What Homebuyers Must Know Before Buying Leasehold Land

In many big cities where land availability is tight and prices are climbing, an increasing number of buyers are finding themselves looking at properties built on leasehold land, whether or not they realise it. It is a laborious type of ownership that gets little respect, overshadowed by the more formal types found in apartment blocks and commercial spaces, but is nevertheless significant and frequent. But the financial and legal repercussions of buying into a leasehold development can prove to be long-term, and in some instances, impossible, to shake off.

Leasehold, at its heart, is what it means when you don’t actually own the land your home is sitting on. Instead, they control an apartment or house in a physical building for a certain period, typically 99 years, but the land beneath it is owned by someone else.

Most buyers don’t realise until after they’ve signed that they’re essentially tenants. The illusion of ownership can be costly.

A Lease With Strings Attached

Unlike freehold properties, where the buyer holds title to both land and structure, leasehold ownership carries layered obligations. These range from ground rent payable annually to the landowner, through periodic service charges for communal facilities, to bans on modification, subletting and even pet ownership in some cases.

One crucial issue is the lease term. Anything lower than 70 years can also be problematic because this is the age at which mortgage lenders usually start to raise serious questions about your application, which can result in refusal or steeper interest rates. Properties with 30 to 40 years remaining on the lease can be all but unsellable on the open market.

If you buy a property with only 40 years left on the lease, you may be the last person who can actually sell it. The next buyer may not get financing, which traps you into either living with it or selling at a loss.

What buyers can inlcude in Builder-Buyer Agreement as per Ashoo Gupta, Partner, Shardul Amarchand Mangaldas & Co.:

• Ensure a specific, clearly defined date for handing over possession is mentioned in the Agreement.

• Ensure the Agreements sets out a detailed construction schedule and with payment demands linked to actual completion of milestones.

• Ensure that the grace period (if any) is specific and limited.

• Section 18(1) of RERA stipulates that the promoter shall compensate the buyer for delay in possession. Ensure inclusion of this specific provision in the Agreement.

• Under section 18(1)(a) of RERA, the buyer can withdraw from the project and claim full refund with interest if the developer fails to deliver as per the agreed timelines. Ensure this provision is explicitly mentioned in the Agreement.

• Ensure that the Agreement mentions specific refund timeline and makes the Developer/Builder liable to pay interest in case of delay in refunding the amounts received till date from the buyer

• Avoid vague terms like "subject to force majeure" and limit the delay/s strictly to uncontrollable events

• Compare the developer/builder's draft Agreement with the Model Agreement for Sale under RERA and ensure that clauses in respect of interest rates and refund are all incorporated in the Agreement.

Hidden Costs and Ongoing Liabilities

Beyond the initial purchase price, leasehold property ownership comes with a recurring cost structure that’s often underestimated. Ground rent, once a nominal charge, has been steadily rising in urban projects. Some contracts include escalation clauses, doubling the rent every decade.

Service charges are another wildcard. These cover common areas, gardens, lobbies, elevators and can fluctuate year to year, depending on how the management company budgets maintenance and renovations. Some leaseholders have reported sudden surcharges for lift repairs or façade upgrades running into lakhs.

Adding complexity are the legal fees involved in lease extensions, which are typically due once the remaining term dips below 80 years. The extension process involves negotiation with the landowner, independent property valuation, and payment of a premium based on a formula that includes property value, rent, and the years remaining.

Ownership in Name, Not in Practice

Buyers unfamiliar with leasehold systems often believe they’re getting full ownership. That’s rarely the case. Lease agreements may prohibit structural changes, renovations, or additions without explicit consent from the freeholder, a consent that often comes with a fee.

There’s a psychological shift when you realise you need permission to put up a balcony grill or renovate your bathroom. Who bought a leasehold apartment in 2015 and later discovered her building had restrictions on internal plumbing changes.

These limitations not only affect how residents live in their property but also influence resale potential. In competitive markets, leasehold homes tend to fetch lower prices than their freehold counterparts, sometimes 10–15 per cent less for comparable properties.

Mortgages and Market Perceptions

Banks view leaseholds with caution. While major lenders do provide financing, their risk assessments hinge on the lease term. A property with 60 or more years left poses limited risk; one with 30 years becomes a lending hazard.

Private financial institutions may offer loans, but often at higher rates. Additionally, banks require legal vetting of the lease deed, a process that adds both time and cost to the transaction.

Planning for the Long Term

As the lease term shortens, the value of the property depreciates unless the lease is extended. Buyers looking for long-term residence or rental income need to calculate whether the extension costs will erode their returns.

Leasehold properties, despite their risks, continue to dominate the high-rise segment. Developers favour them because they reduce upfront land acquisition costs. But what they save, buyers may later pay through reduced resale value, constrained rights, and increasing costs over time.

For those considering such a purchase, legal advice isn’t optional. Experts advise hiring a solicitor who specialises in leasehold matters to review every clause in the lease deed and highlight escalation triggers, maintenance responsibilities, and renewal terms.

Buying on leasehold land isn’t necessarily a bad investment but it is one that demands awareness and scrutiny. The legal and financial frameworks that govern such properties are far from simple, and their long-term consequences are easy to miss amid brochures and builder promises.

In the fine print of leasehold deals lies a reality that many homeowners only realise when it’s too late: they don’t own what they think they do.