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Share of freehold explained

Published: 02/06/2022

'Share of freehold' can be highly confusing!

Purchasing a share of the freehold doesn't give you total autonomy over the property or your lease. If you want to make changes to the property or extend the lease, you'll need to agree on it first with the other shareholders. As one of the top lettings agents in e2 we can certainly show you a couple of options!

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 can be set up for four owners only. 
  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 will 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. You'll be a shareholder in the freehold of the property. Whichever way it's arranged, the result is ultimately the same.

Why does a share of freehold exist?

No lease = individual flat owners can remove themselves from their communal responsibilities, and the upkeep of the property could be compromised.

Having a lease = obligations are clearly defined between the leaseholder and the freeholder, for example, payment of property management and service charges, thus ensuring that all communal responsibilities are dealt with. Having each party's obligations clearly defined will help any sale proceed smoothly.

The benefits of having a share of freehold

Share of freehold allows the owner to have greater control over such matters as maintenance charges, removing the possibility of an absentee landlord overcharging and underdelivering.

Holding a share of freehold ensures the owners of the property will be more invested in the building, and the property is likely to be maintained to a higher standard.

The lease can be extended a little extra cost, potentially saving thousands of pounds. Short leases become less valuable as time goes by.

What are the disadvantages?

Getting owners to sign the freehold transfer if they want to sell their flat can prove time-consuming. People are notoriously tricky to pin down and may often be unavailable during the sale. It is a Land Registry requirement to obtain the owners' identification during the sale.

Owners must tackle the administration, i.e., tax returns for the company that holds the freehold and any accounting that must be processed. Failing to keep everything in order can lead to a hefty fine and, in the worst-case scenario, the holding company being cancelled, with additional reinstatement fees.

Property insurance has to be in place, and the premium is collected from each owner annually.
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