Why Leases Are Held For 99 Years?
By Investoxpert | 06 Sep 2021 | Guide
Why Leases Are Held For 99 Years, In real estate there are two kinds of properties- freehold and leasehold property. The freehold property refers to "free from hold" of any other entity except the owner for an indefinite period, whereas there are properties usually leased for a period, commonly for 99 years from the time of construction.
But, now you might wonder why such an unusual figure of 99? Or, what happens or who owns the property at the end of the lease period? Or the applicable renewal conditions? Many questions come up as this a confusing concept.
So, this blog is helpful in understanding why leases are held for particularly 99 years. The development authority who is managing a particular area provides land development rights to developers and sells properties for a lease of 99 years.
But, what does it mean? It means that anyone who purchases a residential or commercial property will own it only for a period of 99 years, after which the ownership is given back to the real landowner.
The buyers of leasehold properties are needed to make a payment of ground rent to the landowner for this deal. Once the lease agreement is completed, then it can be renewed for such properties.
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What Happens Once The Said Lease Gets Expired?
Generally, the government charges conversion amount to allow conversion of a leasehold property to freehold or after guarantying the right to buy another lease upon expiry of the original lease.
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Buying An Older House
If an investor is looking for an older house, for instance say a 30-year old leasehold property, and then he may find it difficult to further sell the property as it would not be easy for the prospective buyers to finance it.
This is a major reason that these properties aren’t seeing appreciation and one of the key challenges is faced by the buyer is the renewal of the occupancy contract once the lease is over.
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Not only this, these type of older properties also requires additional costs like property tax from the owner. In addition, the buyer could face challenges of transferring the property title and registration papers, too. On the other hand, if the descendants of a leasehold property possess the property for 99 years, they will only need to pay for the lease renewal.
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Why specifically 99 Years?
The leasehold for 99 years includes rights and obligations for both the lessor and the lessee pertaining to the occupation of a property in exchange for a set amount as a rental for defined time period.
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The agreement contains a set of terms and conditions mentioned in the agreement like nature of rights, lease period, duties of lessor and lessee, conditional clauses, termination clause, dispute resolution clause, etc. are crucial factors for the sustenance of any lease and any dispute in respect of the lease.
But why time period? It is because to control the use as well as the transfer of land. This time span makes a safe interval choice in earlier days given that it will cover the lifespan of the lessee. It was also regarded as a period enough to safeguard the ownership of the lessor.
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Important Facts About Leasehold Property
1. There are some authorities that only give permission to build apartments for sale projects, only on leasehold basis.
2. One can even extend the lease period to 999 years by making the required payment.
3. A buyer must confirm whether the seller has obtained the transfer memorandum from the local development authority is mandatory on purchasing a property on leasehold.
4. The land parcels on leasehold is preferred by the developers since the cost of such parcels is lower when compared to freehold lands.
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5. Usually, banks are not interested in financing the purchase of a leasehold property, especially when the remaining lease period is less than 30 years. And that eventually lowers the value of such properties at the end of lease period approaches.
6. The main benefit of investing in leasehold property is the price, which is often lesser than properties built on freehold land.
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