What is share of freehold?
What does share of freehold mean?
When you purchase a property with a share of freehold, you acquire both the leasehold of your individual property and a portion of the freehold for the building and the land it stands on. This arrangement is most common with flats, where each owner holds the lease for their individual unit and a collective share of the freehold for the entire building.
How Shared Freehold Works
There are two primary methods to manage a shared freehold: joint management and management through a company. Regardless of the method, owning a share of freehold gives you a stake in the property’s freehold.
Limited Company Share of Freehold:
For properties with multiple freeholders, a common approach is to form a private limited company. This company owns the building’s freehold, with property owners registered as shareholders and directors. This method requires adherence to company law procedures, which can be streamlined by appointing one resident as the director.
Share of Freehold in Personal Names:
Also known as ‘tenants in common,’ this method involves each owner holding an equal percentage share of the freehold. For example, if there are four owners, each would hold 25%. This setup operates based on trust, reducing administrative fees but potentially increasing risk due to shared responsibilities.
Leasehold vs Share of Freehold
Understanding the difference between leasehold and share of freehold is essential. With a leasehold, you own the lease to your property for a set period, typically decades or centuries, but pay ground rent to the freeholder, who owns the building and land. In contrast, owning a share of freehold means you also own part of the building’s freehold, providing more control over property decisions.
Advantages of Shared Freehold
Owning a share of freehold offers several benefits:
- Greater Control: Owners have a direct say in the management and maintenance of the building.
- Maintenance Standards: As co-owners, all residents are invested in maintaining the property’s standard.
- No Ground Rent: Typically, there are lower or no ground rent costs.
- Lease Extension: You can extend your lease to up to 999 years without additional cost, preserving property value.
- Lower Service Charges: Service charges are generally lower because the management is handled internally by the co-freeholders.
Disadvantages of Shared Freehold
Despite its benefits, shared freehold comes with certain drawbacks:
- Variable Charges: Maintenance costs can vary, sometimes requiring significant outlays for major repairs.
- Administrative Burden: Managing the building involves additional administrative responsibilities
- Insurance Issues: Obtaining home insurance can be more complex and costly.
- Rental Restrictions: Renting out the property can be challenging if the lease or co-owners impose restrictions.
Extending a Share of Freehold Lease
Extending your lease is straightforward if you own a share of freehold, but it requires the agreement of all co-freeholders. Cooperation among all parties is essential, especially if you are modernising and updating the lease terms simultaneously.
Service Charges and Ground Rent
Even with a share of freehold, you may still need to pay ground rent and service charges. However, since you and the other occupants manage these charges, you’re less likely to face excessive or unfair costs.
Transferring Share of Freehold
When selling your property, you can transfer your share of the freehold to the new owner through a formal deed. This process involves both you and your co-freeholders, ensuring a smooth transition of ownership.
Mortgaging a Share of Freehold Property
Securing a mortgage on a share of freehold property is possible but can be complex due to potential costs. Some lenders may view this type of property as a higher risk, leading to higher deposits or interest rates. To improve your chances:
- Long Lease: Purchase a flat with a long remaining lease.
- Management Company: Ensure there’s a reliable management company in place.
Haybrook is here to help
Owning a share of freehold offers significant advantages in terms of control and potential cost savings but also requires a commitment to managing the property and cooperating with co-owners. If you’re considering this type of ownership, contact Haybrook’s experts today. They are ready to guide you through the process, helping you make an informed decision that suits your needs.
