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Buying a flat with a share of freehold

Conveyancing clients often get confused when they are interested in buying a flat which has a ‘share of freehold’. The ‘share of freehold’ aspect is usually marketed heavily by the estate agents especially in London. The confusion sometimes comes from the fact that ‘freehold flats’ are generally not considered good security for lenders and, save in specific parts of the country, are unusual. A ‘share of freehold’ is sold with the leasehold flat – the leasehold interest is retained and is still the most valuable part but you also aquire a separate shared title or ownership in the freehold.

What is a ‘share of freehold’?

There are two basic set ups for the ownership of the freehold, the first is that the freehold is owned jointly by a number (up to four) of the flat owners in their personal names and the second is where a company is the owner of the freehold and each of the tenants hold a share or membership in that company. Therefore when you obtain a share in the freehold your name will either be noted on the title deeds or you will be issued a share in the company that owns the freehold. In either case you will then own a share in the freehold.

Why not remove the lease and create a freehold flat?

Because of the legal differences between freehold and leasehold titles it is never a good idea to merge the lease into the freehold title. This is because basically postive obligations e.g. to pay service charges and maintain your property would not easily pass from owner to owner in a freehold context. It can be done but the mechanisms are more complex than holding a leasehold title where these obligations run naturally with the land – that is to say they pass from owner to owner without any special steps being take on sale. Essentially therefore the communal obligations would simply fall apart if everyone held a freehold flat.

What are the advantages?

As we said agents often push the “share of freehold” as a positive and generally it is. A lease alone is a wasting asset – it becomes less valuable as time goes on as it gets shorter. Eventually you will need to extend the lease and normally if you have a share of freehold you will not be required to pay for this (although there are risks here and it is important to be advise on the purchase to ensure that there are no problems or barriers to this happening). It is therefore cheap and easy to achieve (see our article on extending your lease with a share of freehold). This can be a significant saving for example to extend a lease of around 70 years you would pay £15,000 and upwards to an independent landlord (based on a flat worth around £250,000).

You will also have greater control over how the maintenance on the building it dealt with – you are not at the whim of a independent landlord who may attempt to overcharge for repair costs – the tenants will generally be interested in keeping the property in good repair at the most economic cost.

If you are buying you will still need to consider whether the flat owners’ system, however basic, is in place for repair and that there are no problems or disputes between the tenants which could cause difficulties in maintaining or insuring the block in the future. Generally you would seek information from one of the other co-freeholders to verify any information provided by the seller on these points. The best advice is to speak to the other owners before you purchase to get a feel of how the block is run especially if it is a smaller block where you will need to interact with neighbours after you purchase.

Overall you generally find that self managed/owned blocks have a lower average service charge.

What are the disadvantages?

In smaller blocks there may be some obligations that one or more of the tenants need to keep on top of e.g. filing accounts and annual returns for the freehold company (there are fines if you file even dormant accounts late and if the company is struck off the cost of reinstatement can be expensive). You will need to ensure the block is insured and the premium is collected and paid each year.

Maintenance on an ad hoc basis can also cause spikes in the service charge if for example major works are required in any one year. This would be offset if there was a sinking or reserve fund set up which was paid into each year. Generally these arrangements are only put in place where there is a separate managing agent running the block – this is usual for larger blocks with a share of freehold but for smaller blocks the administration costs charged by a management company may be relatively expensive.

If the freehold is owned jointly in the personal names of the tenants it can also be difficult to get the other owners to sign the transfer of the freehold when the flat is sold. The Land Registry also require identification from each owner. This can be frustrating to arrange this when the flat is being sold and one of the co-owners is away!

However on balance the advantages generally far outweigh the disadvantages and the share of freehold will always help in the marketability of the flat in the future.

How we can help

We are specialists in dealing with leasehold sale and purchases with a share of freehold including lease extension work.

If you require information about our conveyancing service email Mark Sadler on 01708 757575  email mbs@ker.co.uk

Share of Freehold – Freehold flats – Short Lease – New Lease – Cost of Extending a lease with a share of freehold – Share of Freehold Extending Lease – Freehold Management Company Extending lease

 

 

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24 comments on “Buying a flat with a share of freehold

Tim Post author
Reply

I live in a top floor masonite where I share the freehold with a couple down stairs.

The couple have been separated for the last 5 years, and the ex-husband name is to be removed from the freehold.

I’ve been asked by my neighbours to sign a new freehold document that only includes my name andthe ex-wife name on it. They have their own solicitor producing this documentation.

I have requested the following:

– Two copies that are signed, one for me and the other for the ex-wife.
– A letter from their solicitor stating the freehold needed to change from the couple, due to the separation.

