Solicitors specialising in disputes between shared freeholders
No property owner wants to find themselves in a dispute with a landlord, freeholder or leaseholder. And these kind of problems can, however, become more complex when it comes to joint or shared freehold disputes. And if you’re actually living in the block as well, it can prove to be a real nightmare. Here we will explain the essentials of shared freeholds and what happens in the event of a share of freehold dispute.
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What does share of freehold mean?
If a person has a ‘share of freehold’, they hold both a lease and a share of the freehold of the property (the building and land). Flat and apartment owners are more likely to have a share of freehold. Depending on the arrangement, some or all of the leaseholders may own part of the joint freehold.
Owners of a freehold (freeholders) are, in most cases, the ultimate owners of a property. Holders of a lease (leaseholders) are granted permission by a freeholder to use and possess a property under the terms of a contract – the lease. As such, owning a lease with a share of freehold is a combination of these two types of property ownership.
If leaseholders within a block of flats purchase the freehold by exercising their right of collective or lease enfranchisement, the shares in the resulting joint freehold are generally administered in one of two ways:
· by dividing the freehold between up to four leaseholders, with each holding a percentage in their own name. Those who purchase a share of freehold in this way will have their name included on the title deeds of the property
· by establishing a company to purchase the freehold, with each leaseholder owning shares in the company.
What is the difference between freehold and shared freehold?
Under a standard freehold arrangement, a freeholder has ownership of a building for which leaseholders have no share. Under a shared freehold arrangement, ownership of the freehold and, therefore, overall responsibility is typically spread across a number of flat or apartment leaseholders.
How do I buy a share of my freehold?
Broadly there are 2 ways to do so. Firstly you simply buy a leasehold flat that already has a shared freehold, when that share of freehold gets automatically transferred to you.
But if the leaseholders haven’t yet come together to purchase the freehold, then you and some or all of your fellow leaseholders can club together and buy the freehold. In most circumstances, ability to buy your freehold together is your legal right – though there are costs involved. The process of joint freehold purchase is often referred to as collective or leasehold enfranchisement. Provided your flat is not 1 of a small category of properties excluded from freehold purchase, and provided that there are enough leaseholders taking part in the enfranchisement process, your freeholder cannot refuse to sell the freehold to you.
Our specialist leasehold team do nothing but lease extension, enfranchisement and right to manage work – it’s possibly the largest, most specialist team of its type in the country. And over the years we have helped around 10,000 people extend their lease, buy their freehold or take over the right to manage their block.
Click here to read more about how our Lease Enfranchisement Solicitors can help you buy your freehold
Share of joint freehold – the pros and cons
The advantages of owning a share of freehold include:
· The cost of extending a lease should be much cheaper – because the freeholders can agree to grant themselves lease extension – and at no cost if they choose to do so
· You can extend your lease for up to 999 years
· You are no longer at risk of being prey to an unscrupulous landlord charging excessive service and maintenance fees – this is because those with a share of the freehold have complete control over the servicing and maintenance of the building and how costs will be paid.
· You have the ability to ensure improved maintenance and upkeep of the building as more of the available funds can be used for this purpose (assuming all freeholders agree to the work)
· You will no longer have any requirement to pay ground rent
But owning leasehold with a share of freehold doesn’t come without responsibilities. There are disadvantages: and share of freehold problems include the following:
· More administrative overheads in terms of:
o Managing maintenance and servicing
o Managing the process of gathering identity details of each freehold shareholder to register a change of ownership
o Undertaking the duties and responsibilities of a company shareholder if a company has been set up to purchase the freehold of the property. This includes fulfilling the annual filing requirements (e.g. company accounts) with Companies House and the registration of directors/members.
· Difficulties and disputes arising between freeholders relating to maintenance, alterations and transfers
· Large costs if one-off maintenance or building is required
· Disputes arising between existing and new owners of the joint freehold
· Lenders may be reluctant to grant a mortgage on a flat with a share of freehold.
· Potential disputes with leaseholders who didn’t participate in buying a share of the freehold
Click here to read more about freeholder/leaseholder disputes
Does Share of Joint Freehold add value?
Yes, a share of freehold arrangement is generally considered to add value to the property. This is because having the option to extend a lease for up to 999 years without the requirement to pay a large premium to do so means that the flat or apartment is much more likely to hold its value.
