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Share of freehold explained

Published: 02/06/2020

'Share of freehold' can be extremely 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.

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 to four owners only. 
  2. If a company owns the freehold, and each of the leaseholders 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 share in the company that controls the freehold. Whichever way it's arranged, the result is ultimately the same. You'll be a shareholder in the freehold of the property.

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 over charging and under delivering.

Holding a share of freehold ensures the owners in 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 at little extra cost, potentially saving thousands of pounds down the line. Short leases become less valuable as time goes by.

What are the disadvantages?

People are notoriously difficult to pin down and may often be unavailable during the sale. Getting owners to sign the transfer of the freehold if they want to sell their flat can prove time-consuming. 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 needs to be processed. Failing to keep everything in order can lead to a large fine and in the worst-case scenario, the holding company being cancelled, with additional reinstatement fees incurred.

Property insurance has to be in place and the premium collected from each of the owners annually.