There are different spectrums of buying a home in Canada. Depending on your allocation and necessities, you can get a house, portion, and condos; certain provinces in Canada give you the option to buy a leasehold property.
While purchasing a home on a freehold basis is easy, buying one on a leasehold tenure can be clunky. And since it applies different guidelines and limitations, many people get stumped on whether they should buy a leasehold property in Canada– a modern custom-built luxury home in a residential neighborhood. We will make things easier for you by providing all the possible information on leasehold ownership. Without any further ado, let’s dip into the details.
Understanding Leasehold Property
There are two types of ownership–leasehold and freehold. A leasehold encompasses leasing a flat or home ( on the land) for a specific time ( lease period ). However, the ownership/freeholder only. The matte/homeowner holds the leasehold ownership for the lease period and does not own the land.
Types of leaseholds in Canada
Leasehold prepaid ( Non-strata )
Leasehold prepaid non-strata means the ownership of the land or property is not divided. Land use is prepaid, and the property sits on a leasehold. As land use is prepaid, the selling price exceeds that of the non-prepaid leasehold.
Leasehold prepaid ( strata )
A leasehold prepaid strata property is a type where the developer pays the lease payments upfront. It means that you won’t receive any extra bills for lease payments. However, it is worth noting that the property owner usually includes these prepaid fees in the property’s overall value.
Things to remember before buying leasehold property in Canada
Length of lease
A lease is typically a long-term agreement spanning 90 years or more from when it was sold. Knowing the remaining lease year is crucial when purchasing a leasehold property from another leaseholder. Choosing a property with at least 70 years left on the lease is advisable. Additionally, extending the lease or obtaining freehold ownership of the property is worth considering.
Annual rent
As someone buying leasehold property for the first time, you must review the ground rent. Take help from a lawyer and understand the ground rent you will be paying in the future.
Service charges
Landlords usually hire management companies for building inspections, repairs, and maintenance. The fees for these services are collected from the tenants and vary depending on the work required. The lease agreement contains all the relevant details, so reviewing it carefully and ensuring no additional clauses is essential.
Outlay apportionment
Sometimes the seller has already paid the service charges or ground rent for the period after the completion date. In such a case, you must reimburse the seller a proportionate part of that amount. It is a one-time charge: you will pay the rent directly to the landlord or management company next time onwards.
Benefits and detriments of buying a leasehold property
Buying a leasehold property in Canada is the cheapest option to own a house. You will have more financial opportunities, and you don’t have to worry about the commitments and costs of owning a piece of land. That’s because you will only own the building and enjoy the right to make home improvements as you please.
On the contrary, there are many cons to buying a leasehold property. It can cost you continuous rent reassessment. Tenants don’t have complete control over the property and must abide by the landlord’s rules and regulations.
Certifying a leasehold property
There are two insurance policies for a leasehold property- building insurance and content insurance. Building insurance covers the entire building, while contents insurance covers personal possessions. It’s important to know what contents insurance covers before purchasing it.
FAQs
- Is it safe to purchase a leasehold property in Canada?
Buying a leasehold property in Canada is safe if you carefully check the lease terms. The lease terms can cause issues. Check thoroughly.
- Why should anyone purchase a leasehold property?
These properties are cheaper compared to freehold properties. Besides, you must pay far less for a leasehold property if you plan to buy a home in a metro city and a good area.
- Is selling a leasehold property difficult?
Selling a leasehold property is not difficult and is similar to selling any other type. However, if the lease period is short, finding a buyer can be challenging, and you may need to arrange additional paperwork, which your lawyer can handle for you.
- Is it beneficial to convert leasehold to freehold?
Converting a leasehold property to a freehold can boost returns, especially if you plan to sell. Ensure you have the necessary approvals and documents for a hassle-free conversion.
