The world of real estate is chock full of terms that you might be unfamiliar with, and “freehold strata” may be one of them.
There are several variations when it comes to property ownership. While you might assume that you own a house and the land it’s perched on when you buy real estate, this is not always the case. Before buying real estate, make sure you fully understand the ownership type involved.
Let’s take a look at freehold strata and the specifics of this type of property ownership.
What Is A Freehold Strata?
Freehold strata is a type of property ownership that combines elements of freehold ownership and leasehold condominiums. Whereas freehold ownership means you fully own the property and the land it sits on, freehold strata means you fully own your home and the land, but you share common areas and amenities.
All owners in a freehold strata complex must pay condo fees to cover maintenance costs for the shared spaces, such as elevators and lobbies.
Types Of Freehold Ownership
There are different types of freehold ownership, each of which determines the extent of your rights to the property.
Fee Simple
There are two variations to the free simple ownership: absolute, and determinable.
- Absolute – As the name suggests, fee simple absolute means owners have full control of the property and land. You can use the property however you like, as long as you comply with local bylaws and regulations. Unlike leasehold strata, there is no end to your ownership. That means you’re free to own the home as long as you like and sell it whenever you want.
- Determinable – With this arrangement, your ownership interest in the land will end under specific circumstances. The contract will include certain restrictions and provisions that will impact your ownership if they are not complied with. If these conditions are breached, the previous owner can take back the property.
Life Estate
A life estate refers to ownership of a property for as long as the owner lives. In a life estate arrangement, you’re considered a life tenant. You can own the property for your whole life, but your ownership ceases when you pass away. At that point, the original owner can reclaim the property or pass it on to someone else.
Freehold Strata Vs. Leasehold Strata
The difference between freehold strata and leasehold strata comes down to ownership of the land.
Freehold Properties
A freehold strata means you own the structure and the land, while sharing common areas. But unlike a traditional condo, you’ll be required to take care of your own property, including mowing the lawn and shovelling snow.
Leasehold Properties
In a leasehold strata arrangement, you’re basically granted the right to use your property for a long time. While you may own the property, you don’t own the land. Instead, you’re leasing from another entity, such as the government or First Nations. You have the right to possess and occupy the property until the end of the lease or until you sell it.
What Is A Freehold Land?
Freehold land ownership means you wholly own the land with no fixed maturity date. This differs from leasehold land strata whereby you may own the home, but the landlord owns the ground.
Types Of Properties Included In Stratas
The most popular strata properties are condos and townhomes, which involve individually-owned units with shared spaces.
- Residential properties. Freehold strata properties include condos, duplexes, townhouses, and sometimes single-family houses in bare land strata corporations.
- Commercial stratas. Stratas extend beyond the residential realm and include commercial, industrial and mixed-use complexes.
What Is A Freehold Condo?
‘Freehold condo’ and ‘freehold strata’ are two different terms for the same concept. While the term ‘strata’ is commonly used in British Columbia, the term ‘condo’ is more often used in other provinces, like Ontario.
Freehold condo means you own the inside of your unit, but the exterior complex is owned and maintained by the condo corporation. You need to pay condo fees every month to cover the cost of this maintenance, as well as for all common areas and amenities on the grounds that you have access to, such as a pool, gym, or party room.
The land your unit sits on is also yours. For this reason, there’s more value in a freehold condo since you benefit from more significant price appreciation in the property.
What Is A Freehold Townhouse?
Townhouses can fall into two categories: freehold and condo. A freehold townhouse is a property that you fully own, including the structure and land. There are no common areas shared with other neighbours. That means you’re responsible for maintaining your individual unit and covering all costs associated with this maintenance. There are no condo fees to pay as a result.
Freehold townhouses are attractive to homebuyers because they are similar in price to freehold strata properties, but without the condo fees. Plus, freehold townhouse owners have more freedom and flexibility to make changes to their properties.
Advantages Of Freehold Strata Properties
There are plenty of reasons why buyers choose freehold strata properties, including the following:
- No maintenance. A freehold strata property leaves all the maintenance of the grounds to the condo corporation. That means you won’t have to worry about spending time on things like landscaping, snow shovelling, and making repairs, as the corporation will take care of these tasks for you.
- Affordable. Freehold strata properties are typically cheaper than single-family homes, which may be a better option for first-time homebuyers.
- Access to amenities. There are typically several amenities offered on-site with freehold strata properties, such as swimming pools, fitness centres, guest suites, and even pet spas.
- Security. You’ll typically have 24-hour security in a freehold strata property, including security cameras and security guards. This can give you a sense of peace knowing that there’s a layer of protection between you and potential criminals.
- Accessible locations. Freehold strata properties are typically located close to city centres, which offer all sorts of amenities and conveniences. You’ll often be within walking distance to entertainment, shops, groceries, and public transit.
Disadvantages Of Freehold Strata Properties
There are also some drawbacks to consider with freehold strata properties, such as the following:
- Condo fees. In exchange for all the amenities you have on-site, you’ll need to pay condo fees on a freehold strata property to cover the costs of maintaining these features and common areas.
- Restrictions. You won’t have the freedom to do what you please with and on your property, unlike a freehold arrangement. For instance, you’ll need permission to make certain upgrades. There may also be rules surrounding pets, BBQs, and business activity on site.
- Possibility of mishandled funds. Suppose the condo corporation does not manage the reserve fund properly or makes irresponsible decisions on how it spends money on maintaining and repairing the property. In that case, the owners could be left with higher condo fees.
Have you heard of interim occupancy and does it affect your condo purchase?
Does Strata Affect Property Insurance?
In Canada, you need property insurance to protect yourself against damage done to your home. When you take out a mortgage to finance a home purchase, your lender will require proof of home insurance.
In the case of a freehold strata property, strata fees cover the cost of the corporation’s insurance policy. However, it doesn’t pay for the homeowner’s insurance plan. That means you’ll need to take out your own insurance policy for your specific unit and belongings.
Final Thoughts
Several perks come with freehold strata, including minimal maintenance required, access to luxury amenities, and a lower price tag. But there are also some drawbacks to consider, like the restrictions and condo fees. Make sure you’ve considered all these, as well as other types of property ownership, before buying a home.
