If you're looking to purchase real estate in Metro Vancouver, you may find yourself deciding between a leasehold or a freehold property. Both options come with their own set of pros and cons, but it’s crucial to understand what each term means and how it affects your investment and future plans.
What’s the Difference?
A leasehold is an agreement where you own the property (like a home or condo) for a fixed period, typically between 20 and 99 years, but not the land beneath it. Essentially, you’re leasing the land from its owner, which can be a university, government, private entity, or Indigenous group. Once the lease expires, ownership of the land reverts back to the landlord. For example, if you buy a property on a 99-year lease with 50 years remaining, you only get the remaining 50 years.
Leasehold properties are generally less expensive than freeholds because they don’t include land ownership, which is a big part of the property’s value. However, the tradeoff is that leasehold properties don’t appreciate as much over time, and as the lease shortens, the value of the property can decrease, making it harder to resell.
On the other hand, a freehold means you own both the property and the land it's on, with no time limit on your ownership. Freehold properties are more expensive but are usually a safer long-term investment, as they appreciate more consistently and you aren’t at risk of lease expiration or renegotiation.
The Uncertainty of Leaseholds
A big downside of leasehold properties is the uncertainty that comes with a lease nearing its end. The landowner isn’t required to renew the lease, and if they do, it could come at a much higher cost. As the lease gets closer to its expiration date, buyers may find the property’s value decreasing, which can make it harder to secure financing or find a buyer when it’s time to sell.
Also, keep in mind that leaseholds are not governed by the Residential Tenancy Act (RTA), which covers rental properties in BC. Instead, they’re governed by specific lease agreements, so your rights and responsibilities differ from those of a typical tenant.
Which is Right for You?
While leaseholds can be more affordable upfront, they come with potential risks, especially as the lease runs down. Freeholds, though pricier, offer more stability and long-term value. If you’re looking for a home to stay in for the long haul, a freehold might be your better bet.
In Metro Vancouver, you’ll find leasehold properties around areas like SFU and UBC campuses or on First Nations land. These can be great options for some, but it’s crucial to understand the terms of your lease, how much time is left, and what your rights are as a leaseholder before making a decision.
In the end, whether you go for a leasehold or freehold depends on your priorities—affordability and short-term flexibility versus long-term security and ownership. Just make sure you know what you’re getting into.
