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What Happens to an Industrial Building When the Lease Expires

What Happens to an Industrial Building When the Lease Expires

We all know that in Singapore, most industrial buildings are leasehold properties while some freehold industrial properties still exist. 

Sometimes, we may also wonder what would happen when the lease of an industrial building expires. In this article, we will share on what could happen when the lease of a property expires.

Land Belongs to the State

When a property is sold, it is usually sold as leasehold if not freehold. Once the lease of the property is up, the land is returned to the state as the lease has already expired. For example, when the lease of a 30 year leasehold industrial property expires, the land is returned to the State. The authority in charge of land in Singapore is also known as Singapore Land Authority or SLA.

Lease Top Up

If the existing property owners of the industrial development decides to top up the lease, they may do so by paying a differential premium or DP to extend the lease but will be subjected to review by the relevant authorities such as the SLA. If approved, the lease of the building will be extended accordingly.

Collective Sale or En-Bloc

Sometimes, there may be buyers who would like to purchase a warehouse or factory building for redevelopment as they may see value in the plot of land or may want to develop an industrial building for their own use. When this happens and if the en-bloc deal goes through, the owners of the property who are selling collectively will usually be compensated as a result of the collective sale. The collective sale purchaser may also apply to extend the lease of the property subject to the review and approval of the relevant authorities. If successful, they may still be able to top up the lease to maybe 30 years depending on the approval from the relevant authorities. Differential premium applies for top up of lease.

Why Leasehold Properties are Still Popular

Well, there are many types of properties or even any other products available in the market. Sometimes when we go shopping for certain products, we may come across products with lifetime warranty and some products with 5 years warranty. When we are given these two product choices, we may still end up going for the product with 5 years warranty but not the one with lifetime warranty. 

The reason for this may be because the product offering lifetime warranty costs much more than the one that offers just 5 years warranty. After consideration, we may still feel that getting the product which is affordable is still more worth it as compared to the product that offers lifetime warranty and that the difference in costs is not justifiable to us. Some of us would rather make good use of our resources by purchasing two products or more instead of spending too much one just one.

The same idea may be true for properties. By deciding on a leasehold as compared to a freehold, we may end up being able to purchase 2 leasehold properties if we do not purchase a freehold property. Furthermore, we are usually taught not to put all our eggs in just one basket.

Still, it is a matter of choice as to which is good. If your intention is to leave the property or a legacy behind to future generations, getting a freehold property may be a good idea too.