I recently did an article on homeownership options in Zimbabwe. I did an overview of some of the common options Zimbabweans consider. It is of course a lengthy subject with so many dynamics to explore. That is why I thought to do another article looking at the subject of homeownership in Zimbabwe. You must acquaint yourself with some of the key terminologies. So, in this article, I am specifically looking at leasehold and freehold agreements. Discussing this will help you understand some homeownership aspects that most people might not be aware of.

Definition Of Key Terms

Freehold – this refers to the private ownership of property, in real estate, where the owner has the right to control, use, and even transfer the property at will.

Leasehold – this refers to a contractual arrangement for the occupation of a property, in real estate, where the occupant pays specified rent for a specified period of time.

These are the basic definitions that give you a rough understanding of what those two are. However, to understand more, there is a need to delve more and explore more details.

Freehold Agreements

The core attribute of freehold is that you own both the building in question and the land it sits on. When it comes to homeownership, most people prefer this option because it tends to be hassle-free. It excludes the need to pay rent for the land. There are also issues to do with the landlord that are eliminated – you are in essence the landlord. This then means the responsibility to maintain the piece of real estate totally rests on you.

Leasehold Agreements

As for leasehold agreements you are basically renting the place for a specified period of time. This means you will be under a landlord who essentially oversees your occupancy. So, the landlord will be the freeholder in this scenario. They have exclusive rights to the land and building which is why they can rent it out to you. You could say you own the building for the duration or tenure of the lease. However, you will not own the land the building is sitting on. A leasehold agreement varies from the freeholder to freeholder.

It is wise to ask for one and thoroughly go through it before blindly settling for it. It is interesting that in Zimbabwe many people never sign a leasehold agreement because there seldom ever is one. I am not sure why this is the norm in Zimbabwe but leasehold agreements should be standard practice. They serve to guarantee fair treatment and ethical serving of interests for both the freeholder and the leaseholder.

For leasehold, it is commonplace that the freeholder is responsible for maintaining the core parts of the building. I am referring to parts like entrances, staircases, outside walls, the roof, and so on. However, the leaseholder can ask for the right to manage. Some freeholders can even just give that right and can stipulate the delimitations of what they can manage. For instance, if they wish to conduct some significant work on the building, that would require permission from the freeholder. Obviously, the leaseholders will be required to share the utility bills for the building. In most cases that can just be self-contained in the rent amount.

Other Important Dynamics You Should Know

The length of a lease matters especially if you intend to apply for a mortgage. Banks or lending institutions are usually hesitant to bankroll short leases. In principle, the mortgage you want should have a duration that is at least half the duration of the lease. For example, getting a 30-year mortgage would require a lease at least 60 years long. It is commonly said that it is an uphill experience to get a mortgage for leases less than seventy years long.

Bear in mind that a leasehold can become a freehold. That means you will be buying the property such that you end up having exclusive ownership rights to the building and land it sits on. You can always find out if the freeholder (i.e. landlord) intends to sell the freehold. Bear in mind though that it is far easier to do this for a standalone house as opposed to a flat. This is because you can only buy the freehold for a flat if all residents on the block buy it jointly.

When buying freehold be careful about going through the agreement. There have been many cases where someone actually buys leasehold thinking it is freehold. Disputes will then arise later when say, freehold is transferred to someone else and they change the terms. All in all, make sure you go through the agreement and clearly understand everything before signing.

Freehold Or Leasehold – Which Is Better?

The answer to this question varies due to contexts, circumstances, and even locations. At first glance, a leasehold seems more preferable because it is relatively cheaper (at first) than a freehold. However, in the long run, the combined cost of a leasehold can turn out to be higher than a freehold. So it is wise to diligently weigh the options and see which is which. For example, you can find someone with a leasehold paying US$300 or more per month. With a good mortgage, you can actually get a good deal for freehold alternatives. Many people do not stop to consider this; I guess renting seems like a norm mentality. After all, you have absolute control with freehold which is a good thing. Interestingly, leases can be as long as 999 years; that somewhat feels like a freehold without some freedoms though. Overall, leaseholds have more cons than pros.

I am sure this article has helped give you the knowledge to appreciate the basics of leaseholds and freeholds. If you are looking for a home on the property market such information will prove to be useful.