A share of the freehold - what does this mean?
Sian Hiatt, Sales Manager, tells us what it means to own a share of freehold when buying a flat and what some of the pros and cons are to actually owning a share of freehold...
Estimated reading time: 4 minutes.
During your search for a property, you may have come across some leasehold flats that offer a “share of freehold” and wondered what this means. It can cause a little confusion so we’re going to go into a little more detail to explain exactly what it means to own a share of the freehold and what some of the pros and cons are when it comes to buying a flat with a share of freehold.
First things first, what does share of freehold mean?
Put simply, a share of freehold is when two or more parties own a share of the freehold title that relates to the building that the flats are located in.
This freehold title is typically registered in the name of a company of which the flat owners are equal shareholders, although in smaller buildings the freehold title can also be split jointly between up to four flat owners with the freehold being held in their personal names.
Regardless of how the freehold is set up, the result is the same - each flat owner also owns a share in the freehold of the building.
Why does a share of freehold have to exist?
You may think it’d be more straight forward to just get rid of the share of freehold entirely and just all own freehold flats, but there’s a reason a share of freehold exists.
This is for the transference of obligations, such as property maintenance and service charge payments. Ensuring there is an adequate lease in place puts important obligations on all flat owners to ensure communal responsibilities are covered, especially during the sale of one of the flats. If no lease was in place, then one of the flat owners could suddenly avoid paying their share of maintenance charges and this could quickly put the upkeep of the building in jeopardy.
Read: Is it worth buying the freehold to your flat?
What are the pros to owning a share of the freehold?
The benefits to owning a share of the freehold largely centre around having a greater control over some important issues, such as the management of maintenance duties which when left entirely in the hands of a landlord can sometimes either be neglected or not run as financially prudent as it could be. Furthermore, with all owners having an equal share and therefore interest in the building as a whole, it’s also more likely to be kept to a higher standard than if it was owned by a sole landlord whose main focus was to turn a profit.
The ability to extend the lease at no extra cost is also a significant benefit as this could potentially save you thousands in the future.
What are the cons to owning a share of the freehold?
One sticking point that can potentially occur for a seller of a property with a share of freehold is the difficulty in getting other owners to sign the transfer of the freehold. Identification is also needed from each owner during the sale of the Land Registry, so it’s easy to see why things can become problematic and drawn out during a sale if any of the shareholders are difficult to get hold of.
Some set ups may also see a requirement on owners to undertake admin tasks, such as filling annual returns for the company that holds the freehold, along with any general accounting that needs to be maintained accurately. Property insurance is another thing that will need to be taken care of every year. So, there could be a lot of things to organise and keep on top of, but with well-drilled arrangements and communication there’s no reason why shared owners can’t have things in order.
If you need help buying or selling a property in Cardiff, why not get in touch with our team of property experts here at CPS Homes? You can reach us by calling 02920 668585, e-mailing enquiries@cpshomes.co.uk or by popping into one of our three Cardiff based branches.