And in general terms it gives you much more control over your use of the flat or apartment and control over maintenance and improvement of the block.
Do you pay ground rent if you have a share of freehold?
Yes, but under the rules of Collective Enfranchisement, leaseholders can agree to amend the ground rent payable to a peppercorn (i.e. a very low or nominal value).
Can you get a mortgage on a freehold flat?
Some lenders are reluctant to loan against a flat with a share of freehold. The main reason is the responsibility placed on those with a share in the freehold to pay high maintenance costs if the building insurance does not meet the full cost of a repair.
Where this becomes unaffordable, it may lead to the property not being repaired properly, leading to a reduction in its value.
Common Shared Freehold Disputes
Share of freehold problems can arise in a number of scenarios, including disagreements over:
· the level of the service charge – especially when carrying out large and costly repairs to the building
· permission for alterations
· investment in the building
· the running of the company with ownership of the freehold
· transfer of freehold shares
· sharing the burden and responsibilities of being a shared freeholder
Can I extend my lease in a shared freehold?
Yes, however, lease extension requires approval of the other share of freeholders. If this is granted, the lease can be granted for up to 999 years.
Will I have to pay a premium to extend my lease with a share of the freehold?
No, as long as the other parties with a share in the freehold agree to the lease extension, there should be no need to pay a premium. This is one of the benefits of being able to grant the leasehold extension to yourself.
Do I need an entirely new lease? Or will a deed of surrender and re-grant do?
Another of the benefits of extending a lease if you hold a share of the freehold is that the process is relatively straightforward. You can extend your lease by drafting an entirely new document, but this is only needed if the current document is defective, and it makes sense to create a new agreement.
Drafting a new lease can also prove useful where even if there is nothing in itself wrong with the lease, it contains unnecessary restrictions on what the leaseholder can and can’t do with their own property. So, for example, if you wanted to let out your flat on a periodic tenancy or even as serviced accommodation and there is a restriction in the lease preventing you from doing so, you might be able to persuade your fellow freeholders to amend that lease, or create a new one, removing the restriction.
It may also be advisable to create a new lease if there are different formats within the same building and there is a preference to make these the same.
If neither of the above scenarios applies, a deed of surrender and re-grant is sufficient as this will simply refer to the terms of the old agreement, and small amendments can be made if required.
How to transfer a share of freehold
If a flat or apartment within the building is sold, the existing share of freehold held by the seller will need to be transferred to the purchaser. From a legal perspective, the following steps are required:
1. a formal deed to transfer ownership should be drawn up by a property Solicitor to transfer ownership from the existing freehold owners (including the seller) to the buyer and the other owners.
2. the deed of transfer must be signed by all existing freehold shareholders.
3. the signed deed of transfer is then submitted to the Land Registry.
It is common for them to be an automatic transfer of share of freehold along with sale of the leasehold property. After all no one really wants to share freehold with someone who no longer has ownership of a property in the block.
Shared freehold disputes – can the other freeholders refuse permission for an extension or alteration to my flat?
Unfortunately, yes.
Shared freeholders often mistakenly believe that because they own part of the freehold, they do not require permission for building work.
In practice, as a shared freeholder, you will most likely require permission from all joint freeholders before proceeding with an extension or alteration. Your lease agreement should make it clear whether freeholder consent is required for building work and alterations, as will be the case in most lease agreements.
What happens if joint freehold owners cannot agree on maintenance work?
This is because of 1 of the biggest share of freehold problems. Freeholders are liable for the maintenance of the building, and this applies even if the freehold is shared by a number of leaseholders.
In theory, being a freeholder means that you have greater control over the maintenance of your building. In practice, however, permission is still required from all joint freeholders. And this can create real problems. If one freeholder does not provide permission for maintenance work and negotiations between freehold owners do not prove effective, engage a property law Solicitor who can advise on your options.
Alternative dispute resolution (ADR) methods, such as negotiation or mediation, may resolve the dispute outside of the courts. If ADR does not resolve the matter, it may require a court to make a decision to break the deadlock.
Shared Freehold Disputes – What happens when one owner wishes to sell their flat, but another will not agree to the transfer of the share of the freehold to the new owner?
