What is share of freehold and why is it beneficial?

But what does this mean? What is a freehold and why is obtaining a share of it beneficial?

This article will set out to explain the types of property ownership and how you might benefit from a share of freehold.

Types of property ownership

In order to understand the term ‘share of freehold’, you will first need to know about the two main types of property ownership in England and Wales - Leasehold and Freehold.

Leasehold is now the most common form of property ownership. In general, if you are purchasing an apartment or a maisonette then it will most likely be a leasehold.

With a leasehold, you will own the right to occupy your property for the term of years outlined in your lease. The land the property is built on and often the structure of the building itself is owned by your freeholder. They are generally also your landlord and responsible for the various communal tasks outlined in your lease such as building insurance and building maintenance.

Can you own a freehold flat? These are rare and very difficult to mortgage. This is because your lease covers your responsibilities as an owner and the upkeep of the building as a whole. The lease ensures everything is kept in good condition. If it is not, then enforcement action can be sought by your landlord.

The second main type of property ownership is freehold. This is where you own the property and the land that it is built on. If you buy a freehold, you are responsible for maintaining your property and your land. Most houses are freehold. You can have a leasehold house, but this is usually when it is owned through a shared ownership scheme or something similar.

So, what is a share of freehold?

This is effectively a mix of these two types of ownership.

You will own the leasehold interest of your property but also own a part of the building as a whole and the land on which it is built. You usually own the freehold together with the other leaseholders in your building and so collectively become your own landlord and freeholder.

There are a few ways of owning a share of a freehold. 

The first is where you and the other flat owners hold the freehold Land Registry title in your personal names. This is reserved for smaller buildings where there is up to four owners.

The second is to set up a company. Each of the tenants either own a share or are a member of the company. This company will be or will become the freehold owner. You will have a stake in this company and control how the building is managed as a result. Generally, this is for larger buildings.

However, you must always remember that you are still a leaseholder and so governed by the terms and conditions of your lease. It is not the same as owning the freehold of your own house. The lease remains an important document. You must ensure that your lease remains attractive to the market, is not defective and is extended before the term of years remaining becomes too low (not below 80 years is the general rule).

So, what are the pros and cons of owning a share of a freehold?

Pros of share of freehold

• You become your own landlord together with the other leaseholders. You and your neighbours will have invested in your building. You have more flexibility and can carry out important tasks together such as extend the term or make variations to your lease. You will also be able to arrange your own maintenance, repair and decoration of the building and focus on the issues that matter to you and your neighbours.
• It can save you money. In general, you will pay less service charges as you can collectively decide on the tasks which are important to you. You can discuss whether a regular charge is needed or if you just charge when works are due. You can remove ground rent payments from your leases as you no longer need to rent the ground the building is on from another freeholder.
• It is seen as beneficial when you sell, and property experts believe it increases the value of your home. You will often pay a premium for a leasehold property with a share of the freehold.

Cons of share of freehold

• You have additional responsibilities and legal requirements that you will need to abide by. You will need to ensure that you and your co-freeholders are not breaching the landlord’s terms and conditions in the lease. You are now dealing within the management and maintenance of the building which can be quite time consuming.
• There may be disagreements with your co-freeholders. For example, as to what works are required to the building and when they should be carried out. It is difficult to resolve these in the absence of an independent third party. If the owners are not amicable, then extending or varying your lease may become difficult.
• The sale process is a little bit more complicated. You will need to arrange for a management pack to be put together and you will often have to obtain the consent of the other owners.
• As some of the costs are unexpected, a larger share of freehold property can be a red flag for a lender. Larger buildings may be required to have a management company in place to ensure the building is kept in good condition and the terms of the respective leases complied with.

Should I buy a share of freehold?

Owning a share of the freehold can be beneficial. It will offer you greater control over your building. However, it does come with additional responsibilities, and you do need to maintain relationships with your neighbours and co-owners.

Buying a property does not always need to be stressful, especially when you have a better understanding of the legal jargon. The property team at Streathers deal with share of freeholds daily and are happy to help you navigate through the options.

If you are looking to buy a property that has a share of a freehold, are looking to acquire a share in the freehold of a property that you already own or are in a dispute with your co-freeholders, please get in touch with our expert solicitor in the Property team, Latasha Turney-Harris here - www.streathers.co.uk/people/latasha-turney-harris/