Share of Freehold – What does it mean?

In this instalment of property jargon busting we’re going to discuss what a share of freehold is. If you’ve been hunting for a flat on the open market, chances are you’ve come across listings advertised as ‘share of freehold’.

19th May, 2022

In this instalment of property jargon busting we’re going to discuss what a share of freehold is. If you’ve been hunting for a flat on the open market, chances are you’ve come across listings advertised as ‘share of freehold’.

The meaning of the term isn’t common knowledge. Share of freehold comes with complexities that all potential buyers should be aware of. In this article we provide you with a plain english explanation of those complexities. We’ll answer common questions relating to share of freehold such as what does it mean, and how is it different from a regular leasehold arrangement? We’ll explain how to extend your lease on a share of freehold, and outline how you can buy a share of freehold on your leasehold. Finally we’ll discuss the pros and cons of share of freehold and give our verdict on whether or not it’s a good idea.

Looking for something specific such as how to transfer a share of freehold, or whether or not you still pay ground rent with a share of freehold? Use our menu below to navigate through the article quickly. Or, if you’ve got more time on your hands and want a full understanding of the term, simply read on!

 

What does share of freehold mean? 

Before jumping into a definition of share of freehold, it’s important to have a working knowledge of the difference between a leasehold and a freehold

Leasehold vs. Freehold 

In short, the difference between leasehold and freehold property is that freeholders own both the land a property is built on, and the property itself. Leaseholders own only the flat, and not the building or the land that the building is built upon. This is owned by the freeholder, and the leaseholder essentially rents this from the freeholder. This is known as ground rent. 

share of freehold meaning

Leaseholds usually exist in flats in the UK to help formalise an arrangement between many residents on a shared piece of land. They divide the responsibility for the good upkeep and repair of a property between a number of residents. This responsibility is usually reflected in a service charge which is used to carry out essential repairs to and maintenance of the property. This is usually paid to a management company, who are the freeholders, and will coordinate this upkeep.

A share of freehold is different from both a leasehold and freehold property. In this arrangement you own both the leasehold to your property and a share of the freehold for the building and the land that it’s built on. There are a couple of different ways that share of freeholds can be structured.

 Share of freehold in personal names 

A share of freehold held in individual names basically means that each individual owns an equal share of the freehold title. This is often known as ‘tenants in common’, and legally these arrangements operate on trust, which can be quite risky. The maximum number of freeholders that there can be on a title using this method is four. In situations where there are more than four freeholders, or where the freeholders would prefer a more formal arrangement, a share of freehold can be set up through a limited company. 

Share of freehold with a limited company

In situations where there are more than four freeholders or a more formal arrangement is required a private limited company can be created. Each freeholder owns a share in the company, and can be directors as well. It’s advisable to enlist the help of a solicitor, since a working knowledge of company law will be required to set up and maintain this arrangement. In some situations it could also be prudent to nominate just one member of the group to be company director, whilst the rest remain as just shareholders.  

Is a share of freehold the same as a leasehold? 

In short, no. A leasehold grants you the right to occupy your property. You don’t own the property, nor do you own the land that it is built on. You rent this off the freeholder. With a share of freehold, you own both the leasehold of your property in addition to a share of the freehold title, granting you a share of ownership of the building and the land on which it is built. 

Share of freehold vs leasehold

Do you pay ground rent on a share of freehold? 

This will depend upon the arrangement of the share of freehold agreement with the other freeholders. Unless otherwise agreed, it’s likely that you will still have to pay some ground rent and service charges to a common fund for the property. 

This is because you’re still living in the property on a leasehold basis, and upkeep and maintenance of the property is still required. Bear in mind though, since you own a share of the freehold with other freeholders, it’s unlikely that you’ll encounter extortionate service charges and ground rent. 

How to extend your lease on a share of freehold? 

Do I need to extend my lease if I have a share of freehold? 

