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Why you should not worry about getting a lease on land

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Added 25th January 2019 01:46 PM

Understandably, most people always prefer to own land in perpetuity. That is why they will opt for mailo or freehold land instead of getting a lease on land.

Why you should not worry about getting a lease on land

Ivan Matthias Mulumba is the Chief Valuer at Buganda Land Board

Understandably, most people always prefer to own land in perpetuity. That is why they will opt for mailo or freehold land instead of getting a lease on land.

By Ivan Matthias Mulumba

In Uganda today, owning land is almost everyone's dream. The location of the land is a major factor that determines whether one will buy the land or not. Location further influences the use to which you can put that land as well as its value. Understandably, most people always prefer to own land in perpetuity. That is why they will opt for mailo or freehold land instead of getting a lease on land.

The challenge is that such land is sometimes out of reach for most people because of its price.  Other times, its location does not guarantee the returns in the projected payback period in case one is to make an investment in real estate.

In Kampala, for instance, most of the land that is suitable for commercial use is under leasehold tenure. But to many people out there, the term lease is like a time-bomb. Some even miss the opportunity of owning prime land because of this fear caused by the uncertainty of owning leasehold land. People often have these questions in mind: Will the lease be renewed upon expiry? Will I manage to pay the ground rent? All these questions are valid. But owning land is like choosing a school for a child. You must know what is required of you and the benefits that might follow your decision.

Rather than ignore prime real estate, we need to be bold like lions, if we want to become the real-estate barons of the future or if we are to live in neighbourhoods perceived to be ideal places of living.

First, you need to know that what you put on the land matters, if you are to get value out of it. Some developers are opting for condominium developments and high-rise developments on land under leasehold tenure. Others are forming land ownership groups and developing the land as a group to offset the development costs. The result is organised and planned development and maximisation of the value of land owned under leasehold ownership.

Secondly, we need to understand the advantages of owning land under leasehold tenure. One of the advantages is the fact that the initial cost of owning such land is lower. The premium, which is the lump sum paid by the person getting a lease to the landowner, is a fraction of the market value. A lease also gives the lessee a chance to own land in a location where the owner would not be willing to sell their interests. It also encourages development and use of land since it would not make sense to continue making annual payment for land that one is not using.

There are, however, some important considerations before taking a lease. For instance, a person opting for a lease ought to know the duration of the lease they are getting. They should always look out for a lease with a longer term because the longer the term of the lease, the better; especially if the title is to be used as collateral. So, before you sign a lease agreement, you are supposed to have read and agreed to the terms of the lease. These restrict the use to which the land can be put, the amount of ground rent and premium to be paid, the intervals in which ground rent will be revised and other the development conditions.
 
Mind you, once you get a lease, you should not treat it like mailo land or land under freehold tenure. You should know what is expected of you. You should ensure that the lease is still running at all times. You can apply for a lease extension even before the lease expires and should endeavour to honour the terms of the lease. If you need to change the use that was agreed on in the agreement, you need to notify the lessor. This will result into added costs since the agreement will have to be varied.

All in all, you should have foresight before deciding on the use to which you want to put to the land. You should be conversant with the zoning restrictions.
 
When developing the land, the lessee should put a development on the land that will not make a lease a burden. A commercial building for instance can provide rent that can cater for ground rent payments. The same is true for residential apartments, tenements, factories, schools, commercial farms, name it. Land is a factor of production. We should look beyond using it to construct homes. You should always look to put the land to the highest and best use. That way, you will get the best out a lease.

The writer is the Chief Valuer at Buganda Land Board.

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