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Share of freehold

Conveyancing clients and particularly first time buyers often get confused when they are interested in buying a property which is a share of freehold property, especially as this may be specifically marketed heavily (the freehold aspect) by estate agents.

The concept is actually quite simple and where a share of the freehold comes with a flat, it is generally beneficial.

What are the key points when buying a share of freehold?

The most important things to be aware of are :-

  • Freehold refers to an interest in land which is forever, and every property will have a freehold title (Land Registry certificate) owned by individuals or by a company.
  • With leases, a long term interest, and separate title in the land has been created from the freehold, so that the land will only return to the freeholder at the end of the lease. When a lease is for more than 50 years, the valuable interest in the land is the leasehold interest and not the freehold, especially where long residential leases can now be extended so that, in effect, the property or land will never be returned to the freeholder, who simply has an abstract, residual right to get it back at the end of the lease.

Buying a flat is buying the leasehold interest. You may also get a share of the freehold. There will be 2 separate titles to the property, 1 leasehold and 1 freehold.

With a share of freehold, at some stage in the past, the freeholder, knowing that his, her or it’s remaining interest in the property is worth very little and also knowing that, with a lease, the freeholder will have ongoing obligations such as maintenance of the building, insurance and so on, will have decided to sell the freehold, and the existing leaseholders at that time will have bought it for a typically low value of, on average, perhaps less than £10,000.00.

In the situation above, the leaseholders may have set up a company and each flat owner will own a share in the company which is the registered owner of the freehold. Where there are only a few flats, in a converted house perhaps, the freehold may be owned by the individuals leaseholders and not by a company.

To recap, the long lease interest is separate from the freehold. It is the long lease interest which is far more valuable than a share of the freehold title.

There are advantages in buying a flat with share of freehold. The main advantage is that it is common, where leaseholders all have leases which start running down to 70-80 years left, to agree that all the leases will be extended at no cost. Whereas, if there is a 3rd party freeholder, he/she/they will charge a premium for each lease extension which can be over £10,000.00 in some cases.

The other main advantage is that the leaseholders fully control the building and are not reliant on a freeholder who does not care about the building, whose freehold is worth only a small amount, dealing with important issues like buildings insurance, maintenance of the structure and so on. It is not unusual for these issues, or a freeholder who has gone away or disappeared, to cause major issues when buying or selling a property or generally.

If you are considering buying a share of freehold property, get in touch with me to discuss any issues or concerns or for a quote for the legal work involved.

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