Share of freehold & service charge

loulou41

What other expenses you will have if you buy a flat with share of freehold? I thought the service charge will cover the building maintenance but was told new roof etc will have to be paid seperately. So really if the service charge is £1600 a yr and then you have to fork out on big building maintenance or repairs as well, it will turn out to be quite expensive. I was wrong to think that service charge will cover repair of the building as well!! Also with share of freehold, the leasehold should be the same for the other owners, with a flat of 99 yrs lease, when do you start thinking of renewing the lease? The other owners have to agree, what happens if they do not all agree? I am just weighing the cons and pros of share of freehold and am getting very confused. Buying a flat seem to be such a hassle & complicated to a newbie.Thanks

Fire_Fox

The annual service charge covers running repairs not major works. Some long leases allow for collection of a sinking fund basically saving up commmunally for major works such as a re-roof, however young people are rarely happy about contributing to something a few years in advance. Owning property is a lot expensive and a lot more complicated than most FTBs think, leasehold is not really that different from freehold in that respect. If you want an easy life, stay in rented accommodation.

The long lease will need extending before 80 year point as this is when some companies will not mortgage it. You have the legal right to extend your lease, you can go to a Leasehold Valuation Tribunal to enforce that if needs be. Everything leasehold here, including how to extend your lease: http://www.lease-advice.org/publications/

timmyt

go to CML website (Council of Mortgage Lenders) as most will accept nothing less than 60 year leases, though Buyers get concerned at 75. Share of freehold can be a solution, depending on how many owners as all in boat together, so lease extension legal work should be simple and cheap. Your lawyer will advise.

Leaseholds are not the same as freeholds.

Freeholds you own your own building and can pretty much decide if you repair.

Leaseholds - i would never buy one if I could afford freehold - means you are effectively borrowing someone elses building, but paying for their building to be totally repaired through a service charge. NIce for the landlord

The service charge is never set, as big expenses will be added as they arise. Typically they may be £1600 as you state, but increased when expense above that arises.

Buy freehold if you can. Rented is throwing money away.

Fire_Fox

Timmyt freehold flats are virtually un-mortgageable, so you might want to reword you post so it says 'share of freehold' throughout as this is NOT the same thing as freehold.

Richard_Webster

What other expenses you will have if you buy a flat with share of freehold? I thought the service charge will cover the building maintenance but was told new roof etc will have to be paid seperately. So really if the service charge is £1600 a yr and then you have to fork out on big building maintenance or repairs as well, it will turn out to be quite expensive. I was wrong to think that service charge will cover repair of the building as well!

The concepts of "service charge" or "maintenance charge" will vary from lease to lease and from landlord to landlord. You and your solicitors always need to look at whatever accounts are produced to see if there is a sinking fund and you should have a survey to advise you if any major works are likely to be needed to the block.

Also with share of freehold, the leasehold should be the same for the other owners

Not necessarily. Depending on the circumstances, sometimes some of the original people who bought the freehold from the developer/builder extended their leases immediately afterwards and years later after the flats have changed hands their successors, when approached, look up the law and decide that they can charge a full market value premium for an extension. There is no entitlement to a free extension just because you are a shared freeholder! Always ask the co-freeholders their attitude to lease extensions when buying shared freeholds. This isn't legally binding, but if they equivocate, walk away.

The other owners have to agree, what happens if they do not all agree?

Depends whether freehold is literally held by up to four individual flat owners or by a company owned by the flat owners or some of them.

If owned by individuals they all have to agree, so if there is a dispute about some other issue, or one of them doesn't understand why leases need extending because "We're freeholders - we don't have leases....", or one has disappeared or has had his flat repossessed then you have a problem.

This issue also applies to transfer of the freehold when you sell because you require the co-operation of all the others for this. (I am currently acting for someone buying such a property and the transfer of the freehold has had to be sent to Ethiopia where one of the co-freeholders is at the moment!)

If a company owned by the flat owners owns the freehold, the freehold title doesn't have to be changed at the Land Registry when someone buys a flat because the company continues to own it. It is only the shares or membership of the company that get transferred. If someone is being difficult or has disappeared, then a majority can usually override him.

In general shared freeholds are better because provided people co-operate sensibly costs can be kept down and fees of managing agents often avoided. Again, normally, when the leases get down to the 70s or early 80s of years then generally, lease extensions can be arranged at no great cost to each flat owner. Because none of this is guaranteed, with literal shared freehold ownership it is vitally important to contact the individuals involved and assess their attitude to lease extensions etc.

With a company, at least the directors need to be contacted, to see their attitude. Although a majority can override, people have to be pretty steamed up to get involved in forcing the calling of a general meeting and turning out to vote, so, particularly with bigger shared freehold blocks, apathy rules, and sometimes the directors do not run things properly and are difficult to challenge in practice.

You have to look at all the circumstances. Mainly, shared freehold will be better than having an outside freeholder, but this is not always the case and each case has to be judged individually.

Mortgages on Shared Freehold Flats.

Finally, when applying for a mortgage, you are buying a flat. Period. Don't confuse the mortgage broker/building society branch staff with talk of shared freeholds.

What Firefox has said:

Timmyt freehold flats are virtually un-mortgageable, so you might want to reword you post so it says 'share of freehold' throughout as this is NOT the same thing as freehold.

is true, but just as TimmyT has been slightly confused in what he has said, it is also very easy for lender staff to get confused in the same way and for the lender then to refuse to lend for no good reason because someone told them it was a freehold flat.

Literal (individuals' names on freehold title) shared freeholds are generally acceptable to lenders under 5.5.4.1 of the CML Lenders' handbook and where there is a company owned by the flat owners this is treated like any other leasehold flat because the company is legally a separate entity.

G_M

but just as TimmyT has been slightly confused in what he has said, it is also very easy for lender staff to get confused in the same way

As Richard says, it's not unusual for so-called 'Property Experts' to be confused. Best if they don't comment unless sure of their facts.

timmyt

LouLou41 - happy to provide further information, as you are going to get confused by all the above text.

I was not talking about a 'freehold flat'. Simply buy a freehold (house) if you can afford it, for the reason I gave.

A share of the freehold on top of a lease is the next best thing as you and others in the building are your own landlords, but you still have a flat.

Good luck.