What Does “Share of Freehold” Mean?

Darren Bagnall of Flat Living Insurance explains more about ‘share of freehold’ and what it means.

Recent leasehold reform is making it simpler and more financially achievable for leaseholders to buy a share of their freehold.

If you’re an existing leaseholder and would like to know more about what buying a share of the freehold of your building may entail, this article is for you.

Freehold vs Leasehold

To clarify, being a freeholder means that you possess full ownership of both the building and the land it is constructed on. You own it outright. This is for as long as you wish to own it, until you pass away or it changes hands inheritance. This means that you are responsible for the upkeep of the property’s externals and common areas.

Leasehold ownership means that you’ve bought ownership of only your ‘unit’ within the building, and only for the length of the lease. Once the lease runs out, your ownership comes to an end. Management of the building as a whole is out of your control, and you may be constrained re any changes you want to make within your unit too.

Owning a Share of the Freehold

Some leasehold properties are advertised for sale ‘with a share of the freehold’, but what does this actually mean?

Essentially, it means you would own the flat under the usual leasehold agreement, but that you’d also own a percentage of the freehold of the whole building. Your ownership of the freehold would be shared with up to three other people (most likely a couple of fellow leaseholders and/or the original freehold owner). In large buildings, you’ll most likely own a share in the company that owns the freehold instead.

Collectively, the group is responsible for the insurance and upkeep of the building’s externals and common areas.

Upon the agreement of the leaseholders in the building, they have the option to hand over the maintenance of the building to a Managing Agent.

This can be the best option for freeholders who have little time for or experience in dealing with the demands of running a building.

Does Owning a Share of the Freehold Add Value?

If you have a short lease of less than 86 years, then yes, buying a share of the freehold could add some value to your flat. It could also be cheaper than extending your lease.

Owning a share of the freehold may not add much value to the property in and of itself, but it can certainly boost the desirability of the building due to:

• Leaseholders having a say over the management of the building
• It being easier for leaseholders to extend their leases
• Leaseholders having more control over services charges through maintenance and insurance cost control

As an owner of a part of the freehold, you and your fellow co-owners have control over lease lengths. This means you can extend your own lease for the cost of the legal fees only.

Selling Your Property and Share of Freehold

When you want to sell your leasehold property, you can do so with your share of the freehold intact. Your co-owners will need to agree to the buyer’s purchase and the buyer’s conveyancer will need to speak with them directly. This is to gain their permission and to complete the necessary paperwork.

The Difference Between Right to Manage and Owning Freehold

The lines can get blurry between Right to Manage and co-owning freehold, so here’s a quick explanation re the differences.

Obtaining the Right to Manage simply relieves the freeholder of their responsibility to manage the block. Leaseholders come together to form an RTM company, and the RTM company takes on these responsibilities.

An important point to note is that an RTM company lacks ownership of the building or the land on which it is constructed.That freehold ownership remains with the landlord. The landlord still has a say in how the block in managed as they are also part of the company.

When leaseholders acquire the freehold of a block, they attain outright ownership and gain complete control over the management of the property.

Are there any downsides?

As with most things there are some downsides to buying your freehold. This something we have regularly written about in our brands articles in the past.

In summary things such as additional costs, added responsibilities, disputes between flat owners and potential conflicts are the main areas that we tend to highlight. To Read more on this, please click here. 

Flat Living Insurance provides specialist insurance policies for blocks of flats and apartments. For more information or a quote, please contact a member of the Flat Living Insurance team on 0333 577 2044.