Can joint proprietorship of share of freehold properties affect the selling process?

Yes. Every time one of the properties is sold, all freeholders have to sign their consent for the transfer of the title to a new owner’s name. If any joint proprietor party is either not available or unwilling to cooperate, or both, this creates a legal impasse stopping the transfer from going ahead. Actual examples of these kind of difficulties which have been brought to our attention include one where a share of freeholder joint proprietor who was in a coma and therefore could not sign any transfer deed and another where the joint proprietors have fallen out and they don’t wish to cooperate or even communicate with each other. The solution for this process, which invariably takes up perhaps months and involves more legal expense, is to apply for a Vesting Order.

Setting up a management company

When you form a management company to look after the freehold title, by registering the entity as a limited company with Companies House, you set it up such that the Memorandum of Association and Articles of Association ensure that the share in the freehold management company runs with the leasehold title. This protects both you and the other freeholder/s in the event that the property is repossessed, any party becomes incapacitated or relations between you break down. It’s also far easier for a lender to deal with a management company when it comes to wanting to repossess and sell and therefore recoup its losses in the event of continued default on repayment of a mortgage by a share of freeholder on their leasehold title. They therefore, in the vast majority of cases, require a management company to be in place before they will lend.

How do I set up a management company? How much does it cost?

You can find companies online who charge between £60 - £100 to set up a management company fit for the purposes described. You can even opt to do this yourself directly online with Companies House – they charge £12 (price correct as of December 2016). If you wish SAM Conveyancing to do set up a management company for you, please call 0333 344 3234.

What does share of freehold mean?

by:

Andrew Boast

(Last Updated: 29/05/2024)

Created on:

27/09/2022

Read by:

19,955

7 min read

The Leasehold and Freehold Reform Act 2024 was passed on the 24th May 2024, but is not yet in effect and the date for this is not yet clear. We will update our content as and when the finalised legislation is published. Read more - Expected changes

There are two types of property ownership, Freehold and Leasehold, however a share of freehold is where a leasehold owns a share of the freehold. For example, a block of 3 flats each has 3 leaseholds, but they all own 1/3 of the freehold title. What this means to buy a share of freeholder:

You have no third party external freeholders - you are the freeholder along with your fellow freeholder/s;
You either carry out repairs to communal areas yourself along with the other freeholder/s or you at least have a say in who carries out the work and can better ensure using reasonably-priced contractors;
You can agree to develop your property more easily, or vary condition ins your lease as you can agree them with your fellow freeholders before you buy the property (many freeholders prefer to not vary anything and may charge if they so so); and,
If you want to extend your lease you can negotiate directly with the other freeholder/s: the process should, as a rule, be much less expensive than if you were purely a leaseholder and you may even be able to do so for free if this is agreed in principle with the other freeholder/s. Read more - How to extend a lease where you own a share of the freehold

Tips for Selling or Buying share of freehold

Selling a Share of Freehold

Buying a Share of Freehold

Who do you get the - Leasehold Management Pack from? Is your neighbour doing it? If so are they there and able to provide everything that is needed?
Have you paid your ground rent? Even though you're paying yourself, unless the ground rent clause has been removed, the liability of the lease requires the ground rent to be paid.
Have you paid your service charges? As above, you still need to pay for these.

Is the freehold held in the share of freeholders own name or is there a share of freehold management company. The latter means your name is added to the company as a shareholder.
How much is paid in service charges? Too little, then is the property well maintained or too much, then why is so much needed?
Is there a reserve? A rainy day fund for repairs that the freeholders are liable to pay such as the roof.

What are share of freehold problems?

Whilst in theory owning a share of the freehold means you have a way to influence the running of the freeholder's obli8gations, these are some of the problems that come with a share of freehold:

The share of freeholders may not agree to how the freehold should be managed such as not allowing leases to be extended or who is going to maintain the property.
Share of freeholders who fail to perform their duties are in breach of the leaseholders and could effect the resale or financing of the leaseholds.
It is extra work and whilst some agree to do this work, others may not do their fair share.
When a share of freeholder sells, you have no guarantee that the new owner will perform the same duties as freely as the departing freeholder.

Is a share of freehold a freehold?

No. A share of freehold means you still have a leasehold, but you own a share of the freehold. This means that you don't have free will to do as you please like you can with a freehold, subject to the title register, but you do have the opportunity to manage the running of the freehold and the communal parts of the property.

Which properties are most likely to be share of freeholds?

Georgian, Victorian or Edwardian houses converted into 2 or more leasehold flats are most commonly the ones where the leaseholders look to buy the freehold.

However, with this said, any leaseholder who wants to buy with 50% or more of their fellow leaseholders can buy their freehold, so this includes purpose-built flats.

What if there are only 2 leaseholds on the freehold?

In this case, you would both need to agree to collective enfranchisement as one leasehold is not 50% or more.

What are the Pros and Cons of buying a share of freehold property?

Pros

You are your own master, along with the other freeholder/s

You don't have to pay an external freeholder to manage service charges, look after shared/communal areas etc. like a normal leaseholder: you either manage these areas personally with the other freeholder/s or you own a share of the managing company which administers these duties.

You can negotiate a longer lease directly with the other freeholder/s or with the managing company which you own a share of

Extending your lease makes your leasehold interest more valuable.

You don't have to pay any ground rent

One less bill to pay compared to a normal leaseholder.

You can more easily negotiate matters like developing the property or varying other terms of your lease

With a normal leasehold, you may be restricted from developing your property or even not allowed to or the freeholder may impose a fee for allowing you to do so.

As a freeholder, you negotiate directly with the other freeholder/s and you have much more likelihood of being able to do this easily and without additional cost.

Cons

You and other freeholders have to manage the property yourself.

Effectively you set yourself up in business with others. Like any business it requires attention to work well and you and the others need to continue to maintain it.

It is more expensive than being a leaseholder, particularly in the short term.

These properties are more expensive to buy than comparable leasehold properties, therefore they involve taking on bigger mortgages etc.

If you haven't set up a management company to run the freehold, when you come to sell, mortgage lenders may be unwilling to lend to potential buyers making selling more difficult.

Lenders prefer the legal protections and status afforded to limited companies, along with the obligations that these are correctly run as opposed to the risk of bankruptcy/disaster which might occur if the freehold is purely owned by private persons.

Freehold Company or held as Guarantee

The joint owners of a freehold can either have a company set-up which is the registered owner of the freehold that the freeholders own shares in, or it is held in all of the names of the freeholders as joint legal owners of the freehold (limited only up to 4 people).

A company is normally set-up for simplicity and is thoroughly recommended, not least for the reasons explained in the paragraph above.

If you are looking to become a freeholder or already are one and would like further advice about setting up such a company, please call 0333 344 3234: our experts can help you.

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Written by: Andrew Boast

Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

Reviewed by: Caragh Bailey

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.

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