What Does Share of Freehold Mean When Buying A Flat?
Buying your own flat is an incredibly exciting, though sometimes confusing process. As most flats in England are owned as leaseholds (which means you are essentially purchasing a long lease and do not actually own the land or building itself), you must make sure that you get specialist legal advice to protect your finances and interests. One thing you may come across when looking at flats is properties offered with share of freehold. This often confuses people – which is why we have explained what the term means and answered the most common questions relating to share of freehold below.
Thinking of buying a share of lease flat? Our conveyancing and leasehold teams deal with all aspects of share of freehold leases on a regular basis. Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.
What is share of freehold?
Share of freehold is where some or all of the leaseholders in a building have exercised their right to purchase the freehold. As a result they now each own a share of that building and the land it sits on plus any other immovable objects forming part of the land and building, for example the staircase, car parking, gardens, roof and guttering.
When leaseholders exercise their right to buy the freehold of their building ( in a process known as leasehold or collective enfranchisement), the shares in the freehold are administered either:
a) by splitting the freehold jointly between up to four leaseholders who each hold a percentage of the freehold in their own names, or
b) through the setting up of a company which purchases the freehold, with the leaseholders, owning shares in the company.
If you buy a flat with a share of freehold under scenario a) your name will be noted on the title deeds.
Under scenario b) you will be issued shares in the company that owns the freehold.
Click here to read more about the differences between freehold and leasehold
What are the benefits of owning a lease with a share of freehold?
Purchasing a flat with share of freehold is generally a positive move as a leasehold flat is a depreciating asset. As the lease gets shorter the value of the flat also reduces.
Advantages of owning a share of freehold include:
· The cost of any leasehold extension is likely to be significantly less than if you merely owned the leasehold of your flat. And it’s common for all of those leaseholders participating in the enfranchisement process to agree that they can all extend their leases to 999 years – at no cost.
· You, along with the other owners of the freehold will have complete control over what servicing and maintenance are undertaken, and also how much the work will cost. Owning a share of the freehold will in most cases entirely eliminate the risk of being overcharged for services and maintenance by the landlord or their property management company.
· You will not need to pay ground rent.
Click here to read more about lease enfranchisement, its pros and cons and the enfranchisement process
What are the main problems with shared freehold ownership?
Like all good things, there are challenges with owning a share of freehold, namely:
· Managing the servicing and maintenance of the building, common areas, and land requires those with shares in the freehold to be organised and take on administrative tasks. don’t underestimate this – it can be quite a challenge, especially if your block is a big one. Furthermore, if a company has been set up to purchase the freehold of the property, as a company shareholder (member) you, along with the other members, will need to ensure that annual accounts are filed at Companies House and new members (those who purchase flats with a share of freehold) are properly registered
· Problems can arise when a flat with a share of the freehold is sold and new owners come on board. It’s normal for the share of freehold to pass over to the new owner. You and your fellow freehold owners may have worked harmoniously for many years and developed certain ways of managing maintenance, servicing, and administrative duties. A new owner may have different ideas, and this can result in friction. One way to avoid this is to ensure the company set up to purchase the freehold of the property has comprehensive Articles of Association which set out clearly how the company is to be run.
Click here to read more about Shared Freehold Disputes
· with a share of freehold, you will still need consent for alterations to your flat from the other freehold owners
· Lenders can sometimes be reluctant to provide a mortgage on a flat with a share of freehold. This is because you and your fellow freeholders will be responsible for paying maintenance costs and may have to pay out large sums of money if the building insurance does not meet the full cost of a particular repair.
Our solicitors specialise in freehold and leasehold issues
Legal issues surrounding enfranchisement and subsequent share of freehold issues are complex. Very few solicitors deal with them – we do.
Our 5 strong leasehold team deal with nothing but enfranchisement, lease extension and right to manage issues. And our dispute resolution team includes a specialist property litigator – who regularly deals with freehold and leasehold disputes.
But don’t just take our word for it. We are the only solicitors recommended for lease extension and enfranchisement work by the HomeOwners Alliance – the leading organisation supporting the nation’s 17 million homeowners.
Can I extend my lease with share of freehold?
As mentioned above, one of the advantages of buying a flat with a share of freehold is that you will not normally have to pay a premium to a landlord in exchange for your lease extension.
Furthermore, although if you exercise your legal right to extend your lease, you get an extra 90 years on your lease, and if it’s a voluntary lease extension your landlord may grant a lease extension for a shorter or longer period. The collective owners of a share of freehold can extend a lease up to 999 years if desired – and very often do.
Click here to read more about lease extension.
I’m looking at purchasing a flat with a share of freehold. The freeholders have an equal share allocation but the previous owner didn’t extend the lease when the other flats did in 2001. Can I extend my lease on the same terms and price as the other flats?
Just because you have a share of freehold doesn’t give you an automatic right to extend the lease at a £ nil premium or even at the premium that the other owners of the freehold charged themselves to extend the lease. And realistically, if they extended their own leases back in 2001, you would probably expect to pay more now – your lease is much shorter and I’m sure that your flat has gone up significantly in price in the years since – which are the 2 most important factors in valuing the premium you will need to pay.
So you broadly have 2 options – an informal or statutory lease extension.
1. Going for the formal statutory lease extension is, as usual, your legal right. It may sound a bit odd using the formal route when you already own a share of freehold, but it’s quite possible, and our leasehold team have handled this on more occasions than you would expect.
But in this scenario, you will need to pay the freeholder’s reasonable legal and valuation costs. We do wonder, depending on the size of your block, whether using the statutory route might worsen any relationship with the other freehold owners.
2. Using the informal route. In that case there are no rules or timetable – it’s entirely up to the other freehold owners to set the rules and the price, as with any other voluntary lease extension
Does sharing ownership of my freehold add value to my leasehold flat?
Given the advantages of buying a flat with a share of freehold, purchasing such a property is generally a good move financially. This is because being able to extend the lease of the property by 999 years without paying a premium prevents the property from depreciating in value. Not to mention the fact that you have much more control over maintenance costs and alterations.
Can I rent out a share of freehold flat?
That will depend on the lease. If the lease doesn’t allow your flat to be let, then your only option would be to try to negotiate a new lease – though this can be difficult because there is more than one owner of the building, and they will all need to agree to any change in the lease. To allow those who own a share of freehold to rent their flat, one solution is to have what is known as a ‘consent to let’ written into the lease that’s held between each of the flats.
If you need to amend the lease – or write a new lease (that’s not unusual with a share of freehold, especially if the block is an old one and the lease out of date) our experienced leasehold team can help.
Is commonhold the same as share of freehold?
Commonhold is a way of legally owning property and is different from share of freehold. The Commonhold and Leasehold Reform Act 2002 introduced commonhold as a new form of land ownership in England and Wales. Commonhold is suitable for residential flats, houses, mixed use, and commercial developments. As a form of ownership, commonhold is similar to a share of freehold, as a company limited by guarantee (known as a commonhold association) owns and manages the common parts of the building and leaseholders are members of the company.
It is possible to convert a leasehold to a commonhold, however, the process is expensive. If you live in a small block of flats, it is likely to be cheaper and easier to organise with other tenants to purchase the freehold (legally known as collective enfranchisement).
To date, commonhold as a form of land ownership has not been popular in England, although it is very common in Scotland, where the law is different. In July 2020, the Law Commission published a report proposing reforms to increase the take up of commonhold as a way of countering recognised unfairness of leasehold ownership (for example having to pay significant premiums to renew a short lease). The government has yet to implement any of the reforms, however. And despite the government’s enthusiasm, even after around 20 years, just 20 commonhold blocks have been created.
