What you need to know about buying a flat with a share in the freehold.

Share of freehold block of flats

What is a share of freehold?

A share of freehold property means that the leaseholders also collectively own the freehold of the building and the land on which it, sharing responsibility and control over the management and decisions regarding the management of the property.

The share of freehold can be held in one of two ways:

  • The freehold is held in a company structure and the leaseholder owns shares in the company
  • The freehold is divided directly into shares and held personally by the leaseholder

Is a share of freehold property the same as a freehold property.

No. Owning a share of freehold property is not the same as owning the freehold outright.

With a share of freehold, you own a portion of the freehold along with the other residents (leaseholders) in the building, which is typically a block of flats. Each owner owns the leasehold for their individual flat or unit, as well as a share in the building's freehold.

What are the benefits of owning a share in the freehold?

Share of freehold gives leasehold more control over the management and costs of the building, offering the following benefits:

Greater control over the building

Leaseholders will collectively have a say in the management, maintenance, and decision-making processes for the building, offering greater autonomy than pure leasehold ownership. Buildings are usually maintained to a higher standard, as leaseholders have direct control.

Reduced cost of ownership

Leaseholders can potentially enjoy lower maintenance fees and service charges, as decisions on expenditures are made collectively. Decisions made by leaseholders are more likely to be focussed on cost reduction than a landlord or managing agent might be.

Lease extensions

Shareholders can usually extend their leases up to 999 years easily and usually without cost, avoiding the complexities, potential disputes with freeholders, and expenses associated with extending a lease under a separate landlord or freeholder.

Increased property value

Properties with a share of the freehold are often more attractive to buyers.

Lower service charges

Leaseholders can collectively agree lower service charges, achieved by greater focus on getting the best value for money and negating the added costs charged by management companies.

No ground rent

Ground rents are annual payments made by a leaseholder to a freeholder in accordance with the terms set out in the lease. Ground rent is effectively a rent paid on the land on which the leasehold property sits.

Owning a share of the freehold typically eliminates the obligation to pay ground rent.

Are  there any downsides to share of freehold ownership?

Although ownership of a share in the freehold is largely regarded as a benefit, there are some potential downsides to bear in mind:

Joint Responsibility

Leaseholders are collectively responsible for the building's upkeep and maintenance. Disagreements or a lack of participation from other leaseholders can lead to delays or complications in managing the property.

Financial liability

Each leaseholder is potentially liable for the entire building's costs if the other leaseholders can’t meet their financial obligations. If a roof needs to be repaired and some of the leaseholders con’t or won’t contribute, a legal dispute could ensue.

Management time

Managing the property will require time and effort. Residents may need to form or participate in a management company, which can be time consuming and challenging, especially if there are differing opinions.

Buildings insurance

It can be more expensive to obtain buildings insurance cover on a share of freehold property.

Resale issues

The legal structure for share of freehold properties can be complex, and can sometimes complicate the sale process, especially if the share of the freehold collective is unresponsive or doesn’t know how to handle the process when a leaseholder wants to sell.

The complexities of share of freehold could possibly deter some buyers, particularly if the management structure appears problematic or under-resourced.

Do I still have to abide by the terms of the lease?

Yes. Even if you own a share in the freehold, you must still abide by the terms of your lease. Share of freehold means you have a stake in the overall ownership of the building's freehold, but your occupation and use of your flat or unit are still governed by the lease.

Is a share of freehold property worth the same as a freehold property?

It can be hard to compare like with like, as most flats are leasehold and most houses are freehold. However, share of freehold properties are usually worth about the same as freehold properties and more than their leasehold equivalent..

What do I need to consider before making an offer on a share of a freehold flat?

There is actually more to consider when buying a property with a share of freehold, than there would be with a straight leasehold or freehold property.

Your solicitor will need to complete the leasehold conveyancing process, conducting thorough due diligence, on the property's legal title, the lease, and the leasehold management accounts.

In addition, the solicitor will need to review the freehold ownership structure. This includes examining the details of the freehold company, if one exists, and understanding the obligations and rights that you will assume once you are part of the ownership entity.

For more information on buying a leasehold property, see:

Leasehold houses - Should I be wary of buying one?

Should I buy a property with a short lease?

What do I need to know about buying a leasehold property?

Article by Completely Moved authors

The Completely Moved team have years of experience helping home buyers, sellers and owners, answering questions and providing property advice.

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