Leasehold vs. Freehold: Assessing the Building Condition Before Signing

In Taormina, the difference between leasehold and freehold is not just legal—it is financial. A lease may look attractive, but if the building requires major upgrades, the tenant often carries the cost. The investor pain is clear: signing before technical checks creates hidden liabilities. The solution is a structured condition assessment before commitment.

1. Structural condition and liability

Structural issues transfer differently under lease vs. freehold. Steps include:

• survey of walls, floors, and foundations;
• review of past renovations and permits;
• estimate of structural upgrades required for use;
• clarify who pays for structural repairs under the lease.

Without clarity, liabilities become your problem after signing.

2. MEP systems and compliance

MEP upgrades are often required for luxury use. Actions include:

• audit of electrical, HVAC, and plumbing systems;
• verify compliance with fire and safety regulations;
• estimate upgrade costs and timelines;
• define responsibility in lease clauses.

MEP costs can exceed fit‑out budgets if not identified early.

3. Heritage constraints and landlord obligations

Heritage restrictions often limit modifications. Steps include:

• check if the facade or structure is protected;
• review landlord responsibilities for exterior works;
• assess approval timelines for any modifications;
• align lease duration with approval cycles.

A short lease with long approvals is a financial trap.

4. Financial model and exit strategy

Leasehold investments require a different ROI logic. Actions include:

• model CapEx amortization over lease term;
• define break‑even and exit scenarios;
• negotiate renewal options in advance;
• include step‑out clauses for major defects.

Without these protections, returns can disappear.

5. Negotiation leverage through due diligence

Technical findings should be translated into negotiation terms. Steps include:

• price adjustments for required upgrades;
• landlord contributions for structural works;
• time allowances for permits and approvals;
• clear allocation of compliance risks.

Due diligence is not a report—it is negotiation power.

We also check ceiling heights, natural light, and circulation. Leasehold deals often assume a “simple fit‑out,” but if the space is structurally constrained, the cost to make it premium can exceed expectations. This is why technical surveys should precede any commercial negotiation.

Another hidden risk is shared systems: common risers, shared electrical capacity, and mixed‑use conflicts can limit upgrades. We map building services and identify constraints before the lease is signed.

Insurance and compliance obligations may differ between leasehold and freehold. A tenant may be required to upgrade fire systems or accessibility, even if the landlord owns the structure. These obligations must be explicit in the contract.

Finally, we assess exit options: sub‑letting, assignment rights, and renewal conditions. A lease that cannot be assigned is a weaker asset for resale.

This is why technical due diligence is not optional—it is the only way to quantify risk before you commit capital.

We also evaluate the envelope: roof condition, facade decay, and water ingress. Even if the tenant is not responsible for these works, delays in landlord repairs can block your fit‑out and opening.

In mixed‑use buildings, condominium rules can restrict hours, deliveries, or signage. These operational constraints should be reviewed before committing to a lease.

Finally, we align technical findings with legal clauses: any defect discovered pre‑signing should trigger clear contractual remedies. This protects capital and avoids disputes.

We advise creating a pre‑signing punch list with estimated costs and timelines. This makes negotiations transparent and helps justify concessions.

Leasehold can still be attractive when the term is long, the landlord contributes, and exit options are clear. The key is documentation and alignment before the signature.