Understanding Leasehold Property Ownership in New Zealand
When purchasing a property in New Zealand, most buyers encounter the term “freehold,” which means you own both the land and the building. However, a smaller portion of the market operates on “leasehold” titles. These properties, while often more affordable upfront, come with some very specific obligations and risks.
What Is Leasehold Ownership?
With leasehold ownership, you do not own the land your home sits on. Instead, you purchase the exclusive right to possess and use the land and buildings for a defined period of time, according to a lease agreement with the landowner (the freeholder). You may own the building, but the land remains under someone else’s ownership.
This lease outlines essential details such as the amount of ground rent payable, how frequently that rent is reviewed, and other obligations like rates, maintenance costs, and property use restrictions.
Leasehold vs Freehold: What's the Difference?
Freehold: You own the land and the buildings. This is the most common and straightforward form of ownership in New Zealand.
Leasehold: You own the building but lease the land from the freeholder. You pay annual ground rent and may face restrictions on modifications or use.
Common Leasehold Properties in NZ
Leasehold properties are often found in apartments or homes in high-demand, central city or waterfront locations such as Auckland’s Viaduct or Mission Bay. While less common than freehold properties, they offer a potentially more affordable way to get into desirable areas.
The Costs of Leasehold
Ground rent is the most significant ongoing cost. It’s typically reviewed every 7–21 years and is based on the land’s market value—which has been rising steadily in many parts of New Zealand. The reviewed rent can increase substantially, leading to financial stress for the leaseholder.
Additional costs often include:
Operating expenses (including council rates)
Body corporate fees (for apartment-style properties)
Contributions to repairs and maintenance
Some leases are fully prepaid, with no ground rent due until the end of the lease. Others come with strict review schedules that can lead to surprising increases.
Mortgage and Resale Considerations
Getting finance for a leasehold property can be more difficult than for a freehold one. Banks view leasehold titles as higher risk because:
The ground rent can significantly increase
The resale market is smaller
Value can decline over time as the lease term shortens
Most lenders prefer leases with at least 80 years remaining, and some will only lend up to 60–70% of the property's value. A short lease term combined with high ground rent can significantly reduce a property’s marketability.
The End of the Lease
Once the lease term expires, ownership of both the land and the building returns to the freeholder unless a renewal has been negotiated. The leaseholder receives no compensation for improvements or the original purchase price.
Why Some Buyers Still Choose Leasehold
Despite the risks, leasehold properties can offer opportunities:
Affordability: Because you're not purchasing the land, the purchase price is often significantly lower than for a freehold equivalent.
Prime locations: Leasehold homes are often located in sought-after, central areas where freehold prices are prohibitive.
No landlord: Unlike renting, leasehold owners aren’t subject to regular inspections or rent increases from a landlord (aside from ground rent).
What to Ask Before Buying a Leasehold Property
Due diligence is absolutely critical with leasehold. Ask these questions before making an offer:
When is the next ground rent review? And how frequently do they occur?
How is the land value assessed? Is it based on bare land or land with improvements?
Who owns the freehold? Do they have a good reputation?
Can you buy the freehold? If yes, when and how much would it cost?
What can or can’t you do to the property? (e.g. renovations, repainting)
What’s the history of sale prices in the development? Are they increasing or declining?
The Lease Agreement: Read It Carefully
A registered leasehold agreement is a legally binding document. It will include:
Rent amount and review dates
Rights and obligations of both leaseholder and freeholder
Conditions for renovations or extensions
Body corporate terms (if applicable)
Rules around pets, noise, balconies, etc.
Breaching any of these terms could result in the forfeiture of the lease, which means losing your home and any equity you’ve built up.
Thoughts on Leasehold
Leasehold property can be a great way to enter high-value areas at a lower price, but the risks are real and should not be underestimated. It's crucial to weigh up the long-term costs, lease term, and potential future rent reviews. A property with 90 years remaining and low ground rent might be worth considering—while one with 18 years left and a looming rent review might not.
Always speak to your mortgage adviser and conveyancing lawyer before progressing with a leasehold property. Get clarity on all financial commitments and legal restrictions.
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