Leasehold land is land that is owned by one party (the “lessor”), but the use and possession of the land is granted to another party (the “lessee”) for a specific period of time, known as the lease term. The lessee is typically responsible for paying rent, or “ground rent,” to the lessor for the use of the land, and may also be responsible for maintaining and repairing the property.
At the end of the lease term, the land and any improvements on it typically revert back to the lessor. A leasehold property is commonly used in situations where the lessee does not want to or cannot purchase the land outright, but still wants to utilize the property for a specific purpose.
Examples of leasehold land include:
- Apartments and condominiums, where the lessee owns the unit but not the land it’s built on
- Commercial properties, where a business rents the land for a specific period of time
- Agricultural land, where a farmer rents the land from a landlord for farming purposes.
When buying or leasing a leasehold land, it’s important to consider the terms of the lease, particularly the length of the lease and the terms of renewal, as well as any restrictions on the use of the land and any rights of the lessor. It’s also important to consider any potential rent increase and obligations to maintain the property. As it’s crucial to understand the implications of the leasehold before making a commitment.
In Kenya, the leasehold land tenure system is the interest in land for a specific period of time subject to payment of land rates to the county governments. A lease is usually granted for a period between 99 to 999 years with the Kenyan constitution limiting non-citizens to a maximum tenure of 99 years.
History of leasehold property
The idea of owning land on the leasehold is not new, it dates back to the olden days. For example, in the UK, some of the biggest landowners were (and still are) The Crown and the Church. They have many long leases sold to allow the building of both commercial and residential property.
In the old days, large landowners would grant long leases to developers allowing them to develop the land. Those landowners would then share in the income that was eventually received from any buildings.
Leasehold ownership allows the affordable housing developments to be financed and built without much costs that come with land purchase. Leasehold properties are also a source of income to county governments.
In Kenya, leasehold properties also exist in urban areas and cities. The good things is that as a Kenya citizen you can own this kind of property for 999 years and the lease is renewable.
Advantages of Leasehold Properties?
Leasehold properties offer several advantages to investors and it is important to understand these benefits before making this commitment. The good this is, the leasehold agreement confers benefits to both the landlord and tenant.
Strategic locations
To begin with, the first advantage is location. Leasehold properties are in strategic locations within urban centers and cities. In most cases, they are within the municipality or metropolis thus the capital appreciation outshines freehold properties in such areas.
Development is more controlled
The development of leasehold land and properties is more controlled by the local governments. As such, they have key amenities such as water, sewer system, electricity, schools, hospitals, etc. Further, the local governments provide extra benefits and features in comparison to freehold properties.
Security of ownership
Leasehold land offers the same level of security as freehold land. The lease agreement that you sign to purchase the lease will state the specific period of time for which the land is leased to you. During this period, no one can take away the land from you for any reason. Further, the lease is renewable.
Homeownership
If you build a house on the land you will have the same rights over it as you would if the land was freehold. You will be able to renovate, extend or change it, sell it on or rent it. The good thing is that it can also be inherited just like freehold.
Use of land
You will be able to use your land productively depending on the terms of the lease and subject to local planning permission. Most agreements will allow you to build a residential house or commercial structure, build something for the good of the community or work from the land as you need to.
Renewal of lease
Upon expiry of the lease, you have the right to renew your agreement through a lease extension and still continue with the arrangement you had. It will be your duty as the owner to maintain the land you had leased, covering maintenance costs, service charges, administration charges etc.
Financing
You do not have to worry about getting financing when you have leasehold land. You can access financing for leasehold property for the remaining number of years that you have. The good thing is that leasehold land has a chance of having a high valuation because of its strategic location.
Can you sell your leasehold property?
The simple answer is yes!. You can sell your leasehold land before the end of the lease agreement. The remaining lease will pass to the new leaseholder who will be bound by the original contract. It is always important to involve a property lawyer who has knowledge of managing leasehold agreements.
Before the transfer of land can be effected, the seller must obtain consent to transfer the land. For leasehold lands, one obtains consent from the commissioner of lands whereas for freehold lands consent is issued by the Land Control Board.
Conclusion
Do not shy away from investing in a leasehold property because it has numerous benefits that you stand to gain as an investor. Do you have any questions? Leave them in our comments secrion
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