Guide to Leasehold Rights vs. Ownership — What's the Difference?

Introduction: Leasehold vs. Ownership — Two Different Ways to Own a Property

When it comes to real estate in Israel, one of the most fundamental distinctions we need to understand is the separation between leasehold rights and full ownership of real property. This distinction is not trivial — it profoundly affects your rights, obligations, property value, sale options, inheritance, taxes, and more. For many years, our firm, Mandelboim, Gor, Witzman-Gor and Partners, Attorneys at Law, has guided hundreds of clients through real estate transactions and understanding the proper ownership structure for their needs.

This guide seeks to lay out before you the principal, legal, and practical differences between these two forms of ownership, so that you can make informed decisions regarding the purchase, sale, investment, or future planning of your property.

What is Full Ownership of Real Property?

Full ownership (also called "simple ownership" or "ownership in possession") is the broadest form of rights in a property. When you own real estate in full ownership, you hold the rights of ownership, use, enjoyment, and control of the property — with almost no legal limitations (except for general laws such as planning and building laws, environmental laws, and the like).

Key characteristics of full ownership:

• Full ownership right: You are the sole owner of the property, and this right can be transferred, sold, inherited, or gifted as you wish.
• Right of use and enjoyment: You are permitted to use the property for any lawful purpose, to lease it, to lease parts of it, or to hold it for personal use.
• Right of control: You can obtain permits for renovations, construction, alterations, and additions (subject to planning and building laws).
• Duration of ownership: Full ownership is not limited in time — it is yours forever (or until you sell it).
• Inheritance: The property can be inherited as part of your estate.

In Israel, full ownership of real estate is registered in the land registry (Tabu) in the owner's name, and this is typically the ordinary form of ownership in private properties.

What is Leasehold Right?

Leasehold right is a temporary right to hold a property, for use and enjoyment, but not full ownership. When you lease a property, you receive the right to use the property for a defined period (for example, 49 years, 99 years, or any other period agreed upon in the lease agreement). At the end of the period, the right reverts to whoever granted the lease (typically the Jewish National Fund, a local authority, or a private owner).

Key characteristics of leasehold right:

• Temporary right: The lease is limited in time. At the end of the period, the property reverts to the original owner (or to whoever granted the lease).
• Limited right of use and enjoyment: You are permitted to use the property in accordance with the terms of the lease agreement, but you cannot change its purpose dramatically or undertake major construction without consent.
• Limited right of sale: You can sell your leasehold right, but the buyer acquires only the leasehold right, not full ownership. As the end of the lease approaches, the property's value decreases significantly.
• Limited inheritance: The leasehold right can be inherited, but only for the remaining period of the lease.
• Maintenance costs: Typically, the leaseholder (holder of leasehold right) is responsible for maintenance and care of the property.

In Israel, leasehold right is registered in the land registry (Tabu) in the leaseholder's name, but with a clear notation that this is a leasehold right only, not full ownership.

Comparative Table: Leasehold Right vs. Full Ownership

This table reflects the general situation under Israeli real estate law. Each individual case may have unique details, and it is therefore recommended to consult with a specialist attorney.

The Main Legal Differences Between Leasehold and Ownership

1. Duration of Rights and Lease Renewal

The most striking difference is time. Full ownership is not limited in time — your property is yours forever. In contrast, leasehold rights are characterized by a clear expiration date. When dealing with a lease from the Israel Land Authority (common in Israeli real estate), the lease may be for 49 or 99 years, or under a private contract — for any agreed period.

As the lease nears its end, the leaseholder may face a significant problem: lease renewal. In recent years, various models have been proposed in Israel for renewing expired or soon-to-expire leases, but the process is not automatic and is difficult. Under Israeli land laws, certain provisions exist that allow renewal under certain conditions, but this is not a guaranteed right — it depends on agreement and careful legal management.

2. Right of Sale and Transfer

Full ownership grants you complete freedom to sell the property. A buyer will acquire full ownership, and the transfer is relatively straightforward (of course, subject to capital gains tax, purchase tax, and planning and building laws).

Leasehold rights, by contrast, complicate the sale. When you sell a leasehold right, the buyer knows they are purchasing a temporary right, and therefore may offer a significantly lower price. Furthermore, as the lease approaches its end, the value drops dramatically — a property with 10 years of lease remaining is worth considerably less than a property with full ownership.

3. Impact on Property Value

This is one of the most critical differences. A property with full ownership typically maintains or increases in value over time (depending on the real estate market, location, and other factors). In contrast, a property with leasehold rights decreases in value as the lease approaches expiration. This means your investment may be less profitable in the long term.

Example: A property with an 80-year lease still has reasonable value. However, a property with a 20-year lease will have significantly lower value, and buyers will be hesitant to purchase it due to the risk that the lease will end in another two or three decades.

4. Inheritance Rights

Full ownership can be inherited in full. The property is part of your estate, and your heirs will receive full ownership (subject to inheritance laws and estate taxes).

Leasehold rights, by contrast, can only be inherited for the remaining period. If a lease expires in 15 years, your heirs will receive only 15 years of leasehold rights — this value decreases each year.

5. Building Rights and Modifications

Full ownership grants you broad rights to perform renovations, extensions, and even substantial construction (subject to planning and building laws and obtaining permits).

Leasehold rights are limited in this regard. Typically, the lease agreement restricts the types of changes you can make. Substantial construction or structural changes may require approval from the landlord (whoever granted the lease), and this is not always guaranteed. Additionally, renovations you have made may remain with the property when the lease expires — meaning your investment may be lost.

Practical Cases: When is Leasehold and When is Full Ownership?

Case 1: Purchasing an Apartment in an Urban Renewal Project

In Israel's urban renewal projects, new residents often received leasehold rights on the new property, especially in projects where the Jewish National Fund held the land. In recent years, there are models that grant full ownership or an option to purchase the land. This is a very significant difference.

If you purchase an apartment in a renewal project with a 99-year leasehold, this is generally acceptable for the short term (up to 30-40 years). However, if the lease term is shorter, or if you plan to hold the apartment permanently and leave it to heirs, full ownership is a better choice.

Case 2: Investment in a Property for Rent

If you invest in a property to rent it out (vacation rental, rental apartment, etc.), full ownership is generally preferable. It gives you flexibility in rental terms, the right to sell at any time, and value that remains stable or increases over time. Leasehold rights may complicate rentals (since tenants may be hesitant to rent a property with a short leasehold).

Case 3: Future Planning and Inheritance

If you purchase a property in mid-life and plan to leave it to heirs, full ownership is a safe choice. Your heirs will receive a property with full ownership that can have value and full rights. Leasehold rights, however, can be problematic if the lease expires in a few decades.

Legal Advice: When to Consult with an Attorney

Choosing between a leasehold and full ownership is a significant decision that may affect your finances, future, and inheritance. It is recommended to consult with a real estate law specialist in all of the following cases:

• Before purchasing a property with a leasehold — review all terms, lease duration, lease fees, and renewal options.
• When a lease is approaching expiration — an attorney can assist you with lease renewal or finding other legal solutions.
• When selling a property with a leasehold — an attorney will help you understand the legal and financial implications.
• When planning for the future or inheritance — an attorney can help you plan your property in a legally and strategically sound manner.

Our firm, Mendelboim, Gor, Witzman-Gor & Co., Attorneys at Law, is located in Ramat Gan and Petah Tikva, and specializes in real estate and property law. We have helped hundreds of clients understand the differences between leasehold and ownership, in real estate transactions, TAMA 38, urban renewal, and long-term legal planning. Our initial consultation is free of charge, and this is the perfect time to consult with professionals who can assist you.