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, and Westbank First Nation describes a range of about 50 to 125. If you sell ten years into a 99-year lease, 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. Westbank First Nation says many of its leases are pre-paid, so check the specific home.
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. They'll look at the years left and the renewal and assignment terms, and many want the lease to run well past your amortization. Talk to a mortgage professional who works with leased land early.
- Property Transfer Tax. Leases on Westbank First Nation land are generally registered in the WFN registry rather than 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. There's an exception: a Kelowna law firm notes one neighbourhood on WFN land is registered in both systems, so the tax applies there. Have your lawyer confirm it for the specific home.
- Speculation and foreign buyer taxes. The Speculation and Vacancy Tax doesn't apply to homes on WFN land. The foreign buyer tax generally doesn't either, with the same one-neighbourhood exception. Non-Canadian buyers should still get legal advice first.
- Property taxes. Homes on Westbank First Nation land pay property taxes to Westbank First Nation rather than the municipality. The bill includes amounts collected for other taxing authorities, and the Home Owner Grant is claimed through WFN.
- 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.
How buying on Westbank First Nation land works
Most of what you'd see on a freehold purchase looks a little different here:
- The paper trail. A typical file has a head lease between the landowner and developer, a sublease for your home, and an assignment of that sublease to you. Your lawyer reviews that chain.
- The registry. The lease is generally registered in the WFN registry rather than the Land Title Office, and your mortgage usually is too. Use a lawyer who handles these files regularly.
- The contract. A leasehold interest needs a contract written for it, and a standard freehold form may not fit. Make sure the right form is used from the start.
- Permits. Building permits and approvals run through WFN, not the City of West Kelowna. Plan any renovation with that in mind.
- Utilities. Water, sewer, power and billing can vary by development, so ask who supplies what.
- Selling later. You assign your sublease to the next buyer. Your resale value depends on the years left and on the sublease terms, so read them as if you were already selling.
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
- Whether a resale needs the landlord's consent, and any assignment, transfer or consent fees, including who pays them
- Insurance requirements in the head lease and sublease, which you should show to your insurer early
- Any homeowners' association rules, along with the sublease rules on maintenance and use
- The utility providers, and how you'd be billed
- Which lenders will finance it, and on what terms
- The strata documents, if it's a strata property
- Open permits or unpermitted work, compared with the seller's disclosure
- 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.