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What is Share of Freehold?
Share of freehold is linked to properties that have both a leasehold and a freehold. Acquiring a share of freehold gives you shared ownership of a buildings freehold title.
What does share of freehold mean?
Buying a property with a share of freehold means you own the leasehold of your property, plus a share of the freehold for the land and building the property is in.
Share of Freehold is most associated with the purchase of flats, where owners own the leasehold for their individual flat and hold a share of the freehold for the entire building and the land it is built on, collectively owning the whole freehold. There are two ways of owning a share of freehold, either through ‘joint management’ or through a management company. However, it’s important to note that whichever method you use, you’ll still have the share of freehold for the property.
Limited company share of freehold
One method of managing a share of freehold for a property with more than four freeholders is to create a private limited company. The company would be registered as the building’s freehold owner, with you and the other co-owners registered as shareholders and directors of the company.
Using this method to manage your share of freehold means that you will encounter and need to manage company law procedures as part of your homeownership. In certain circumstances, it might be better to nominate one occupant to be the company director with the rest remaining as shareholders.
Share of freehold in personal names
Often referred to as ‘tenants in common’, a freehold held in individual names means that everyone holds an equal percentage share of the freehold. For example, four 'share of freehold' owners would each hold 25% of the freehold. Legally, share of freeholds in personal names operate based on trust, which can be more risky. However, as everyone is equally invested in the property, and there are fewer administrative fees than operating through a limited company, using the ‘tenants in common’ method to operate can be appropriate in some instances.
Is share of freehold the same as leasehold?
The key difference between a leasehold and a share of freehold is that with a leasehold, you own the lease of your property (usually lasting decades or centuries) but will still pay ‘ground rent’ to the property’s freeholder, who owns the building, the land it stands on, and the airspace around it.
As previously mentioned, unlike a leaseholder, owning a share of freehold means you will own a portion of the building’s freehold along with the leasehold for your individual property.
The pros and cons of share of freehold
Having a share of freehold for a flat or property gives you a direct say in what happens with the block or building, but in certain circumstances, it can also include additional administration on top of your homeownership.
Share of freehold benefits
As well as having more control over the property, the additional advantages to owning a share of freehold, include:
- A higher standard of property maintenance, as the building is owned by all the current occupants who should be equally invested.
- Lower or no ground rent costs.
- The ability to extend your lease to up to 999 years with no extra cost, minimising the devaluation of your property generally caused by shortening leases.
- Typically, lower service charges, as the management company for the property is internal (e.g., you and your co-freeholders).
Problems with share of freehold
There are some disadvantages to owning a share of freehold, which you should be aware of if you’re considering purchasing one. These include:
- Varying charges for services and maintenance. While some months you might have to pay minimal maintenance charges, there will be occasions where you’ll need to pay larger amounts to repair more severe damage to the property.
- More time-consuming administration for the management of the building, which could be costly to rectify if done incorrectly.
- Greater difficulty and expense when it comes to home insurance.
- Difficulty renting if your neighbours are reluctant or if your lease does not directly permit it.
Share of freehold extension
Although owning a share of freehold on the property gives you the ability to extend your lease without paying a premium, all the other freeholders must agree to your proposed lease extension and their cooperation may be required in the transaction.
While your co-freehold owners do not have to extend their leases at the same time, in circumstances where all share of freehold owners are extending their leases at the same time, most leases can be modernised and updated.
Service charges and ground rent
Unless it is otherwise stated, if you own a share of freehold, you will still have to pay ground rent and service charges for the building, because you are living in the property on a leasehold basis.
However, as you own a share of freehold with other occupants, it is unlikely you will encounter excessive or unfair service or ground rent charges.
Transferring share of freehold
If you’re selling your leasehold on a property, it is possible to transfer your share of the building’s freehold. Using a formal deed will pass the ownership over from you and your co-shareholders to the new property owner and all of your co-shareholders.
Getting a mortgage on a share of freehold property
It is possible to get a mortgage on a share of freehold property or flat. However, the unexpected costs which can come with this type of property can act as a red flag for some lenders.
This is not the case with all mortgage lenders, some of whom are more willing to take the risk. If you are looking to apply for a mortgage on a share of freehold flat, these tips could help with the success of your application:
- Buy a flat with a long time left on the lease, as this can impact the value of the property.
- Ensure a management company is in place in the property you’re looking at.
As only certain lenders will offer a mortgage, you may be asked to pay a higher deposit or higher interest rate, so keep this in mind when you’re considering buying a share of freehold flat.
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