Is this correct, or do I need a solicitor to file something on my behalf for the top property as this is a change in the freehold deed i.e. to the land registry?

Thanks

Mark Sadler Post author
Reply

The transfer should be in form TR1.

The address and title number should match the freehold title only.

The transferor (box 4) should be you, your neighbour and your neighbour’s ex-husband.

The transferee (box 5) should be you and your neighbour.

Box 11 should be ticked or crossed to say “they are to hold the property on trust for themselves as tenants in common in equal shares”

Your address details should be correct.

If correct you can send it to the solicitors with a note to say “Please find enclosed the signed TR1 – this is sent to you on the strict understanding and your implied undertaking that (i) you send me a com-pleted copy when dated and (ii) you will update the Land Registry title and let me have a copy of the completed title when received.”

This is why lease extensions to 999 years are always recommended for share of freehold (as the free-hold title can easily become detached from the flat ownership).

Reply

Hi,

I am in the process of buying a leasehold flat (Victorian house converted in to 4 flats ) and was wondering how difficult it would be to buy share of the freehold if the freehold also includes the converted building next door? (Also Victorian conversion into 4 flats) There is a management company who deals with the day to day, which is made up of all 8 leaseholders. Are there different rules to buying a share if the freehold goes across 2 buildings and would we have to wait 2 years before we could buy a share of freehold?

    Mark Sadler Post author
    Reply

    The rules are complex but you do not need to wait provided you have 50% support from qualifying tenants ie 4 but preferably more in the two houses.

Jo
Reply

Hi, I’m a leaseholder in a block of 4 flats, where 2 of the other flats own the freehold. I’d like to buy into the freehold, is this difficult? Thanks, Jo

    Mark Sadler Post author
    Reply

    You could ask the two who own the freehold if you can buy in. They may be happy to recoup some outlay. Otherwise to buy the freehold under the collective enfranchisement regime (which is your statutory right to buy the freehold) you need 50% of the long leaseholders in the block to force the sale so one other leaseholder would need to join you. Clearly however the other two owners can buy it back again! Best therfore to negotiate something if you can.

Reply

Hi … I purchased a g/floor flat conversion (one flat above me) as a leash old property. Subsequently the freeholder has ‘donated’ (no £ exchanged) the freehold of both flats to myself & upstairs neighbour. Does our Lease still stand & are we still protected by it in terms of sharing thw cost of any maintenance ? or do we need a new legal agreement?

    Mark Sadler Post author
    Reply

    There is no automatic merger of the leasehold flats into the freehold. The leases still stand. Provided the leases are long (over 100 years) they should not need amending.

Reply

Hi Mark, I have a small query.

I own the top leasehold flat in a 5-flat building. I have some money (350 pounds) in a sinking fund on deposit with the freeholder (the other flats do not have any sinking fund contribution). My question is, what would happen to my sinking fund contribution as the freehold has being sold to another management company?

The departing freeholders have served a service charge bill (which is quite high due to disrepair issues) and ideally I would like to adjust this amount due to become lower by my sinking fund contribution (350 pounds). Can I actually do this (without making it a legal dispute)? And if so, do I need to send a letter?

The new freeholder management company have not yet set up any new sinking fund, but if (and when) they do, I would want that the other flats also contribute towards it (and not just me).

Many thanks in advance for your perspective.

Thanks, Sehar

    Mark Sadler Post author
    Reply

    It is not automatically transferred but your conveyancing solicitors should have taken certain steps by either transferring the freehold title into your name (with the remaining freeholders) or transferring the share in the freehold company to you. You need to check that they have attended to this.

Justas
Reply

Hi,
I hope you can help me understand if this is correct.
I am buying a flat as part of share of freehold.

I have noticed that the landlord is mentioned as one company,
and the managing company – as a different one.

I will get a share of the managing company, but how will this differ from the landlord and if I have equal rights to other members of the share of freehold

or if the flat that is marked as the landlord have more rights?
Thank you
Justas

    Mark Sadler Post author
    Reply

    Quite often leases are set up with three parties. This is more common in larger buildings. These are:

    (1) The Landlord / Freeholder who owns the freehold title and essentially just collects the ground rent (which is income for him/her) and who would be entitled to any payment if the lease was extended. Sometimes the Landlord keeps the insurance obligation.
    (2) The Management Company – often residents owned who is responsible for the repair of the building and often the insurance also.
    (3) The flat owner/tenant.

    Leases are set up in this way so that the Landlord does not have very much to do or have any ongoing onerous obligations.

