Everything to Know About the Meaning of Share of Freehold
When perusing property, many people come across terms like “share of the freehold” but aren’t sure exactly what a share of the freehold means.
A Share of Freehold provides you with shared ownership of the freehold, and by definition is bought with others in a leaseholder group. When you own a share of freehold you own your flat and the entire building and have outright control over the property.
So, if you want to learn more about share of freehold, our blog post will tell you everything there is to know.
What is a share of freehold?
Buying a share of a freehold means that you will acquire ownership of the freehold along with other flat owners in the building. Commonly, share of freehold is often used in blocks of flats, apartments, and even multi storey vacation properties.
Share of the freehold is often set up in two different ways. The first is in an apartment building setting where the freehold will be jointly owned by some or all of the building’s flat owners, and the freehold is held in the flat owners personal names.
The second method of set up is where a limited company, such as a Right To Enfranchise or Residents Management Company, will own the freehold and each tenant will own a share in that company, thus owning their share of the freehold. This tends to be the favoured method of ownership, as it limits all shareholders’ liability.
Either way, the result of buying a flat with a share of freehold means that an individual will either own their share by having their name added onto the deeds of the property, or they will be given a share in the company that owns the freehold.
Why does share of freehold exist?
A commonly asked question around share of freehold ownership is: why bother? Why not just eradicate a building’s lease and have a variety of completely freehold flats?
The reason this doesn’t happen is simple: if held in a freehold context, transferring obligations like service charges or property maintenance payments would not be possible. Having a lease in place ensures that these types of obligations can pass seamlessly between buyers and sellers during the sales process, without needing to add additional, complex steps.
If a lease wasn’t in place, individual flat owners could potentially remove themselves from their communal responsibilities, like paying their service charges, which would place the property in jeopardy.
What is better, share of freehold or leasehold?
Share of freehold vs leasehold ownership is another common battle in the property ownership sphere.
It’s the opinion of The Freehold Collective, and a large majority of UK property investors, that a share of freehold is always better than leasehold. The minor downsides are some costs required to buy the freehold, but these are minor in comparison to the benefits. In our experience, liability has not been an issue in my experience for shareholders, and because directors are protected by a limited company which is largely inactive, and building management is left to a suitable professional.
Share of freehold ownership gives flat owners more flexibility and control over their building. They are able to actively participate in changes like choosing more affordable insurance providers, or lowering service charges.
However the downside of share of freehold ownership is that it does come with increased responsibility – although this doesn’t necessarily have to be the case. A flat owner with a share of the freehold could simply vote in decisions, and not need to necessarily be actively involved in anything more if they don’t want to be.
Share of freehold also requires collaboration and communication with co-freeholders in the building, as it is the collective responsibility of the group to work together to manage and maintain the property, unless that responsibility is jointly passed over to a property manager, who will take care of all of that for you.
On the other hand, owning a flat on a leasehold basis gives somewhat less responsibility as it is the responsibility of the freeholder to maintain and manage the building on behalf of the residents. However, there are downsides to this – less responsibility means leaseholders cannot actively participate in decisions about the building, which could lead to expensive service charges, or even employing contractors who the residents do not feel are effective or affordable.
There is no solid rule of thumb, and at TFC we would always want to encourage flat owners to consider purchasing their share of the freehold, but objectively it is completely dependent on the building and its existing ownership structure and management. TFC are able to provide a complimentary review of your current situation and recommend the best way forward, just get in touch.
Considering buying the freehold of your flat? Read everything you need to know beforehand.
Benefits to share of freehold
As touched upon in the above section, there are benefits to owning a share of the freehold. Notable benefits include:
- Taking control of things like maintenance, which ensures contractors meet an agreed standard and negates the chance of paying a hefty service charge whilst receiving unsatisfactory service.
- Because residents each own a share of the freehold it allows for greater collaboration and commitment to upholding a block that is kept to a high standard, and yet affordable for those living within it.
- Those owning a share of the freehold can extend their lease to 999 years for a premium of £0, which saves a considerable amount of money for the future. Being able to extend a lease without incurring additional charges is a huge plus for flat owners because short leases decrease in value over time.
- Owning a share of freehold has a positive impact on the market value of a property which can often be significant compared to the same leasehold flat without a share of freehold.
Downsides to share of freehold
It’s important to know exactly what flat owners are getting into when considering purchasing a share of the freehold. Though there are many benefits to purchasing a share of the freehold, there are drawbacks too, with the most notable being:
- Depending on how the shareholders are choosing to manage the building, there may be a requirement for residents to undertake administrative, financial and legal duties. As this type of paperwork is required by law, failure to file the right documentation or keep up with finances could result in the freehold ownership company being struck off or fined.
- Property insurance will also need to be purchased, and the money collected from other flat owners annually.
However, with the right managing agent, these risks can be almost completely removed, and almost no work will be required from the shareholders.
Whilst the disadvantages may seem off-putting, it should be noted that the benefits of freehold ownership far outweigh the cons.
How can you own your share of the freehold?
Contact us. At The Freehold Collective we have extensive experience helping flat owners take control of their buildings freehold. We can assist with the entire process, from inception to acquisition to complete ownership. Talk us through what you need help with today.