Share of freehold is a type of property ownership where a flat/apartment leasehold owner also owns a share of the buildings freehold alongside other owners.
This differs from both a leaseholder who owns their property for a set amount of time typically 99 to 125 years, and a freeholder who owns the building outright.
Our article explains how it works, the benefits and drawbacks of owning a share of freehold, and how you can purchase one.
How Does Share of Freehold Work?
A share of freehold allows a leaseholder to own a share of the building itself, not just their individual property doing so with other leaseholders in the building. Those that have a greater share have more decision-making power over how the building is maintained. Example being if you own 25% of the freehold you will be responsible for maintaining 25% of the building.
Some owners of these shares outsource the management of the building to a singular managing agent to help avoid disputes and ensure maintenance is effortless.
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Benefits of Share of Freehold
The biggest benefit to owning a share of freehold is the cost of extending the lease on your flat/apartment. The average lease extension premium in the UK is between £7,000 - £10,000, which can be significantly reduced or foregone altogether.
This method of ownership provides more freedom than traditional leasehold ownership where you are reliant upon the freeholder to have work carried out and have no say in how the building is managed. You’ll be able to speak with the other freehold owners to ensure essential repairs are carried out.
Due to the freedom that comes with owning a share of freehold, the value of your leasehold property when selling is worth more than the leasehold alone. According to HomeViews, there is no set figure for how much it can add in value but its desirability is significant.
Responsibilities and Challenges of Share of Freehold vs Leasehold
Share of freehold comes with some responsibilities and challenges that you should be aware of, which include:
Service Charge
When you own a leasehold property, it comes with a service charge paid to the freeholder or managing agent. This covers various expenses including maintenance of the communal areas and buildings insurance. As a co-owner of the freehold, this responsibility falls to you and the other co-owners to arrange this insurance.
Unless specifically stated otherwise, a share of the freehold does not exempt you from paying a minimal service charge (or ground rent), as you would still live under leasehold terms.
Shared Decisions
Owning a share of freehold means when you have ideas for improvements to the building you can put them in place, this differs from a lease where you are reliant on the landlord. You will collectively need to come to some mutual agreements on these ideas though, to avoid disputes or improvements not being carried out.
Financial Responsibility
In leasehold properties, the freeholder bears the financial burden of repairs but with a share of freehold, improvements are down the collective freeholders.
Control Over Building
With a share of freehold, you and the other owners have control of how the building is run. In leasehold ownership, you do not have any control over how the building is managed or run. Every decision regarding the property goes through either the freeholder or the managing agent acting on their behalf.
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How to Purchase a Share of Freehold
First, you must determine whether you are eligible to buy the freehold. Some of the criteria include:
- All of the relevant leases must exceed 21 years
- The building must be at least 75% residential and fully self-contained
- At least half of the flats must participate in collective enfranchisement
If you meet this criteria, you can set up a limited company incorporating all of the other freeholders to help manage the property. If there are only a couple of leaseholders entering the agreement a ‘Declaration of Trust’ is a great alternative. This has a structured approach to co-ownership which helps limit conflicts by setting out responsibilities from the outset.
You must have a valuation carried out to calculate how much it will cost to buy the freehold. You can then serve the notice to the landlord/freeholder who will, in turn, serve you a counter notice either agreeing to your terms or rejecting. Once accepted the collective enfranchisement can then register with the land registry.
The entire process of purchasing a share of freehold can take up to 12 months and costs an average of £8,500. The timeline varies due to the complexities of the purchase including the amount of flats/apartments involved in the transaction.
Read more on Step by Step Guide to Buying a Freehold
Is It Worth Buying a Share of Freehold?
One of the main benefits is that you have control of the building, which means you aren’t reliant upon third parties, including a singular freeholder. You will be co-owning with others, resulting in the necessity of compromising on improvements to the building, so it is worth keeping this in mind.
If you are looking to buy a share of a freehold, it is worth speaking with a conveyancer or solicitor. They can advise you further on the legal implications of such a transfer and will be able to advise specifically on the property in question. They will also be able to assist with all the necessary legal documentation involved in the transaction. As this type of transaction involves many parties, it's best to get your own legal advice to protect your interests.
Frequently Asked Questions
Can you get a mortgage to buy a share of freehold?
Yes, it is possible to get a mortgage on a share of freehold. But, you may need to ensure there is a longer lease on your property, as lenders see this as a risk, with shorter leases affecting value. Lenders may also require a management company to be in situ. You may also be required to pay a higher interest rate or a bigger deposit on the mortgage.
Do I still need to extend my lease if I have a share of freehold?
Yes, although your lease and share of freehold are linked, they are two separate forms of ownership. If your lease were to expire, you would not be able to live at the property but would retain the share of freehold. Extending your lease can also increase the property's market value and saleability.
Can I sell my share of the freehold easily?
Yes, many buyers look more favourably on a leasehold property if it comes with a share of freehold. It's worth noting that if you are selling your leasehold property you will need to sell the share of freehold at the same time.
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Finding a Surveyor
One of the most significant steps in the process of buying the freehold find a surveyor to value the flats/apartments within the building. We can connect you with up to 6 valuation surveyors and help you save on your costs. Simply fill out our free surveying comparison form to get started today.
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