What is Share of Freehold?

When you hear about properties with both a leasehold and a freehold, you might come across the term "share of freehold." Understanding what this means can be crucial if you're considering buying such a property. Essentially, acquiring a share of freehold means you gain shared ownership of the building's freehold title.

What Does Share of Freehold Mean

Purchasing a property with a share of freehold implies that you own the leasehold for your specific property, and a share of the freehold for the land and the building. This concept is most commonly associated with the purchase of flats. In such cases, the flat owners possess the leasehold for their individual flats and collectively own the freehold for the entire building and the land it stands on. This collective ownership can be managed in two ways: Through joint management or a management company, regardless of the method, you’ll still hold a share of the freehold for the property.

Limited Company Share of Freehold

One common method of managing a share of freehold, particularly when there are more than four freeholders, is to create a private limited company. In this scenario, the company is registered as the building's freehold owner, while you and the other co-owners are registered as shareholders and directors of the company.

Using this method means you'll need to navigate company law procedures as part of your homeownership responsibilities. Sometimes, it might be preferable to appoint one occupant as the company director, with the others remaining as shareholders.

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Share of Freehold in Personal Names

Often referred to as "tenants in common," this approach means that each person holds an equal percentage of the freehold. For example, four share of freehold owners would each hold 25% of the freehold. This method operates based on trust, which can be risky, but it generally involves fewer administrative fees than a limited company. Each owner is equally invested in the property, which can make this method suitable in certain situations.

Is Share of Freehold the Same as Leasehold

The primary difference between a leasehold and a share of freehold lies in ownership and obligations. With a leasehold, you own the lease of your property for a specified period (often decades or centuries) and pay ground rent to the freeholder, who owns the building and the land it stands on. In contrast, owning a share of freehold means you have a stake in the building's freehold along with the leasehold for your individual property.

The Pros and Cons of Share of Freehold

Owning a share of freehold comes with both benefits and potential drawbacks. Here’s a closer look at what you can expect.

Share of Freehold Benefits

1. Control over Property Maintenance: With a share of freehold, you and your fellow freeholders have a direct say in the upkeep and management of the building. This often results in a higher standard of property maintenance.
2. Lower or No Ground Rent: Typically, there are lower or no ground rent costs involved.
3. Lease Extension: You have the ability to extend your lease up to 999 years at no extra cost, which can prevent the devaluation of your property associated with shorter leases.
4. Lower Service Charges: Since the management company is internal (comprised of you and your co-freeholders), service charges are generally lower.

Problems with Share of Freehold

1. Variable Service Charges: While some months may have minimal maintenance costs, there can be times when significant repairs are needed, leading to higher charges.
2. Time-Consuming Administration: Managing the building’s affairs can be time-consuming and, if handled incorrectly, costly to rectify.
3. Insurance Costs: Obtaining home insurance might be more complex and expensive.
4. Rental Restrictions: Renting out your property can be difficult if your neighbours are opposed or if your lease has restrictive terms.

Share of Freehold Extension

While owning a share of freehold allows for lease extension without paying a premium, all freeholders must agree to the proposed extension. Their cooperation is crucial for the transaction. Even though co-freeholders do not have to extend their leases simultaneously, collective lease extension can lead to modernised and updated lease terms.

Service Charges and Ground Rent

Even with a share of freehold, you’ll still need to pay ground rent and service charges unless otherwise specified. However, because you co-own the freehold, it’s less likely you’ll face excessive or unfair charges.

Transferring Share of Freehold

When selling your leasehold property, you can transfer your share of the building’s freehold. This involves using a formal deed to transfer ownership from you and your co-shareholders to the new property owner and your co-shareholders.

Getting a Mortgage on a Share of Freehold Property

Securing a mortgage for a share of freehold property is possible, although some lenders may view the associated costs as a potential risk. Nonetheless, many lenders are willing to provide mortgages under these conditions, here are some tips to improve your chances:

1. Long Lease: Choose a flat with a long remaining lease, as this positively impacts the property’s value.
2. Management Company: Ensure a management company is in place in the property you’re considering.
3. Higher Deposit: Be prepared for a higher deposit or interest rate, as only certain lenders might offer a mortgage for share of freehold properties.

Let Us Help You with Your Next Move

If you're thinking about purchasing a property with a share of freehold, Howards, is here to assist. Our experts have the knowledge and technology to help you move smarter and faster. Let us help you with your next move!