leasehold versus freehold?

Published: 12/08/2022

A Share of Freehold Explained: What You Need to Know

When it comes to owning a property, the term "share of freehold" can be highly confusing. While it may seem like purchasing a share of the freehold gives you complete control over the property and its lease, that's not exactly the case. In this blog, we will explain what a share of freehold is, the benefits and disadvantages of having one, and what you need to keep in mind if you're considering buying a property with a share of freehold.

What is a Share of Freehold?

A share of freehold is essentially a way for individual flat owners to have a stake in the ownership of the freehold. There are two ways of setting up a share of freehold:

  1. The freehold is split jointly between the owners within the property, and the freehold is held in their names. This setup is usually only for four owners.
  2. If a company owns the freehold, each leaseholder may hold a share of the company.
When you purchase a flat with a share of freehold, you'll either be assigned that share by having your name on the deeds of the property, or you'll be allocated a stake in the company that controls the freehold. The result is the same whichever way it's arranged: you'll be a shareholder in the property's freehold.

Why does a Share of Freehold Exist?

A share of freehold exists to address the limitations of traditional leasehold arrangements. If you own a flat with no lease, removing yourself from communal responsibilities and the upkeep of the property can be difficult. However, having a lease defines the obligations between the leaseholder and the freeholder, such as payment of property management and service charges, ensuring all communal responsibilities are dealt with.

The Benefits of Having a Share of Freehold

  1. Greater control: Share of freehold allows the owner to have greater control over maintenance charges and removes the possibility of an absentee landlord overcharging or underdelivering.
  2. A higher standard of property maintenance: Holding a share of freehold ensures the property owners will be more invested in the building, leading to a higher standard of property maintenance.
  3. Extendable lease: The lease can be extended at a lower cost, potentially saving thousands of pounds. Short leases become less valuable as time goes by.
The Disadvantages of Having a Share of Freehold

  1. Time-consuming process: Getting owners to sign the freehold transfer if they want to sell their flat can prove time-consuming, as people can be challenging to pin down.
  2. Administrative responsibilities: Owners must tackle the administration of the company that holds the freehold, such as tax returns and accounting, or face a hefty fine and possible cancellation of the holding company.
  3. Insurance premium: Property insurance must be in place, and the premium is collected from each owner annually.
In conclusion, a share of freehold is a way for individual flat owners to have a stake in the ownership of the freehold, providing them with greater control over maintenance charges, property upkeep, and an extendable lease. However, it also comes with administrative responsibilities and an insurance premium. It's important to weigh the benefits and disadvantages before making a decision.

Circa London Estate Agents specialises in luxury London property for sale.  
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