Why is the lease agreement for housing or commercial property 99 years?
- Housing Or Commercial Properties Lease Agreements For 99 Years Know Why
The lease agreement for real estate and commercial property is usually 99 years. But why this deal for 99 years. On the other hand, why is the housing rental agreement for 11 months?
Housing or commercial property is divided into two types – one is freehold property and the other is a leasehold or leased property. However, no authority other than the owner of the freehold property can be ‘freed from occupation’ indefinitely. Leasehold property , on the other hand, is usually leased for 99 years from the time the property is built.
However, in some cases leasehold property is also given on permanent lease, which is a separate issue.
The lease of the property is time limited and is fixed for a period of 99 years. For example, suppose you bought an apartment in 2015 and you got possession in 2022. The builder only took a lease from the state development or housing authority in 2015, so this means that your lease started in 2015 when construction of the property began. That means when you get possession of the property in 2022, you have to deduct 7 years and the effective term of your lease will be 92 years.
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When a certain development authority of a state grants developers area or land development or construction rights, it sells the said properties on a 99-year lease. And when the builder or developer sells it to potential buyers (whether it’s a residential or commercial property), the latter will only own it for 99 years. Upon expiration of 99 years, ownership will be returned to the original land owner.
But, why is a housing or commercial property lease agreement for 99 years?
Housing authorities like DDA and NOIDA allocate residential flats or land on a 99-year or permanent lease. The purpose is to ensure controlled development. By leaving the property as leasehold property, the authority is able to ensure control over the use and development of such assets. In case of violation of such conditions, they have the power to cancel the allotment or lease It helps the authorities to maintain the rules of concentration, rules of use, etc. In NOIDA, for example, floor-based sales on residential plots are not allowed and NOIDA authorities are able to control it because the properties are not leasehold and freehold.
What happens if the leasehold property expires after 99 years?
Once the goal of controlled development is achieved, the authorities come up with a freehold conversion scheme and free the land and property from such control. The DDA from time to time introduces freehold conversion schemes to convert such assets. NOIDA authorities have not yet begun the freehold transformation but may come up with such a project in the future.
If the term of the leased property is ever extended beyond 99 years, the buyers must pay the land rent to the original landowner. This leasehold property is allowed to be renewed after expiration by paying a fixed fee. In other words, it is possible to extend the lease for 999 years by paying the price to the authority.
However, there is another provision where when the possession of the said property is 100 years old, it is automatically converted into a freehold property or asset.
Real estate expert Sunil Tyagi said, “By keeping property leasehold, development authorities are able to control development more effectively. Once the property is freehold, the authorities cannot control any sale or transfer. According to Tyagi, “In the early years of establishing a city or colony, this process is helpful but in the long run, properties should not be kept on leasehold as it reduces their value as compared to freehold property.”
Why is the housing rental agreement for 11 months?
Typically, housing rental agreements are made for 11 months. This is not done after that time because for example if a contract is made for 1 year, then both the lessee and the lessee have to agree to register the lease at the office of the state authority.
In addition, in the case of registering a house rental agreement, the leaseholder or lessee must pay a 2% stamp duty on the average annual rent. Stamp duty will be 2% of the average annual rent in Delhi on lease for a period of up to 5 years, and will vary from other states. So, to avoid the hassle of going to the registrar’s office and to save stamp duty, owners usually prefer to have an 11-month rental agreement which is done through a simple notary process.