Flats and apartments are often advertised with 'share of freehold'. You may assume that if you are buying into the freehold, you will not need to worry about the lease. Nothing could be further from the truth. These are some of the problems which are regularly encountered by share of freehold owner:
- Owning a flat with a 'share of the freehold' does not mean that you have a freehold flat – you will still have a leasehold flat, but you will also either;
- own the freehold jointly with the owners of the other flats in the building – this is common when there are no more than four flats in a block, or
- be a member or shareholder of a company which owns the freehold title – this is usual where there are more than four flats in a block.
- There will be a separate leasehold title for the flat, so your Conveyancing Solicitor will have to complete the transfer of the leasehold title as well as a transfer of the freehold title or a transfer of a share in the company.
- Having a share in the freehold does not mean that you won’t have to pay service charges – ongoing services in larger blocks of flats, such as heating and lighting of shared entrances and stairways, all have to paid for. Flat-owners may elect to appoint a professional management company to provide day-to-day management of the building, and they will collect service charges in the same way as for a commercially managed building. However having a share should give a leaseholder a greater say in how the management is carried out.
- With smaller buildings, where each flat-owner has a share in the freehold title, it can be difficult to get necessary building repairs carried out. For example if the roof needs renewing, all the owners in the building should contribute equally – but the owners of flats on the lower floors may not see the need to pay out for work which doesn’t directly benefit them. In this case owners of top-floor flats can find themselves having to foot the entire bill.
- Buildings insurance should preferably be arranged on the block as a whole, with each owner paying a share of the premium. If this is not done it can lead to each owner making their own arrangements (or not) – a recipe for disaster if the building is severely damaged and requires major repairs or rebuilding.
- When a company has been set up which owns the freehold, it is important that the necessary company returns are filed with Companies House each year. This work must be done by one of the flat-owners, but is often overlooked. Failing to file the necessary returns can lead to the company being struck off the register of companies, which creates problems when a flat is sold.
- If the freehold title is in the joint names of the seller and the other flat-owners, the seller will have to get all those owners to sign a transfer deed. This is necessary so that the change in ownership can be registered at the land registry. Delays frequently occur in getting this done, as the other owners may be uncooperative or difficult to find – owners might be living abroad or renting out their flats (and don’t forget that you will have the same problem when you come to sell).
- If your lease term is less than 70 years, you will still need to arrange for a lease extension – although you normally do not have to pay any premium you will still have to get the other owners to agree to sign the necessary documents, and pay legal costs.
So having a share in the freehold does not always give flat-owners an advantage. It should mean that they have more control over the management of their building, but that does not necessarily lead to any great savings either, and can lead to disputes.
Buying a 'share of freehold' property, or buying the freehold of a leasehold flat you already own, is not a decision to be taken lightly.