The UK property market can be quite confusing at times as it’s full of jargon and phrases that can easily be misunderstood. One of these phrases includes “share of freehold.” In this guide, we will simplify this term. Exploring its advantages and disadvantages and comparing it to other types of ownership, such as leasehold.
What is share of freehold?
In essence, share of freehold is a form of property ownership where multiple parties own the freehold of the property together. This is typically seen in flats or apartments where residents own both their individual units and a share in the buildings freehold.
What does share of freehold mean?
Having a “share of freehold” simply implies you own a part of the building and the land it is built on. With a leasehold, you own solely the “right to occupy” a property. The duration of this can be set out in a number of years, decades, or even centuries.
How does share of freehold work?
Share of freehold generally works through a limited company set up to manage the freehold. Each flat or unit owner holds shares in that company that represents their ownership. Most decisions regarding the property are made jointly, while large alterations can at times require a majority vote.
Is share of freehold the same as leasehold?
No, share of freehold and leasehold is not the same. You actually get ownership of a fragment of the building and land when you purchase a share of freehold. Unlike a leasehold, which entails renting a property for a set period of time. But it’s good to keep in mind that even shares of freehold buildings often have a lease attached.
Why does it still have a lease?
In freehold properties, a lease in share is typically present for reasons of legal structure and clarity. It helps with outlining each shareholder’s obligations and rights, especially when it concerns their own units. It lays out the ground rules concerning the building and can normally be changed by a vote of the freeholders.
What are the advantages and disadvantages of share of freehold?
Let’s sum up the advantages and disadvantages of owning a share.
- Property control: you have more influence on how the property is run and greater say in the buildings management and future.
- No ground rent is due: you generally won’t need to pay ground rent.
- Flexibility: easier to change or update the terms of the buildings usage.
- Resale value: share of freehold properties may have higher resale prices than leased buildings.
- Long-term security: you have long-term security with since you own a piece of the land. It also is a long-term investment that is secure.
- Inclusive decision making: making decisions inclusively makes it easier to make changes to the property.
- Lower costs: no need to pay for lease extensions and less often fees, such as ground rent.
- Management responsibility: needs active involvement.
- Potential disagreements: disagreements might occasionally result from group decision making.
- Complexity: it might be challenging to understand and manage the ownership structure.
For the benefits mentioned above, owning a share can be seen as desirable to a leasehold in many ways. However, it may not be for everyone as it does require you to be actively involved in the buildings management.
Questions to ask about share of freehold
If you’re thinking whether to buy such a property or not, then here are some important questions to ask:
- How much of the freehold will I actually own?
- How is the structure of the freehold management company?
- Are there any existing disagreements between the current freeholders?
- How much are the service fees?
- Who handles building maintenance?
Share of freehold summary
In many ways, a share of freehold can have advantages over leasehold properties, these advantages include a greater say in the buildings management and financial gains for example. It does, however, come with responsibilities and is best suited for people that are keen to actively participate in the management of a property.
With the information in this guide, you are now hopefully better prepared to decide whether it is the right choice for your circumstances.
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Last Updated: August 30th, 2023