa condo corporation that owns certain amenities (thus you are paying fees for the access and use of these amenities). The corporation is also doing the maintencnace of common areas.

Advantages of Freehold Condos

Let’s briefly discuss the advantages of freehold condos:

1. You own land and property outright, AND you have access to amenities
2. Easier maintenance of common areas and utilities
3. No lease expiration and related uncertainty.
4. The property cost remains the same or even grows over time.
5. You are part of a closed community
6. Less restrictions compared to leasehold property

Disadvantages of Freehold Condos

The disadvantages of freehold strata property include:

1. Higher prices compared to leasehold
2. Regular amenities fees + maintenance fees
3. High dependence on the condo corporation management
4. Rules and limitations pertaining to shared areas
5. Low availability on the market.

Freehold Property in Canada

In this section, we quickly overview the regulations and the statistics of freehold in Canada.

Regulations

Want to learn the legislation behind property ownership? Check out the following sources:

• Provincial Authority over Property and Civil Rights

“Under the Canadian Constitution, provinces have jurisdiction over property and civil rights, granting them the authority to regulate real estate within their territories.” Source

• Foreign Ownership Restrictions

“The Canadian government has implemented measures to address housing affordability, including restrictions on foreign ownership of residential properties. Notably, a ban on foreign ownership of Canadian housing was extended for two years in February 2024.” Source

• Federal Real Property Management

The Federal Real Property and Federal Immovables Act governs the acquisition, administration, and disposition of federal real property in Canada. This legislation outlines the processes and authorities involved in managing federal lands and buildings. Source

• Landlord and Tenant Relations

“Landlord and tenant relationships are primarily regulated at the provincial level, with each province enacting its own residential tenancies legislation. These laws set out the rights and responsibilities of landlords and tenants, including lease agreements, rent controls, and dispute resolution mechanisms.” Source

• Environmental Regulations Affecting Property

“Environmental laws at both federal and provincial levels can impact ownership of the property and development. For instance, regulations may govern land use, environmental assessments, and the protection of natural resources, all of which can affect real estate transactions and property management.” Source

Freehold Property in Canada – Statistics

Check out some interesting statistics pertaining to the freehold property in Canada:

• Prevalence of Freehold Ownership

“As of 2016, detached homes, which are typically freehold, accounted for 68.7% of all residential dwellings in Canada.” Source

• Property Value Appreciation

“Freehold generally appreciate over time, providing owners with accrued equity. In contrast, leasehold properties may decrease in value as the lease term diminishes.” Source

• Property Tax Responsibilities

“Freehold owners are responsible for paying taxes on both the land and the dwelling. In leasehold arrangements, the landowner pays taxes on the land, while the dwelling owner pays taxes on the structure.” Source

• Cost Differences

“Leasehold properties tend to be less expensive upfront compared to freehold properties. However, leasehold owners may face higher interest rates and additional costs, such as ground rent.” Source

• Marketability

“Freehold properties are often more attractive to buyers due to the autonomy they offer, making them easier to sell compared to leasehold properties.” Source

Frequently Asked Questions About Freehold Properties

1. What does freehold property mean?

Answer:
Freehold property means the owner has complete ownership of both the land and the structure on it. This is in contrast to leasehold properties, where the land is leased from another party for a specific period.

2. Are there any ongoing fees with freehold properties?

Answer:
No, unlike condos or leasehold properties, freehold property owners do not pay monthly maintenance fees or lease payments. However, owners are responsible for all maintenance, taxes, and any other costs associated with the property.

3. Is freehold ownership better than leasehold?

Answer:
Freehold ownership offers full control and no expiration date, making it more attractive for long-term investment. Leasehold properties may have restrictions and can decrease in value as the lease term diminishes. However, freehold properties may have higher upfront costs.

4. Can I renovate my freehold property as I want?

Answer:
Yes, as the owner of a freehold property, you generally have the freedom to renovate or modify your property, subject to local zoning laws and building regulations. Unlike strata or leasehold properties, there are no governing bodies to approve your changes.

5. What are the advantages of owning a freehold property?

Answer:

• Complete ownership of the land and structure.
• No strata fees or lease payments.
• Greater control over renovations and use.
• Potentially higher resale value due to owning land and property.
• Independence from strata rules or landlord restrictions.