Buying

What is Share of Freehold?

Posted June 27, 2024
What is Share of Freehold?

Property ownership can be quite complex. One term you might come across is “share of freehold.” If you are considering buying a property, it’s important to understand this concept.

Freehold vs Leasehold

First, let’s differentiate between two basic types of property ownership:

  • Freehold: You own the property and the land it stands on, indefinitely.
  • Leasehold: You own the property but not the land. You hold a lease from the freeholder (landowner) for a specified number of years, often 99 or 125 years. This can even be 990 years under some Shared Ownership schemes.

Definition of Share of Freehold

“Share of freehold” is a term typically associated with flats or apartments. While you own your individual flat on a leasehold basis, you also own a share in the freehold of the entire building.

How Share of Freehold Works

In a share of freehold arrangement, multiple flat owners collectively own the freehold. This is usually done through a company set up specifically for this purpose. As a flat owner, you may have a share in this company or a percentage share of the freehold.

Example

Imagine a building with ten flats. In a share of freehold arrangement, each flat owner might own a 10% share of the freehold. Alternatively, each flat owner may be a shareholder in a company that owns the freehold.

Legal Structure

The legal structure can vary, but generally, there are two main ways to organise a share of freehold:

  1. Company Structure: A limited company is formed to own the freehold. Each flat owner buys a share in this company.
  2. Tenants in Common: The flat owners directly hold shares in the freehold, either equally or by other agreed ratios.

Benefits of Share of Freehold

One big benefit is the potential for longer leases. Lease extensions are usually simpler and cheaper if you have a share of the freehold. You have more control over the terms.

You get more control over how the building is managed. You can have a say in maintenance, repairs, and service charges.

Properties with a share of freehold can be more attractive to buyers. This can lead to a higher property value.

Responsibilities of Share of Freehold

You and other freeholders are jointly responsible for maintaining the building. This includes communal areas and the external structure.

You will need to contribute to the costs of building insurance, repairs, and other expenses. Make sure you’re prepared for this financial commitment.

You will have certain legal obligations, such as complying with health and safety regulations and ensuring the building is up to code.

Potential Drawbacks

Disagreements between freeholders can happen. These can be about how the building is managed, what repairs are necessary, or how costs are split.

Managing a share of freehold property can require significant time and effort. You might need to attend meetings and deal with administration.

You may need legal and financial advice to navigate the complexities of a share of freehold arrangement. This could include hiring solicitors and accountants.

Key Considerations

Even with a share of freehold, you still need to understand your lease. Each flat will have its own lease with specific terms and conditions.

Some share of freehold arrangements involve hiring a professional property management company. This can make the process smoother but will incur additional costs.

Make sure the building is properly insured. You’ll need to contribute to this cost as part of your joint responsibilities.

The Process of Buying a Share of Freehold

Valuation

Get the property valued. Make sure the price reflects its share of freehold status.

Legal Checks

Have your solicitor perform all necessary checks. This includes reviewing the lease, the freehold setup, and any company structures involved.

Mortgage Considerations

Not all mortgage lenders may be comfortable with a share of freehold arrangement. Check with potential lenders beforehand.

Completing the Purchase

Once you’re satisfied, proceed with the purchase. You’ll officially become a share of freehold owner after the transaction is complete.

Selling a Share of Freehold Property

Inform Prospective Buyers

Make it clear to potential buyers that the property is a share of freehold. This can be a selling point.

Lease Documents

Ensure all lease documents are in order. Buyers will want to review these.

Transfer of Freehold Share

Make arrangements to transfer your share of the freehold to the new owner. This might involve administrative and legal steps.

Conclusion

Owning a share of freehold gives you more control over your property and can be financially beneficial. However, it also comes with responsibilities and potential challenges. Make sure you fully understand what’s involved before committing.

If you have further questions about share of freehold, consult a property expert. They can guide you through the specifics of your situation.