Estate agents often offer a flat for sale with “share of freehold” to entice buyers who understandably think this is better than buying a property which is only a leasehold.
The first question to ask is “How long is the lease?”
The freehold deals with the whole of the building, but with a flat, the critical aspect is how long is the lease of the flat in question? The leasehold is the legal interest which has value. It is the lease which is bought and sold, and most importantly, it is the leasehold interest which provides security to a mortgage lender.
For technical reasons, buyers should be wary of a lease which has less than 85 years left to run.
The second question to ask is “Who owns the freehold?”
Freeholds can be owned in individual names, and in “share of freehold” situations this is usually the names of the lessees of the flats, or in the name of a company with each leaseholder having a share in that company.
There are advantages and disadvantages in either of these arrangements.
Freeholds held in individual names can sometimes be difficult to transfer because the co-freeholders have fallen out or one cannot be found. “Share of freehold” can be a poisoned chalice in these circumstances.
Alternatively, the freehold can be held in the name of a company, and in this case, when a leaseholder sells his/her flat, it is a simple matter to transfer the share to the buyer. The ownership of the freehold remains the same at the Land Registry.
The big advantage in buying a “share of freehold” is that all the co-owners of the freehold have the same goal – to maintain the value of their properties. As there is no third party involved, they will have control over how the property is managed and can arrange this in the most cost effective way.
How can we help?
Our residential property department is very experienced in advising on leases, and always happy to provide initial advice without obligation.
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