What Does ‘Share of Freehold’ Mean?

‍Understanding the essence of ‘share of freehold’ is crucial for property buyers. Whether jointly owned by flat occupants or held by a company, this structure offers control and potential savings, yet demands careful consideration of responsibilities and complexities. Explore its benefits, drawbacks, and implications for informed decision-making in this Strangford Management post.

What is ‘Share of Freehold’?

Share of freehold refers to a type of property ownership where individuals collectively own both the individual apartments and the land on which the property is built. In essence, it gives you joint ownership of the building’s freehold title.

When you acquire a flat with a ‘share of freehold’, it implies that you own the leasehold of your flat, plus a share of the freehold for the land and the building where the property is situated. This form of shared ownership is commonly associated with flats, wherein owners hold the leasehold for their individual flat and a share of the freehold for the entire building and the land it sits on.

How Does it Work?

There are two fundamental structures for owning the freehold. The first is where the freehold is owned jointly by a number of flat owners within the property, held in their personal names. The second set-up is where a company owns the freehold, and each tenant holds a share or membership in that company.

In either case, when you obtain a share in the freehold, your name will either be noted on the title deeds, or you will be issued a share in the company that owns the freehold.

The Rationale Behind ‘Share of Freehold’

You might wonder why the lease isn’t simply eliminated, resulting in a wholly freehold flat. The reason is that the transfer of obligations, such as property maintenance and service charge payments, are not easily passed between owners within a freehold context. A leasehold arrangement ensures these obligations are seamlessly transferred between the seller and buyer, thus covering all communal responsibilities without any additional steps being required.

Without a lease in place, individual flat owners could potentially disengage from their communal responsibilities, jeopardising the upkeep of the property.

The Pros and Cons of ‘Share of Freehold’

Owning a share of freehold grants you a direct influence on what happens with the building. However, it can also include additional administration on top of your homeownership.

The Upsides

Owning a share of freehold brings several advantages:

• More Control: You have greater control over maintenance and spending obligations, which eliminates the risk of being exploited by an unscrupulous landlord.
• Higher Standard of Maintenance: Since all occupants have a stake in the property, there is a good chance it will be kept to a high standard.
• Lower Costs: You can potentially save on ground rent costs and service charges, with more control over the annual spending.
• Lease Extensions: You can extend your lease up to 999 years, minimising the devaluation of your property.

The Downsides

However, it also has potential drawbacks:

• Varying Maintenance Charges: While some maintenance charges may be minimal, there will be occasions where you’ll need to pay more for extensive repairs.
• Time-Consuming Administration: The management of the building may require more administrative work, alternatively hiring a 3^rd party agent like Strangford Management Ltd to do this on your behalf.
• Insurance Costs: Home insurance could be more expensive and complex.
• Leaseholder disagreements: As you are a Freeholder you must act on any breaches which can be awkward as the conflict can be with your neighbour.

Service Charges and Ground Rent

Even if you own a share of freehold, you may still need to pay ground rent and service charges for the building, since you are living in the property on a leasehold basis. However, as you share the freehold with other occupants, it is unlikely you will face excessive or unfair charges.

Selling a Property with ‘Share of Freehold’

If you’re selling your leasehold property, you can transfer your share of the building’s freehold. A formal deed will pass the ownership from you and your co-shareholders to the new property owner.

Conclusion

While the concept might seem daunting initially, it can offer numerous benefits including more control over your property, potential savings on ground rent and service charges, and the ability to extend your lease at no extra cost. However, it also comes with certain responsibilities and potential downsides, which are important to consider before making a purchasing decision.

In essence, understanding the meaning of ‘share of freehold’, its implications, advantages, and potential drawbacks, can help you make an informed decision about your property purchase. Always seek professional advice to ensure you fully comprehend the legal and financial implications of your decision or speak to one of Strangford Management’s experts today.

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