As with maintenance and alterations, all freeholders will need to agree to the transfer for a share of freehold. If one or more freehold owners cannot agree on the transfer of a share of the freehold to a new property owner, ADR methods such as negotiation and mediation should be considered before seeking a decision from the courts. Our specialist property dispute solicitors can advise how best to proceed if you find yourself with these kind of share of freehold problems.
How a Declaration of Trust can help avoid some shared freehold problems
It’s not a perfect solution,but having properly drafted Declaration of Trust can help to avoid some of the problems which often crop up in shared freehold situations. The purpose of this legal document is to ensure a clear understanding between all relevant parties about the ownership and use of the freehold
Among the kind of things you can include in are the following:
- an agreement to transfer each flat’s share of freehold upon sale combined with an agreement from the other joint owners to co-operate in transfer of that freehold on sale.
- extending existing leases at no premium or with a charge if desired
- providing for an alternative dispute resolution method such as consulting with a third party surveyor or arbitrator before making decisions related to maintenance, repair, or management – and most importantly, agreeing to be bound by their decision. This is particularly useful in small blocks with even numbers of shared freeholders, where there is a real risk of stalemate with regard to any major decision, especially in relation to expensive maintenance and repairs
What happens if one or more of the other shared freeholders is missing?
When seeking permission from shared freeholders for a transfer, maintenance or alteration, the absence of one or more owners can pose a challenge. This can reduce the sale of a property to a crawl or prevent it entirely. One way to resolve this is to apply for a Vesting Order from a County Court. This can only be considered if real and repeated attempts have been made to locate the owner and formal notice has been sent to the last known address.
While we hope you are in that situation, if it does arise, then we can help. Our leasehold team deal with vesting orders on a regular basis.
Click here to read more about vesting orders and how to deal with an absent freeholder
How long will a share of freehold lease extension take?
In most cases, extending your lease when you own a share of the joint freehold is a straightforward process. This is especially so if you are using the deed of surrender and re-grant process mentioned above. In this case, assuming there are no disputes, you can expect your lease extension to take in the region of 4 – 8 weeks.
FAQs
What are the risks of share of freehold?
Most leaseholders have the right to join together and purchase the freehold from the landlord. There are several potential advantages to this, but you must also be aware of the possible risks:
• Once you own the freehold, you and your fellow leaseholders will be responsible for all of the administration, which can be time-consuming. It will include matters such as:
o Arranging buildings insurance
o Setting the amount of service charge
o Collecting service charges and chasing arrears
o Deciding what maintenance you need to do, obtaining quotes and having this carried out
o Approving leaseholders’ requests to make alterations or sublet
o Preparing and filing annual accounts
You can consider engaging managing agents to handle this on your behalf if you wish, but this can be expensive.
• If disagreements arise between leaseholders or between leaseholders and those managing the freehold, you will need to intervene to resolve them
Is it worth buying a share of the freehold?
There are often advantages to buying the freehold if you have the opportunity. These include:
• Being able to extend your leases without needing to pay a premium to the landlord which can potentially save a substantial amount
• Shopping around for the cheapest insurance and maintenance work
• Better attention to the property condition
• You can eliminate ground rents
• Setting the amount that each tenant will pay for service charges
• Deciding how much to put aside into a sinking fund
• Changing the rules if you wish, such as allowing pets or subletting
• Your property will be more attractive to potential purchasers if it comes with a share of the freehold and an extended lease
What is the sinking fund in share of freehold?
When you own a leasehold property, it is always advisable for all leaseholders to pay into a sinking fund each month. This pot of money will be available should it ever be necessary to carry out substantial repairs, such as replacing a roof or dealing with subsidence.
If each leaseholder pays into the sinking fund regularly, enough money should be built up to ensure that you can carry out necessary maintenance as soon as it is needed.
If you and your fellow leaseholders buy the freehold, you can decide how much to contribute to the sinking fund. You will also have control over how and when it is spent.
How long does share of freehold last?
If you and your fellow leaseholders buy the freehold, ownership is permanent, and the landlord will have no further claim on the property. Setting up a flat management company is common, with the company owning the freehold. If you participated in the purchase, you can be a member of the company.
When you sell your leasehold property, you will resign your membership of the company, if one exists. If not, you will pass on your share of the freehold to the buyer of your leasehold property.