    Now to complicate matters sometimes the freehold can be purchased by the Management Company so there is one company who is both (1) and (2) but in your case the freehold was purchased by a separate company. Often this is because no all the tenants/flat owners need to participate in the purchase of the freehold and so it may be that not every owner has a share of freehold to pass on. Every flat owner should have a share in the management company. Your conveyancer should check all this for you because only those with a share in the freehold could get a ‘free’ lease extension.

Reply

Hi
I am in the process of purchasing a ground floor maisonette with a seller has owned a shared if freehold – 959 years lease from the management company, now I wanted to know if will I be incurring a service as a new owner and what are the responsibilities of the tenant who holds share of freehold

    Mark Sadler Post author
    Reply

    This is a simple conveyancing question which should be answered during the title investigation.

    Leases may be in different formats particularly in maisonettes / houses converted into a couple of flats. You can either have a lease which makes the tenant (flat owner) responsible for the repair of their part of the building i.e. the ground floor owner repairs the everything below the floor joists of the flat above including the foundations and the upper tenant everything above including the roof. These leases may or may not, depending on their drafting, require the other flat owner to contribute (usually) 50% of the cost of those repairs. The other common form of lease excludes the structure (mains walls roof and foundations) from the extent of the flats and retains this as part of the freehold – the freeholder is therefore responsible for repair (and often insurance) of these areas and the tenants contribute to the cost again usually on a 50:50 basis.

    Obviously if we are assisting you with the conveyancing we can be more specific on the advice.

Reply

Dear Mr Sadler,
I hope you can give us some advice on dealing with our neighbours who have caused a very substantial leak into our house from their adjoint property and are refusing to deal with the consequences. About two years ago they refused to pay the agreed half of the cost of the repairs of the joint areas. Our communication is broken down. What will be the next step? thank you

    Mark Sadler Post author
    Reply

    I do not deal with disputed matters but I would suggest that you tread carefully even if you feel you are in the right because a neighbour dispute will probably wipe more off the value of the property than the claim. Surly you have simply claimed for the damage on your insurance policy?

Reply

Hi
I own the share of freehold in a block of 4 flats. All freeholders contribute to the sinking fund on a monthly basis.
We are now in dispute with one of the 4 freeholders with regards to how the money should be used. The building needs repair works and only 3 out of the 4 owners/freeholders agree to the work being carried out and the sinking fund being used for this.

Do all freeholders need to be in complete agreement with how the fund is used or can a majority vote rule? Is there any legislation to govern this?

Thank you,

Reply

My daughter is buying a leasehold flat 999 years with share of freehold.
the other freeholders are refusing to sign until their leases are extended.
We are confused

    Mark Sadler Post author
    Reply

    If the other owners have shorter leases I think they are justifiably saying they will not transfer the share of freehold/extend the lease of the flat you are buying unless their leases are also extended. This is because your daughter could come into the freehold and make life difficult or refuse to extend the other leases when asked. This is a practical risk they are trying to avoid.

Reply

Hi Mark hope you’re well.
I am a leaseholder of a top floor maisonette in an Edwardian building where the ground floor unit is belong to the freeholder where it’s rented out via an estate agent. There is only 2 units in the building.
I hold a long lease (about 165 years) and there is no service charges involved as each of us manage our own unit and held our very own building insurance, and as for the ground rent it’s peppercorn rent.

I know normally you will need the other leaseholder to agree to buy the freehold from the landlord together or 51%, but in my case the ground floor flat owner is also the landlord. How do I go about to purchase the freehold / share of freehold? eg. extend the lease to 999 years

Thanks.

    Mark Sadler Post author
    Reply

    There is presently no way you can force the landlord to sell you a share of freehold and/or extend your lease to 999 years. You actually only need 50% in larger buildings but 100% in a block of 2 flats.

    The Law Commission may look at this issue in their review of leasehold law but I cannot see a simple answer to this.

    I would not think this makes a material difference in value as you have a long lease at nil rent.

Reply

Thanks Mark for your promptly reply.

In my lease it is stated that “The property demised is the maisonette on first floor of (my premises)together with the garden belonging there to as delineated of the plan:

“The roof including the loft and roof space of the building together with all joists and other structures supporting the same”

I might be wrong but it does sounds that the roof is belong to me?
In this case, will it be more difficult says if I want to convert the loft to a living space, knowing I will need approval and licence from the landlord?

    Mark Sadler Post author
    Reply

    I will not really be able to comment without seeing the whole lease because the description of the flat is one aspect and anything can be taken out of context. The roof is defined sometimes for repair purposes not to show what you own or do not own.

    If, however the roof and the structure around it belongs to you it will be easier to get consent as you are not required to buy the loft and roof structure from the landlord in the first place to carry out the work.

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