Understanding Share of Freehold: A Comprehensive Guide for Property Buyers

If you're navigating the property market, especially in London, you'll likely come across various terms that may seem confusing at first. One such term is "share of freehold” to help you make an informed decision, let's delve into what share of freehold means, its benefits, and potential drawbacks, all in a conversational tone that makes the concept easier to grasp.

What is Share of Freehold

Buying a property with a share of freehold means you own the leasehold of your individual property, and a share of the freehold for the entire building and the land it stands on. This arrangement is most common with flats, each flat owner holds a leasehold for their specific Share of freehold is a term associated with properties that combine both leasehold and freehold ownership. When you acquire a share of freehold, you gain shared ownership of a building's freehold title unit and collectively owns the freehold of the building and land.

There are two main ways to manage a share of freehold: through joint management or a management company. Regardless of the method, you’ll still own a share of the freehold for the property.

Limited Company Share of Freehold

One method for managing a share of freehold, especially for properties with more than four freeholders, is to create a private limited company. This company is registered as the building’s freehold owner, and you, along with other co-owners, are shareholders and directors of the company.

Managing your share of freehold through a company means you’ll need to handle company law procedures as part of your homeownership. In some cases, it might be more practical to appoint one resident as the company director, with the others remaining as shareholders.

Share of Freehold in Personal Names

Often referred to as ‘tenants in common,’ this method involves holding the freehold in individual names, where everyone has an equal percentage share of the freehold. For example, four owners would each hold a 25% share. This arrangement operates on trust, which can be riskier but involves fewer administrative fees compared to a limited company.

Is Share of Freehold the Same as Leasehold

The key difference between a leasehold and a share of freehold lies in ownership and control. With a leasehold, you own the lease to your property (usually for several decades or centuries) but still pay ground rent to the freeholder, who owns the building and the land.

In contrast, owning a share of freehold means you own a portion of the building’s freehold along with the leasehold for your individual property, giving you more control and often eliminating ground rent.

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The Pros and Cons of Share of Freehold

Owning a share of freehold offers various benefits but also comes with some challenges.

Benefits of Share of Freehold

  1. Greater Control: You have a direct say in how the building is managed and maintained.
  2. Lower Costs: Usually, there are no ground rent charges, and service charges are typically lower as the management is handled internally.
  3. Lease Extensions: Extending your lease can be done at minimal cost, often extending up to 999 years, which helps maintain your property's value.
  4. Better Maintenance: As all occupants are equally invested, the building tends to be better maintained.

Problems with Share of Freehold

  1. Varying Charges: While regular charges might be low, unexpected major repairs can result in significant expenses.
  2. Administrative Burden: Managing the building involves additional administration, which can be time-consuming and costly if not handled correctly.
  3. Insurance Challenges: Obtaining home insurance can be more complex and expensive.
  4. Rental Difficulties: Renting out your property can be tricky if your lease doesn’t allow it or if other freeholders are opposed.

Share of Freehold Extension

Although owning a share of freehold allows you to extend your lease without a premium, you need agreement from all co-freeholders. Cooperation is essential, and in many cases, leases can be modernised and updated simultaneously.

Service Charges and Ground Rent

While you might not pay ground rent, service charges for building maintenance are still applicable, however, because these are managed by the freeholders, excessive or unfair charges are less likely.

Transferring Share of Freehold

If you decide to sell your property, you can transfer your share of the building’s freehold to the new owner using a formal deed. This process ensures a smooth transition of ownership among the co-shareholders.

Getting a Mortgage on a Share of Freehold Property

It is possible to secure a mortgage for a share of freehold property, though the additional costs and complexities can be a red flag for some lenders, here are some tips to improve your chances:

  1. Long Lease: Buy a flat with a long lease remaining.
  2. Management Company: Ensure the property has a reliable management company.
  3. Lender Flexibility: Be prepared for some lenders to require a higher deposit or interest rate due to perceived risks.

Let Us Help You with Your Next Move

If you’re considering purchasing a property with a share of freehold, the experts at Felicity J. Lord are here to help. With our local knowledge and expertise, we can guide you through the process, ensuring you find the perfect home with the right ownership structure for you.

Whether you're a first-time buyer or a seasoned investor, understanding the nuances of share of freehold can make a significant difference in your property journey.

Get in touch with Felicity J. Lord today to explore properties with a share of freehold. Our team is ready to assist you every step of the way, making your next move smarter and faster.