Leasehold or Freehold in Bangalore: Title Checks Before Paying

Before comparing prices, a buyer in Bangalore should learn on what basis a property is held. Two flats of equal size in one neighbourhood can differ greatly in what the owner truly possesses. The sections below cover the basics, the places where leasehold shows up in the city and the papers worth reading closely.

What Each Tenure Gives the Buyer

Freehold passes the land together with whatever is built on it, through a sale deed that has been registered. The right never expires, and nobody stands above the owner. Selling, mortgaging, gifting or bequeathing is allowed, with only planning and tax rules in the way.

Section 105 of the 1882 Transfer of Property Act treats a lease as the transfer of the right to enjoy immovable property, for a fixed period or in perpetuity, in return for a price. The party granting it is the lessor, while the party receiving it is the lessee. The upfront payment is called a premium and a periodic payment is rent.

The lessor keeps ownership of the ground during the lease. What the lessee holds is the remaining period plus any building raised under it, so value rises and falls with the years left and the deed's conditions.

Where Leasehold Appears in the City

Most builders and private sellers convey freehold. Typically a flat buyer receives a deed covering the flat along with an undivided portion of the land below. Leasehold is mostly a legacy of public bodies that first granted the land, and these are the usual sources:

• Bangalore Development Authority sites, which start out under a lease-cum-sale arrangement for ten years
• Sites and houses allotted by the state housing board on similar terms
• Civic amenity sites that the BDA lets out for 30 years, to schools or community halls for instance
• Industrial plots from the state industrial areas development board, on a lease-cum-sale basis or an extended lease
• Land of public-sector undertakings, of trusts, of religious institutions and of the defence establishment

Many early allotments in Jayanagar, Banashankari and like layouts were originally BDA leases that turned freehold when the final sale deed was issued. An address therefore proves little about tenure. Where a title chain opens with an allotment letter, the deed that came after it merits a careful read.

Clauses in a Lease Deed

Section 107 requires a registered instrument for a lease of more than a year. An unregistered long lease offers the holder scant protection.

When a lawyer reviews the deed for a buyer, these are the points to extract:

• Term, commencement date and the number of years left
• Premium paid so far, yearly ground rent and any power to raise it
• Whether subletting, sale or mortgage is permitted, and if consent in writing or a fee for transfer is needed
• The purpose for which the land may be used, and any deadline to complete construction
• Whether renewal is possible and on what terms
• Breaches that let the lessor terminate the lease early

Section 108 gives a lessee freedom to transfer or mortgage the interest, except where the contract says differently, and leases from public bodies frequently say differently. If a sale proceeds without the permission required by the deed, the lease itself is endangered. A copy of the consent should therefore be in the title papers.

Section 111 sets out how leases terminate. Expiry of the period and forfeiture after a breach are the two a buyer must bear in mind. If renewal is not provided for, possession of the land reverts to the lessor when the time is up.

The Two Tenures Side by Side

The main differences a buyer meets in practice are these:

• Title paper: a sale deed for freehold, against a lease deed or lease-cum-sale document for leasehold
• Ground: owned by the buyer in freehold, by the lessor in leasehold
• Time limit: none for freehold, the stated term for leasehold
• Outgoings: property tax alone for freehold, tax together with any ground rent for leasehold
• Selling or mortgaging: the owner's decision for freehold, and subject to the deed for leasehold
• Resale value: dictated by the market for freehold, and by the market plus the years left for leasehold

Bank Loans on Leasehold

Lenders will finance either tenure, though a leasehold file is examined more closely. The bank sets the lease term still remaining against the loan period and wants a comfortable gap. Where the deed makes a mortgage subject to the lessor's approval, the bank asks for that as well. Every bank has its own minimum, so asking early, before any token amount is paid, saves trouble.

Approval from a mainstream lender says something good about the title. A future buyer will face the same test, and a home that banks refuse to fund is harder to resell. Once the lender has fixed the loan size and period, the EMI calculator converts them into a monthly figure.

From Lease to Full Ownership

An allotment under lease-cum-sale terms is meant to finish as outright ownership. In the case of BDA sites, the authority executes the final sale deed once the ten-year lease is over, as long as the allotment conditions were kept. Registration of that deed is what ends the allottee's status as lessee, and before it the site cannot be freely sold.

Other long leases come without such a promise. Conversion, and the charge for it, depend on the rules of the lessor, be it a statutory body or an institution. If a seller calls conversion easy, a policy document in writing or an order granting conversion should back the claim, and the price should reflect the present tenure.

Leasehold Buyers and RERA

The 2016 real estate law protects purchasers under either tenure. Section 2(d) includes any purchaser of a plot, apartment or building on a freehold or leasehold basis, and leaves out only a person taking the unit on rent. A township whose homes were sold on leases of extraordinary length came before the Bombay High Court in August 2018, which held that its buyers were allottees.

A project offering homes on long leases needs registration with the state's RERA body, and the Karnataka RERA portal shows whether it has been done. Buyers there have the same rights to timely possession, to a refund with interest if work is delayed, and to repair of structural defects.

Steps Before Booking

Taking these steps in order settles the tenure question early:

1. Obtain the title deed from the seller and classify it: sale deed, lease deed or lease-cum-sale document
2. Note the lease's start date, its length and the years remaining
3. Check that the lease is registered and appears in the encumbrance certificate
4. Study the clauses covering renewal, use, mortgage and transfer, and obtain the lessor's consent where needed
5. Check that ground rent and anything else owed to the lessor has been paid
6. Where the property is an allotted site, require the final sale deed that the authority issued to the seller
7. Learn how a bank views the property, even when no loan is planned
8. Ask a property lawyer for a written opinion on tenure and the chain of title

Freehold is the easier title to purchase, finance and sell on. Even so, a leasehold home with a long remaining term and unrestricted transfer rights can be reasonable value. The deed should be read before the price is settled.