Dear Heather —

I am looking at properties to buy. What is the difference between freehold and leasehold, and which one is best?

Prospective Buyer

Dear Prospective Buyer

When you get into the detail, freehold and leasehold property law is complex stuff, but the basic principles are pretty simple:

Stand alone freehold property: Freehold properties are the simplest to understand. When you buy a freehold stand-alone home, you own the property outright. Subject to the zoning and planning restrictions, you can largely do what you like on your property. If you own the freehold and want to paint the entire building bright orange, you can. If you want pets, you can have as many as you want. It’s yours, you own it. Freehold properties for sale tend to be houses, though there are an increasing number of freehold condos available. Freehold condominiums and freehold attached houses will still be subject to covenants and rules and regulations.

Freehold attached house subdivision (Whalewatch, Northridge): As well as purchasing the unit freehold, you also purchase the specifically described parcel of land that surrounds it. Usually the owners do not have to pay a maintenance fee, other than perhaps a small contribution every six months for upkeep of the areas such as driveways, exterior lighting recreational areas. Owners are responsible for their own insurance, gardens, lawns, windows, doors, painting, repairs, water, et cetera. There are usually some covenants put in place, to uphold the quality of the development. Each owner still retains one share in the development and can sit on the board and/or vote at annual general meeting. Owners must abide by the rules and regulations.

Freehold ownership under the Condominium Act (Rockaway, Quarry Lee): Anyone wishing to develop land and organise it as a freehold condominium complex must register under the Condominium Act 1986. Application for incorporation of the condominium complex should then be made to the Registrar. Once a condominium plan is registered and the corporation established, each unit becomes real property vested in the development it represents one share and can be rented or sold. There is a board of directors made up of owners. Owners may sit on the board and vote at AGM’s and they will also be expected to abide by the rules and regulations.

Leasehold (Mizzentop, Inwood): The most common type of leasehold is a condominium. Basically you are purchasing the right to live in the condominium unit for a period of time with a shared interest in the grounds and amenities around it. You will have to pay a monthly amount of maintenance in addition to a one-off payment that buys you ownership of the lease until you either sell it, or it runs out.

Leasehold purchases generally occur in buildings that comprise more than one unit, such as blocks of condos/apartments. Alterations are limited in accordance with the head lease as well as other restrictions imposed by the landlord/owners committee. You will have some input on the condo rules and regulations as you may be part of the Board with voting rights at the AGM. Leases can vary greatly in length. Most recent developments are sold with a 999-year lease, but some older properties may be 99 or 125 years.

As a leaseholder, you are in no way obligated to retain the lease. You can sell at any time. You will be required to pay a maintenance fee to help cover the upkeep of the building, common areas and amenities. This can cover painting, landscaping, cleaning and repairs to the exterior and communal areas, lighting, building insurance as well as a fee for the managing agent. Payment is a condition of the lease and failure to pay may result in you being served notice.

Each owner is a ‘member’ of the corporation and as such can be a member of the maintenance association. The corporation may have a ‘board of management’ in accordance with the bye laws. AGMs will be convened, budgets and accounts must be produced on a regular basis, and a corporation shall keep its register of owners readily available for inspection.

Which one is best? I would say that depends on your needs. If you have a large family, love animals, are a gardening fiend, have a handyman husband (or vice versa), then clearly there is nothing like your own piece of the rock and all the freedom and responsibilities that come with a stand-alone freehold property. However, if you are approaching retirement, single or newly married and working all hours to pay the mortgage, then a condominium could be a perfect solution. They tend to be low maintenance as all exterior maintenance is taken care of, very often at a similar cost as that of maintaining your own home. There is an instant feel of community and because there is usually someone around they can be more secure, they can offer you more free time to relax and have fun. Often they offer amenities such as a pool, large gardens, tennis courts, sometimes a communal club house/area and even guest apartments, a dock, moorings, waterfront or beach, covered parking, fabulous views, none of which would be affordable in a free-standing home at the same price. The market being much softer than it was five years ago, means that often a condominium represents excellent value for money.

Heather Chilvers is among Coldwell Banker Bermuda Realty’s Leading Sales Representatives. If you have a question for Heather, please contact her at hchilvers@brcl.bm or 332 1793. All questions will be treated confidentially.