With freehold, you own the home and the land indefinitely. With leasehold, you own the right to use the home and land for the rest of a lease term, often originally 99 years, and the land belongs to someone else, such as Westbank First Nation. Leasehold homes usually cost less than similar freehold homes and BC's Property Transfer Tax generally doesn't apply, but fewer lenders finance them and value depends heavily on how many years are left on the lease.
Freehold vs leasehold has always been a hot topic, and in West Kelowna it comes up constantly, because many homes are built on Westbank First Nation leasehold land. There are pros and cons either way. Here's what you need to know to decide what's right for you.
Freehold: you own the home and the land
- You own the building and the land it sits on, for an indefinite period of time, subject to local bylaws, zoning and any other restrictions on title.
- You have the most freedom, from renovations to landscaping, within the municipality's zoning and permit rules.
- You're responsible for maintaining the home inside and out, and for the costs that come with it.
Leasehold: you own the right to use it for a set time
- The land, and sometimes the building, belongs to the landowner. You own the right to use and occupy it for the rest of the lease term.
- Leases are often originally set at 99 years. If you sell after ten years, the next buyer gets the remaining 89, and so on.
- The fewer years left on the lease, the less buyers are usually willing to pay, and the more it matters what the landowner plans to do when the lease ends.
- At the end of the term, use of the land reverts to the landowner.
- There may be a lease payment on top of your mortgage, property taxes and strata fees, if any.
How leasehold changes the numbers
- Price. Leasehold homes usually sell for less than comparable freehold homes, which can make them a great value for the right buyer.
- Financing. Fewer lenders finance leasehold properties, and some may want a larger down payment. Talk to your mortgage professional early.
- Property Transfer Tax. Leases on Westbank First Nation land aren't registered in the BC Land Title Office, so BC's Property Transfer Tax generally doesn't apply. On a $500,000 freehold home, that tax would be $8,000.
- Property taxes. Homes on Westbank First Nation land pay property taxes to Westbank First Nation rather than the municipality.
- GST on new homes. New leasehold homes are taxed differently from new freehold homes, and exemptions depend on who's buying. Confirm with your lawyer or accountant before you count on any savings.
- First-time buyer status. Depending on your situation, buying leasehold first may let you keep your first-time buyer exemption for a future freehold purchase. Confirm with your lawyer before you rely on it.
What to check before you buy leasehold
- How many years are left on the lease, and whether it can be extended or renewed
- Any lease or rent payments, and how they can change
- Which lenders will finance it, and on what terms
- The strata documents, if it's a strata property
- Your lawyer's review of the lease itself
Which is right for you?
If you want the most control and long-term certainty, freehold is the simpler choice. If you want more home for your money and plan to stay a set number of years, leasehold can make a lot of sense, as long as you go in with your eyes open. I'm happy to walk you through any specific property. Book a consultation, or get my free Buyer's Guide.
General information only, not legal, tax or mortgage advice. Leasehold terms vary by property and landowner; have your lawyer review the lease, and confirm financing and tax details with the appropriate professionals.