What is share of freehold?

Share of freehold refers to a unique property ownership arrangement that combines elements of both leasehold and freehold ownership.

What does share of freehold mean?

Essentially, acquiring a share of freehold means you have joint ownership of the freehold title of a building, in addition to owning the leasehold of your individual property within that building.

This concept is commonly associated with flats, where each owner holds the leasehold for their specific unit while collectively holding a share of the freehold for the entire building and the land it occupies. There are two primary methods of managing a share of freehold: through joint management or via a management company. Regardless of the approach, the fundamental aspect remains - you hold a share of the freehold for the property.

Manage share of freehold through a management company

One management method involves establishing a private limited company for properties with more than four freeholders. This company becomes the registered freehold owner, with each owner listed as a shareholder and director.

Opting for this approach to oversee your share of freehold entails engaging with and overseeing company law procedures as part of your homeownership responsibilities. In some cases, it may be advantageous to designate one resident as the company director, while the others maintain their roles as shareholders.

Manage share of freehold through joint management

Alternatively, some opt for a more straightforward approach by holding the freehold in individual names, often referred to as 'tenants in common.' In this arrangement, each individual possesses an equal percentage share of the freehold.

For instance, in a scenario with four share of freehold owners, each would own 25% of the freehold. Legally, this type of share of freehold operates on trust, which can pose certain risks. Nonetheless, because everyone shares equal investment in the property and there are fewer administrative expenses compared to managing through a limited company, adopting the 'tenants in common' approach can prove suitable in specific circumstances.

Leasehold vs. share of freehold

The main difference between leasehold and share of freehold comes down to ownership. With leasehold, you have a lease for a certain time but pay ground rent to the freeholder. Share of freehold, however, means you own a part of the building's freehold along with the leasehold for your property.

Pros and cons of share of freehold

Owning a share of freehold in a flat or property means you have a say in decisions concerning the building. However, it can also bring extra administrative tasks along with homeownership.

Benefits of share of freehold

Having a share of freehold comes with several advantages:

• Improved property maintenance standards since all occupants jointly own the building and are equally invested.
• Reduced or zero ground rent costs.
• The option to extend your lease for up to 999 years at no additional expense, which helps prevent property devaluation caused by shorter leases.
• Typically, lower service charges, as management is internal, involving you and your co-freeholders.

Challenges of share of freehold

Despite its benefits, share of freehold ownership has its drawbacks:

• Varied charges for services and maintenance, with some months requiring minimal payments and others demanding more significant sums for extensive repairs.
• Increased administration time for building management, potentially leading to costly mistakes if mishandled.
• Greater challenges and expenses in securing home insurance.
• Difficulties in renting out your property if neighbouring owners are unwilling or if lease terms prohibit it.

Navigating lease extensions

While share of freehold ownership enables lease extensions without premiums, cooperation from other freeholders is essential.

While your co-freehold owners aren't obligated to extend their leases at the same time, extensions done at the same time often lead to modernized and updated lease agreements.

Financial considerations

Though owning a share of freehold doesn't exempt you from ground rent and service charges, excessive fees are less likely with internal management. Securing a mortgage for a share of freehold property is feasible, but certain lenders may impose stricter criteria or higher rates due to perceived risks.

Transferring your share of freehold

When it comes to selling your leasehold property, you have the option to transfer your share of the building's freehold. This process involves using a formal deed to transfer ownership from you and your co-shareholders to the new property owner and all other co-shareholders involved in the arrangement.

Securing a mortgage for a share of freehold property

Getting a mortgage for a share of freehold property or flat is indeed possible. However, it's essential to note that some lenders may view the potential unexpected costs associated with this type of property as a concern.

While not all mortgage lenders share this perspective, some are more willing to take on the associated risks. If you're considering applying for a mortgage on a share of freehold flat, there are a few things you can do to enhance your chances of success:

• Look for a flat with a lengthy lease term, as this can positively impact the property's value.
• Confirm that a management company is already in place for the property you're interested in.

Keep in mind that not all lenders offer mortgages for share of freehold properties. Additionally, be prepared for the possibility of being asked to provide a higher deposit or accept a higher interest rate, as this is common with this type of property ownership.

Butter John Bee’s experts are here to help!

Understanding share of freehold is crucial for anyone considering property ownership. While it offers benefits like increased control and potential cost savings, it also comes with added responsibilities and considerations.

Butters John Bee's experts are ready to assist you in navigating this unique aspect of property ownership, ensuring a smoother transition for your next move.