Buying a Flat on Leasehold Land: Legal Concept

Introduction

Owning a house is still a dream for many. People spend their entire savings to buy their dream house. Yet most of them do not have any idea about the property they are investing in. Most of the times decision to buy a property is based on the advice of someone else or recommendation of a broker. People buy property assuming that that Property is for perpetuity but they end up purchasing a property on Leasehold land and realise it much later in time. Therefore, before buying any property, one must always remember the phrase Caveat Emptor which means “Let the Buyer Beware” i.e. buyer should confirm all the facts related to property by himself before purchasing any property and the buyer is making such purchase at his own risk. Therefore, the onus is on the buyer to confirm if the property is a leasehold property or freehold property and later the buyer can’t blame the promoter. Let us understand the difference between a leasehold and a freehold property.

What is Lease?

Sub Lease

A sublease is a process of renting out property to a third party by the Lessee. Through a sublease an existing tenant re-rents the property to a new third party for a portion of the tenant’s existing lease contract. In such arrangements, the lessee is still responsible to the landlord for all the rent and lease payments. However, the third party is now also responsible, generally through a legal agreement of their own.

Subleasing of a property is also valid in India. Section 108 (B) (j) of Transfer of Property Act 1882 gives right to a lessee to sublease his interest in the property.  But this section also states that this does not authorize a tenant having an untransferable right in the property meaning if the Lease Agreement states that Lessee cannot sublease the property further, he does not have any right to do so.  Sub Lease is only possible if the Original Lease Deed has a provision of Sublease. In A. Mahalkshmi V. Bala Venkatram (D) Through Lr & Anr.  the Supreme Court stated that “Sub­letting, assigning or otherwise parting with the possession of the whole or   any   part   of   the   tenancy   premises, without   obtaining   the consent in writing of the landlord, is not permitted and if done, the same provides a ground for eviction of the tenant by the landlord”. Therefore, before subleasing of property the written consent of the landlord must be taken in the lease-deed itself or by an addendum to the lease-deed.

Leasehold Property

A property which is transferred by means of a Lease deed is called a Leasehold Property. In this case, the ownership is provided for a tenure of a fixed period which can be further extended if the owner of the property wishes to extend the lease. It is pertinent to note that in this case only the ownership of property is transferred for a fixed period whereas the ownership of land belongs to the original Owner.

As mentioned above this type of Property can be further Sub-Leased by the Lessee. As is the case with many development authorities, whereby they Lease the land to the Builder who in turn develops apartments on it and further sell such apartments to the buyers. In this case the Promoter/Builder subleases the land but the superstructure made on the land is not given on lease and is rather sold. By a common tripartite conveyance deed, between the Development Authority, the Builder and the flat Buyer the land is subleased to the Flat buyer and the Flat (Superstructure) is sold. Thus, the flat owner in such cases have ownership right of the flat but not of the land. The land lease can be extended further on requests made by the flat owners to the authorities. But many a times buyers do not have any idea that the apartment they are buying is made on leasehold land. In many cases builders also hoodwink the buyers and give both the land and apartment on sublease without informing the buyers so that Builder could again charge from the buyers at time of renewal of lease. Therefore, it becomes important to check that the property one is buying is a leasehold property or freehold property. According to section 11 of the Real Estate (Regulation and Development) Act, 2016 it is the duty of the promoter to give all of the details related to the project to the Flat Buyers and according to Section 19 of the same act it is also the right of allottees to obtain all the information related to the project being developed by the builder. Moreover, buyer could visit RERA website to get all the details related to the buyer and the project, including the conveyance deed of the land on which the project is being constructed.

Whereas in case of a Freehold property, the owner enjoys the ownership of both the property and the land on which the property has been built. There is no time limit on the property as the land also belongs to the same owner. The owner enjoys ownership rights for perpetuity. In India, most houses are sold as freehold property but apartments are mostly on a lease. However, many apartments are getting sold as freehold.

Lease by Development Authorities.

In the case of development authorities like Noida, Greater Noida and Yamuna Expressway Development Authority, according to the existing lease policy, flats and plots are subleased by the authorities to users. Land is allotted for a specified period of time (mostly 90 years) in lieu of a lease rent. Once the lease period is over the buyer has to renew the lease which amounts to almost repurchasing the property. These authorities use this money for development and revenue generation. But the buyers have been demanding from very long to convert such leasehold properties into freehold properties so that they could get outright ownership rights of the property making sale or transfer of a property easier.

Whereas, in some place like Delhi, Development Authority follows urban land policy where the land ownership is of both types i.e. lease-hold and free-hold. Most of the land in Delhi is free-hold except institutional and commercial. Moreover in Delhi it is also allowed to convert a leasehold property into freehold.

Conclusion:

Therefore, before buying a property investor/buyer is required to check all the necessary documents related to the project. The onus lies on the buyer to cross examine all the details provided by the builder. It is also advisable to check the reputation of builder before investing in a property. An investor can check all the details related to the project and builder on website of RERA. An apartment irrespective of whether it is constructed on Free hold land or lease hold land, should be sold by the builder and must not be leased. If user has a choice it is always better to go for a freehold property rather than a leasehold property.