A share of freehold explained

Aren't sure what a share of freehold is or whether it could be a good option for you? We can help.

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If you’ve had experience browsing the property market before, you may have come across leasehold flats that offer a ‘share of freehold’.

It’s a term that causes some confusion, which is why we’ve explained what it means below, as well as the pros and cons.

What is share of freehold?

Put simply, a freehold is the common ownership of property or land, and all immovable structures attached to such land.

But a share of freehold is something different and can be set up in a few different ways.

The first is where the freehold is split jointly between a number of flat owners within the property and the freehold is held in their personal names. This can be done with up to four flat owners.

The second is when a company owns the freehold and each of the tenants holds a share of that company.

This means that when you buy a flat with a share of freehold, you will either be given that share by way of having your name on the deeds of the property, or you’ll be given a share in the company that is controlling the freehold.

Whichever way it is set up, the result is ultimately the same – you’ll have a share in the freehold of the property.

What is the difference between leasehold and freehold?

If you own a home freehold, you own the building and the land that it stands on until the day that you sell it to someone else.

With leasehold, you own the property in that you have the right to occupy a home for a fixed period of time, but not the building itself. It is mostly flats that are leasehold, but houses can sometimes be leasehold, too.

Why does a share of freehold exist?

Without having a lease in place, individual flat owners could remove themselves from their communal responsibilities and the upkeep of the property would be placed in jeopardy.

Having a lease in place also means that these obligations are passed seamlessly between the seller and the buyer, such as property maintenance and service charge payments. This ensures that all communal responsibilities are covered during the sale without any additional steps.

Are there service charges involved?

In recent years the option to become a share of freehold owner has become easier. This allows you to own your flat outright, although it works differently to owning a house freehold.

But leaseholders can be prey to landlords who may demand exorbitant management fees, charge for building insurance at vastly inflated rates and threaten to evict anyone who refuses to pay up.

Landlords can also stop leaseholders selling their flats.

What are the pros of having a share of freehold?

Having a share of freehold gives you greater control over things like maintenance obligations, which removes the possibility of being taken for a ride by an unscrupulous landlord.

Holding a share of freehold also means that everyone in your property will be invested in the block, to a certain degree. This should mean that your property is kept to a higher standard than that which is owned by an individual landlord whose sole aim is to turn a profit from the building.

Another key benefit is the fact that you will be able to extend your lease at no extra cost, which would potentially save you thousands of pounds in the future. For instance, a £300,000 flat with a £30 per month ground rent charge and a lease that runs out in 2087, could cost you anywhere between £16,000 and £20,000 to extend, before costs!

Generally speaking, being able to extend your lease cheaply is a massive plus, as shortening leases become less valuable as time goes by.

What are the cons of having a share of freehold?

Ad hoc maintenance can mean that some years will see larger costs than others, should major work be required. But it is worth bearing in mind that the service charge will generally be lower for self-owned blocks, especially if you live in the property long-term.

Some people find it difficult to get other owners to sign the transfer of the freehold if they want to sell their flat. It is necessary to obtain identification from each of the owners during the sale for the Land Registry, which can prove to be a problem if one of the other shareholders is unavailable at the time of sale.

There may also be a requirement upon tenants to undertake administrative tasks, such as filing annual returns for the company that holds the freehold, and any accounting that needs to be maintained.

Failing to keep and file adequate records could result in a hefty fine and even the holding company being struck off, with additional reinstatement fees demanded. Property insurance is also something that will need to be taken care of and collected from each of the tenants every year

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