Buying a share of freehold most commonly occurs when a buyer purchases a leasehold interest in a flat while simultaneously obtaining a share in the freehold interest of the whole building. The buyer will acquire two separate and distinct titles to the property; the leasehold and freehold interests.
Both interests are important and coexist to impose obligations and confer rights on the buyer in relation to the property. Each leaseholder is individually responsible for meeting obligations under their lease and they will also be jointly responsible for complying with obligations as a landlord collectively with fellow freeholders.
How is a Share of Freehold Created?
A leasehold interest is created out of a freehold interest and provides that the land in question will only return to the freeholder when the lease comes to an end. Residential leases can, in effect, run for such a long time that they will never be returned to the freeholder.
The freehold may be held by a third party or by the individual flat owners jointly. The maximum number of persons that can jointly hold the freehold directly in this capacity is four; thus it is often the preferred method to employ in a converted house where there are generally few leaseholders.
Alternatively, where there are many leasehold premises within one building, the freehold may be held by a company. The company is the registered owner of the freehold and each leaseholder owns a proportion of the shares in the company. This is legally distinct from a share of freehold but effectively works in the same way.
What Does Share of Freehold Ownership Mean in Practice?
A share of freehold means that the leaseholders collectively, fully control the building. There are clear advantages of this arrangement. For example, leases can be extended at no cost to whereas a lease from a third party landlord could be required to pay a premium for a lease extension which might cost thousands of pounds. Furthermore, the leaseholders will not be reliant on a third party landlord who may care little about the state of the building.
With a share of freehold, the buyer acquires rights and obligations not only as a lessee of the flat but also as a landlord of the whole block, which collectively, the freeholders are jointly responsible for. The responsibilities of a freeholder include but are not limited to; maintenance, repair and insurance of the building as well as various other services which may be provided for in the lease.
Managing the Freehold
The time involved in the management of a block of flats should not be underestimated and often it is good practice to instruct a managing agent to undertake this role. This will alleviate some of the pressures and responsibilities conferred on the landlord.
However, it is not uncommon for individuals to manage the building themselves and problems can be avoided through compliance with imposed obligations and responsibilities in the lease agreement and also compliance with legislation.
Maintaining the Freehold and Leasehold Interests
It is a common misconception that a buyer who obtains the freehold interest no longer requires the leasehold interest. Through covenants contained in the lease, the landlord will be permitted to do such things as collect service charges. However, without the lease, the landlord would lose such rights which are imperative in order to carry out the duties of the landlord with fellow freeholders.
If you are looking at buying or selling freehold or leasehold property, the advice of an experienced solicitor is essential, contact email@example.com or firstname.lastname@example.org or by telephone on 0207 583 3434.