Know the implication of leasehold nature of property in Noida/Greater Noida/Yamuna Expressway

We all know that property in Noida/Greater Noida is on leasehold for a period of 90 or 99 years as mentioned in property title document (lease deed) with the builder.
While you definitely own the property for this period, skepticism pertaining to renewal post this 90/99 years period are quite obvious.

Before we dwell further into it, lets discuss few significant aspects of a leasehold property:

Why leasehold and not freehold?

The reason for making properties leasehold in Noida/Greater Noida/YEW is to ensure effective and controlled planning and development of the region thereby also ensuring that unauthorized constructions do not mushroom unattended.

What are the Advantages and disadvantages of a leasehold property?

Pros:
-No house rent is required to be paid to authority on leasehold property
-It makes the authority more liable for external development around the property

Cons:
-For any sale post execution of sub lease deed, Transfer charges needs to be paid to the authority
-Need for renewal of leasehold property post its lease period completion (90/99 years)

Is there a precedence of leasehold period getting expired?

There is no precedence of such a scenario in India to take note of.
In fact, initially property in Delhi and (most of) Ghaziabad was also on Leasehold. But owing to the difficulties in realizing lease rent dues after population influx, the Delhi authorities eventually decided to convert land to Freehold on a nominal conversion charge.
However, if we move outside India, most of the land in UK is on leasehold with lease of around 99 to 125 years.
UK has a law of Leasehold reform act that ensures that lessee has rights to get his/her lease extended every time beyond the lease period provided payment for lease extension are made on time.
The process of lease extension involve paying of lease rent for another lease period of 99 to 125 years. The extension can be done anytime before lease expiration and requires 6 months to a year to get executed.

So what will happen after 90/99 years of lease period for a property in Noida/Greater Noida/Yamuna Expressway?

Below are the possible scenarios we see for Noida/Greater Noida/Yamuna –

Land gets converted to Freehold:
The demand for this conversion has gathered steam since last few years with Noida resident welfare association club and political parties pitching in for the same especially since 2012.
If this happens to be the case in future, owners will be asked to pay a conversion charge if interested to convert to Freehold.
This conversion charge in other cities of the country is in range of 5% to 10% of allotment rate.
Looks reasonable?

Lease extension:
Lease can be extended beyond the initial lease period by paying lease rent again.
To know what could be the lease rent at the period of lease period expiry, read further:
As per most of the lease deed documents, the lease rent can be increased by not more than 50% after every 10 years.
This means if you are paying 100 Rupees psf today for a 1000 sq ft flat (Rupees 1 Lac as lease rent today), in worst case, you may end up paying around 38 Lacs after 90 years, which will be almost equivalent to the returns you will get from a fixed deposit (FD) on 1 Lac Rupees in 90 years. Seems acceptable, right?

Also, the UP Apartment act gives the ownership of land (through the flat and undivided share in common area) to the buyers/owners. Hence, it is understood responsibility of extension and/or conversion would also be an owner’s (or owner’s legal heir’s) responsibility and not the promoter’s.

Neither Lease extension nor freehold conversion becomes a realty:
Now, such a scenario is completely hypothetical and unexpected.
However, this is also true that there is no guidance on redressal of lease extension issues in UP Apartment act or any other related law.

A leasehold reform law on lines of similar laws in UK would be the need of the hour going forward. This will not only cater to leasehold properties in Noida/Greater Noida/Yamuna expressway but would also apply to most of the commercials/institutional land which is kept as leasehold in other regions of the country.

Comments/Feedback invited.

Last updated: May 16, 2015 at 0:42 am

2 thoughts on “Know the implication of leasehold nature of property in Noida/Greater Noida/Yamuna Expressway

  • May 17, 2015 at 7:26 am
    Permalink

    Very nicely dealt article. Only one aspect remains untouched. In d given context, the distinction between lessee & sub-lessee is not clarified so that the flat buyers ( owners or sub- lessees) know their obligations & rights clearly.

    Secondly , builder (in addition to NOIDA ) continues to have control over property and charges money before giving NOC required before any transfer of title, even though the society is being run by concerned RWA

    Thanks & Regards,
    Vimal K Bharadwaj
    NOIDA

    17.05.2015

    Reply
  • Pingback: Find projected lease rent in Noida and Greater Noida after 90 years – Schools Real Estate and more

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