What Is a Share of Freehold?
Written on 26 March 2024 by
To understand what a share of the freehold is, you first need to understand what a standard freehold and standard leasehold are.
The “freehold” is the term given to a property - predominantly a single dwelling house – and the land on which it sits. Buying the freehold means you purchase both the property and the land and that you own them in perpetuity.
Conversely, the “leasehold” is the term given to a property, usually a flat within a block of flats, specifically excluding the land on which it sits and any exterior/communal areas. When you buy a leasehold property, you own a lease, which is the right to own that property for the number of years remaining on that lease agreement – often from 99 - 999 years. There’s always a freeholder - typically a management company - who owns the land and the building/block of flats. You can find out more in our guide on freehold and leasehold properties.
A “share of the freehold” is kind of a mixture between a standard freehold and standard leasehold. When you buy a share of the freehold, you buy a share of the building/block of flats/land and a leasehold, i.e. one of the flats within the block.
You typically go about buying a share of freehold property in 2 different ways:
- You already own a leasehold in the block, so you and the other leaseholders in your building band together to buy the freehold from the freeholder/landlord, usually by setting up a management company to affect the actual freehold purchase. You each then own a share of that company and therefore own a share of the freehold. If you keep your original lease, you'll only pay towards the company setup and for the share of the freehold. If you extend or change your lease, then you’ll likely pay for that legal work too.
- You’re buying a property which is already a share of freehold. The freeholder/landlord of a block of flats sells leaseholds and shares of the freehold together, as part of the same contract. You then purchase a leasehold flat and a share of the freehold, in the same transaction
It’s important to note that buying 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 your lease, you’ll need to make an agreement with the other shareholders.
Share of Freehold Benefits
You might find buying a share of the freehold preferable to merely owning the leasehold on your flat, due to the greater control it gives you. If you only own the lease on the home you live in – as opposed to the building and land that it sits on – you’re reliant on the freeholder to maintain the property and carry out any repairs. Your freeholder/landlord is also in charge of the lease on your flat. If you own a share of the freehold, you and the other tenants can make decisions regarding your leases. We explain this in a bit more detail below.
Although the freeholder is legally required to maintain and insure the property, there’s no guarantee that they’ll maintain the building and its common areas to the standards you would expect. If you own part of the freehold, you have a say on all decisions related to the property; you’re not reliant on a freeholder/landlord. You discuss your lease, maintenance and any other issues with your fellow tenants.
Finally, although it may not seem so at first, buying a share of the freehold is a lot more straightforward than searching for a freehold flat. Freehold flats are extremely rare and many lenders won’t accept an application to buy one. This is because the flat is part of a bigger building, making it difficult to establish who’s responsible for what as there are no leases which set that out.
Share of Freehold Problems
With a share of freehold, the shareholders need to act as a collective and pay when something goes wrong in a communal area. You don’t have to wait for a landlord, but you and the other owners must contribute. The costs will obviously be split between each of you - usually via the annual service charge - which does soften the blow.
The main drawback here, besides the cost, is that you must rely on the other freeholders to do their part and, if you didn’t purchase a share of the freehold through a management company, you must organise for the work to be done yourselves.
Owning part of a freehold can also create additional admin. More people need to agree and sign documents, which can take time and incur expensive admin fees, especially if your property is managed through a company.
Share of Freehold Lease Extension
Arguably the biggest benefit to owning a share of the freehold is that it gives you the ability to extend the lease at no extra cost – as long as your co-owners agree. Extending your lease when you don’t own the freehold can be expensive, particularly if the time remaining is under 80 years. What’s more, most lenders avoid short-term leases - especially if there’s around 70 years or less remaining. This is because when a lease expires, the property reverts back to the landlord/freeholder, automatically rendering the property worthless and you no longer the leaseholder.
A short leasehold can also deter buyers, as they’ll be aware that they’ll have to pay to extend the lease after they take ownership.
We highly recommend reading our full guide to buying a house for a clearer understanding of the different property types and how they can affect your ability to secure a mortgage.
Share of Freehold Summary
A share of freehold refers to a unique property ownership arrangement. It combines elements of freehold and leasehold ownership structures.
Here's what it entails:
- Freehold ownership - in a traditional freehold arrangement, the property owner owns both the property and the land it sits on outright and indefinitely
- Leasehold ownership - in a leasehold arrangement, the property owner owns the property for a specified period, typically a long-term lease with a landlord who owns the land. Leasehold properties often come with certain restrictions and obligations, such as paying ground rent and seeking permission for alterations
- Share of freehold - a share of freehold occurs when leasehold property owners collectively purchase the freehold of the building in which their flats or units are located. Each leaseholder then becomes a joint freeholder of the entire building, along with the other leaseholders. This means they collectively own the freehold of the building and the land it sits on
- Benefits - share of freehold ownership offers several benefits to leaseholders:
- Greater control: shareholders have more control over the management and maintenance of the building, including decisions on repairs, renovations and service charges
- No ground rent: since there's no external freeholder, leaseholders no longer have to pay ground rent
- Potential cost savings: by collectively owning the freehold, shareholders can potentially reduce costs associated with property management and administration
- Increased property value: share of freehold properties may be more attractive to buyers and potentially command higher resale values compared to traditional leasehold properties
- Legal structure - share of freehold properties typically operate under a management company or residents' association, with shareholders serving as directors or members. This entity is responsible for managing the common areas, collecting service charges and making decisions on behalf of the shareholders
- Legal considerations - purchasing a share of freehold involves a legal process, including serving notice to the existing freeholder, valuing the freehold and negotiating terms. It's advisable to seek legal advice from solicitors or conveyancers experienced in share of freehold transactions
Overall, share of freehold ownership offers leaseholders greater autonomy and control over their properties, making it an attractive option for those looking to enhance their property rights and potentially increase the value of their investments.
Categories: General, Sophie Waugh
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.