What does share of freehold mean?
(Last Updated: 29/05/2024)
27/09/2022
25
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 |
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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.
