“Share of Freehold”: not necessarily a sweet deal
12 Apr 2022
Residential flats are often advertised for sale as “share of freehold”. This suggests that the flat buyer will acquire a share of the freehold title to the building and that they don’t need to worry about the length or contents of the lease document.
This is incorrect. The legal value of a flat depends on the length and wording of the lease including the extent of the premises, the length of the lease and the ground rent provisions. What a flat Buyer actually owns is the flat held on a leasehold title.
The entire building containing the flat will usually be held on one freehold title. That title may be held in the name of a Landlord which is a property investment individual or company, or alternatively,(and this is where the term “share of freehold” is bandied about), may be owned by some or all of the flat owners either in their joint individual joint names or, more likely, through a limited company controlled by those flat owners.
Ownership by the flat owners of the freehold does confer benefits compared to ownership of the freehold by an independent Landlord. Ownership by the flat owners will generally mean that the property is managed more efficiently because those flatowners have a vested interest in ensuring that the building is properly maintained at a reasonable cost. Policy decisions regarding the freehold will be made by people who have a vested interest in living in and enjoying the flats.
However, this is not a magic solution for all problems. Whether there is “share of freehold” this does not alter the structure of the lease under which the flat is held. The lease of the flat is the critical document for the quality of value and enjoyment of the flat. “Share of freehold” does NOT mean that the lease will never need to be extended. If the lease is relatively short, when the flat comes to be sold or mortgaged, the lease will still need to be extended in order to preserve its value.
Indeed, this can be something of a problem because if one flat owner wants to extend their lease because they are re-mortgaging or selling, the freeholders may be unwilling to deal with this without also extending all the other leases in the building. The more parties involved in any process, the slower and more complicated it is likely to be.
Think of “share of freehold” like being a citizen in the country where you live. It does not give you direct ownership of the country, but it gives you have a say in how the country is governed. If you are buying a flat where you are offered “share of the freehold”, look on the “share of freehold” as a bonus but don’t take your eye off the ball, namely checking that the lease of the flat as a stand-alone document is satisfactory.
For more information please contact Andy Finkel on e: firstname.lastname@example.org / t: 020 8872 3066