Regardless of whether or not you own a share of freehold, you will still need to extend your lease. This is because your lease is the contract that regulates the relationship between the building occupants. It governs things like how much each flat contributes towards maintenance and building insurance. The lease is important because without it, this regulation doesn’t exist and therefore mortgage providers wouldn’t be able to lend against the flat. 

Do I pay to extend my lease if I have a share of freehold? 

This is one of the benefits of having a share of freehold. Standard leaseholders typically pay a premium to the freeholder to extend their lease. This can be very costly, but is necessary to prevent their leasehold expiry. Leaseholders who also own a share of freehold on the property will usually be able to extend their lease without paying a premium. All other freeholders must agree to their proposed lease extension, though it’s rare that this isn’t the case. 

Do all freeholders have to extend their lease at the same time? 

No. It’s possible for individual freeholders to extend their leases independently of one another. The advantage of all freeholders extending their leases at the same time (known as collectively extending leases) is that the leases can be modernised and brought up to date. Some solicitors will also offer discounts where many owners from the same freehold instruct them at the same time. Modernising or updating the lease terms isn’t always possible when individual freeholders are extending their lease. This is because differences in the lease agreements could cause conflicts regarding what is allowed within the building, creating difficulties in the day to day running of the property. 

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Can I buy a share of freehold on my leasehold?

You can buy the share of the freehold on your leasehold, but you’ll need to have both the permission of your current landlord or freeholder and half or more of your neighbours involved. 

You can request that the freeholder sells you the freehold at any time, however they aren’t obliged to. If they wish to sell the freehold then they must offer all leaseholders the first right of refusal to buy it. 

There are a few eligibility conditions for a group of leaseholders to buy the freehold on a block of flats. Briefly: 

  • There must be two or more flats in the building. 
  • Less than 25% of the building must be used for non-residential purposes (e.g. shops).
  • 50% or more of the number of flats in the building must be owned by leaseholders who want to purchase a share of the freehold. 
  • Two thirds of the flats in the building need to be owned by leaseholders who have a long lease. 

So you don’t need to have all occupiers on board to purchase the freehold but there are some requirements. Likewise the freeholder must agree to sell, or be wanting to sell the freehold title. 

 

How to transfer a share of freehold.

To transfer a share of the freehold for your property you will need a formal deed to transfer ownership. This transfers ownership from current owners to the new owner(s) of the property. 

 

Is a share of freehold a good idea?

Pros and cons of share of freehold

Ultimately a share of freehold on a property is a trade-off. Having a share of freehold over the property brings more agency and control over the property, but it comes with more responsibilities. 

Some of the key benefits of having a share of freehold are: 

  • Lease extensions are cheaper and easier.
  • Greater control over repairs and maintenance, usually at a lower cost. 
  • Lower ground rent and service charges. 
  • More control over the management of the building. 

However, as with most things in life, these benefits come with caveats. A quick summary of the disadvantages of owning a share of freehold: 

  • It can be more tricky to obtain a mortgage. You might have to use a specialist provider, and this affects how easy it is to sell your flat.
  • Home insurance providers can be restricted by having a share of freehold. So it can be more expensive to insure your home. 
  • Freeholders have to comply with legal obligations such as filing management accounts. There can be fines for freeholders who fail to meet these obligations. 
  • Management of the building can be difficult and hard to coordinate, particularly if you have troublesome neighbours. 

Selling a share of freehold flat

Share of freehold flats can be difficult to sell. They’re less straightforward than regular leaseholds, and mortgages can be more difficult to obtain. This obviously restricts the pool of prospective buyers for your flat and can mean that it takes longer to sell. If you want to sell your flat fast, consider selling your share of freehold flat to a cash house buyer. 

SmoothSale can buy your share of freehold flat for cash in as little as 7 days. We buy any property in any condition, and our service is completely fee-free. We’ll even appoint you a solicitor and cover the costs. So, if you’re interested in receiving a no obligation cash offer, simply enter your details or give us a call on 0800 368 8952

Sell your house for cash to SmoothSale

Simply enter your details below to get a no-obligation cash offer for your house.

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Sell your house for cash to SmoothSale

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