When making real estate investments, terms such as ‘freehold’ and leasehold’ often perplex most home buyers. What do they mean? Are there any legal issues associated with them? What are the basic differences between the two? And most importantly, which is the better option for investment?
While the main difference between freehold and leasehold properties pertains to land ownership and authoritative control, let’s dive into the essential elements of each entitlement.
Freehold properties and ownership
Freehold properties can be defined as any estate of an entity that is “free from hold” beside a legal property owner. Under such ownership, an investor gets the direct title of ownership of the purchased property and also the land on which it is built.
The owner of freehold real estate has all the rights to sell, renovate, or transfer the property or reuse it for other purposes in accordance with the Turkish regulations.
- Offers complete ownership and buyers can make personalized changes to the structure of the house/building.
- It can be legally transferred through generations.
- The owner has the responsibility of remodeling or maintenance.
- It is expensive as compared to the leasehold properties.
Leasehold properties and ownership
As the name implies, an owner can take the title of leasehold property for a fixed tenure of a time frame but does not own the land on which it is built. The ultimate ownership of the entire real estate goes back to the freeholder.
If an investor buys a leasehold property, he has the right to stay only for a particular period. In this title, the buyer is not the owner of the property and a fixed amount of sum/rent is consecutively paid to the landlord.
- It can be renewed at the end of the contract tenure, tenants can continue living in the property once the terms are extended.
- Mostly the landlord is responsible for the maintenance of the building/property unless mentioned in the contract otherwise.
- To remodel or make changes in the premises, consent from the landowner is required.
- It is less expensive than freehold properties.
So how are they different from one another?
While leasehold means purchasing the rights to occupy or live in the property from a freeholder for a fixed and pre-decided period of time, the freehold contract is applicable in the perpetuity of ownership. Freehold properties come with an added advantage of an unlimited period of ownership and if the landlord passes away, a legal heir can rightfully inherit it under Turkish Inheritance Law.
Essentially, the property stays within the direct consent and possession of the same family. On the other hand, under a leasehold, for making customized improvements on a property to meet the needs of an investor such as renovation or revamping, a written agreement from the landowner is required.
In freehold titles, the buyer has complete control over the building unit as well as the land. Owners can freely make changes to the structure as they fit and lease or sell the property at their own expense and discretion.
|The land belongs to other entity and is leased to owners for a certain number of years||Land solely belongs to the owner of the property|
|Prior to the lapse of the contract, owners pay an extra amount to extend the lease||Ownership is indefinite|
|To transfer ownership, state consent (obtained at the land office) is mandatory||Doesn’t require formal consent to transfer ownership (except in rare and special earmarked properties)|
Turkish title deed
A Turkish title deed, popularly known as TAPU, is an all-important official and legal document denoting property ownership. It includes complete information such as size, type, owner, and location of the property. Title deeds are issued, registered, and archived by the General Directorate of Land Registry and Cadastre.
It is crucial for property buyers to understand the steps involved in the Turkish title deed transfer process along with the pitfalls involved.
Entitlement and laws for real estate in Turkey
Independent units and land constitute real estate and any constructed building on it can have separate titles that are set out in different registers. Under Turkish laws, the most basic segment of property rights is simple freehold ownership, often referred to as ‘mülkiyet’.
The legal framework in Turkey also recognizes condominium ownership, permitting independent units in a completed structure to be possessed separately. However, the common areas in the main structure remain under joint ownership among the property owners of all independent units in the same building.
Furthermore, the laws also grant the right to the third party to build on a piece of property/land (üst hakkı) and the holder of this right becomes the owner for certain tenure. If the right to construct is intended to be indefinite or independent for more than 30 years, the holder of the right can register at the land registry as a separate property interest.
What type of ownership is preferred by property buyers?
Property buyers usually select freehold properties to make investments because of the high probability of capital growth and stability associated with it. Freehold properties bestow entire ownership upon investors instead of partial or temporary ownership titles offered by leasehold real estate.
No matter which option you select, it is crucial to understand the legal rights and responsibilities of each type of ownership. If you are looking for a permanent home, choosing a freehold property would be a beneficial purchase decision. However, if you are a business owner or an investor with short term goals, opting for the leasehold units would bring remunerative results.
The urban regeneration of major industrial and economical cities has led to an increased demand for commercial and residential properties in Turkey. Alongside mid-scale developments, mega infrastructure projects have been one of the major driving forces in maintaining the growth of the real estate sector.
The construction and real estate markets in Turkey are consequently recording positive housing sales trends for both freehold and leasehold properties and the upturned outlook is likely to expand in the coming years.
Alternatively, if you have more queries about ownership or wish to buy a property in Turkey, speak to our legal property advisors here.