What Happens When Your Lease Runs Out?

Land ownership in Singapore can be split into two main categories of tenure: freehold and leasehold. Freehold properties, where ownership is indefinite bar repossession by the government, are a precious luxury in land-scarce Singapore, so most land tiles are leasehold. Leasehold properties in Singapore typically have either 999-year or 99-year leases. 999-year leases are more akin to freehold properties in nature, so typically the only worrying of the lot is the 99-year leasehold properties.

Depending on your objective of property ownership, a 99-year leasehold property may or may not be the one for you. If your aim is to purchase a home to enjoy your forever in, and to be passed down through generations, a 99-year lease is definitely not the one for you. However, if you’re thinking of other uses for the property, such as for investment purposes, or you’re content to simply enjoying the home for your lifetime and leaving your kids to be independent and fend for themselves, then a 99-year leasehold can be seriously worth considering. You can visit https://www.propertyguru.com.sg/singapore-property-resources/singapore-buy-property-guides/how-the-remaining-years-of-a-property-can-affect-its-price to learn more about how the remaining tenure on a property can affect potential prices and in turn, your investment goals.

When it all boils down to it, the main difference between a freehold property and a leasehold property is that leasehold properties have a limited legal lifespan. Thus, the question that people often ask is what happens to property when the lease runs out? What rights do owners of these types of properties have at the end of the tenure, when the land title invariably reverts to its original owners?

What happens when the lease expires?

In Singapore, more than three-quarters of the land is state-owned. The Singapore Land Authority holds the land in trust as custodian of the land. The remaining two-quarters comprises of pockets of freehold land held by a variety of owners including other government departments such as HDB, JTC, PSA as well as by private owners.

When a 99-year lease expires, ownership of the land reverts to the state. This means that the rights of any property owners during the term of the lease are effectively extinguished. In other words, property owners enjoy ownership and all that comes with it only during the term of the lease.

However, you might think that property owners will surely be entitled to fair compensation for any buildings or homes that remain on the property, as it is the land title that reverts, not the development on it. Unfortunately, not. The reality is that the state has no obligation to reimburse property owners with any sort of compensation at all. This might be a tough and somewhat unfair, but this is in accordance with land laws.

What options do property owners have?

When a 99-year lease expires, property owners have two choices.

The first choice is to top up the lease on their land by paying the government a premium for the lease term extension. Property owners can apply to the SLA for an extension of their lease back up to 99 years. This, of course, comes with the payment of a land premium – sort of rent for the extra time on the land. The amount of this premium varies on a case-by-case basis, as each application is assessed by the SLA’s Chief Valuer independently and must take into account all factors, including the number of years remaining on the lease.

It is thus up to the prerogative and discretion of the SLA on whether the application for lease extension is approved or rejected. Before coming to a decision, the SLA will consider various factors for the lease in question, such as whether any extension given would fit in with the government’s long-term intention for the land, whether the extension of proposed use would optimize use of the land, etc. In any case, a successful lease top-up will allow property owners the right to continue occupying the land for the duration of the renewed 99-year lease.

This may or may not be the ideal option, as unfortunately, the land premium charged by the SLA may make this option exorbitant and far too expensive for the everyday individual. Rather, this route is usually taken up by companies, developers, or other privately-held entities that are able to afford it.

The second choice is to sell their property to a third-party developer. This is through a collective (or en bloc) sale. This option is favored more by individual homeowners because it pushes the hefty obligation of the land premium payment onto private developers or companies that are able to afford it.

The downside, however, is that by selling the property, owners are selling off their land titles and will no longer enjoy the rights of land ownership. This means that they will no longer be able to stay on the property, as the rights to the lease will be transferred to the developers instead. What property owners do get, however, is proper compensation for their property. This would not have been possible had they just let the lease simply run its course.

Often, en bloc sales can net homeowners a hefty fortune in compensation. For example, in 2007, the sale of Farrer Court Apartments, which had a total of 618 apartment units, were sold for a total of $1.399 billion dollars. This means each homeowner received a $2.122 to $2.238 million-dollar share.

The verdict?

So, is a 99-year property a smart investment or a money pit? That remains to be seen. Whether you already have a 99-year lease on your hands, or you are considering purchasing a property with a 99-year lease, make sure you take into consideration all possible factors before you make any decision. As they say, in real estate, you need to think ahead.