Option of Leasehold or Share of Freehold

Paul_London

Hi,

I'm interested in buying a flat while was down on the description as Share of Freehold. After reading some advice in other posts I realised that a share of freehold flat can sometimes cause issues when getting a mortgage.

I emailed the estate agent this morning to get some more details on the issue and she came back to me with two offers.

1 - Buy the flat with Share of Freehold
2 - Buy the flat as Leasehold (for 5k less)

How can they offer this? Who would own the freehold part if I chose to go for the leasehold option?

I've never heard of this before so it's causing me some confusion. Is the flat going to be worth less if I don't have the share of the freehold (as indicated by the 5k discount)?

Any help would be most welcome!

Thanks,
Paul.

Fire_Fox

Freehold flats are not normally mortgageable in England and Wales. 'Share of freehold' is a colloquial not a legal term and actually means you would be party to two titles - a long lease and the freehold. AFAIK most problems with mortgages on share of freehold are down to very poor arrangements for managing or the buyers incorrectly communicating the type of the title to the lender.

You don't want to be leasehold only on this IMO, it gives you fewer powers and rights. Who currently owns the freehold, the leaseholders by name or a company in which all the leaseholders have a share? If the latter the company will continue to retain the freehold title whether you take a share in that or not.

http://www.lease-advice.org/publications/

Paul_London

Wow that was quick! Thanks.

I got a copy of the freehold title yesterday and I think it was a single name on it (I don't have it with me at work but will check when I get home).

Having a share of the freehold isn't going to frighten mortgage lenders off then? I have read so many articles it's hard to know what is best. Do you think that paying 5k more is worth it for having the extra powers and rights?

Thanks again.

propertyman

Yes because share of freehold does not exist. It's made up.

You will have a lease of the flat, and along with others in the building either
1- jointly own the freehold, or
2- own a share in or be a member of, a company that does

You are therefore buying two things, one you own, the lease, and one where ownership is shared. It's not a discount just two items they are selling in one ( well 2 linked) transactions.

The key determinant is
1: how long is the lease that you will buy
2: does the vendor actually have the right to retain the freehold

In 2, most trusts, agreements or companies set up for ownership of the freeholder by leaseholders make terminate ownership when the lease is sold.

They are most often not where there is a value in the freehold such as money owed for the original group purchase or the right to sell lease extensions to other owners, or other assets.

Simples;

"Dear EA what do I get for my £5k and who currently owns the freehold?" Let us know

The HMLR register sounds interesting only one name- not the vendor is it

If so then they cannot sell it to you under section 5.

propertyman

Paul_London wrote: »

Having a share of the freehold isn't going to frighten mortgage lenders off then? .

No Paul the point is that there is no such thing..... there are only 3 types of tenure, Freehold Leasehold and Common hold.

Fire_Fox

Paul_London wrote: »

Wow that was quick! Thanks.

I got a copy of the freehold title yesterday and I think it was a single name on it (I don't have it with me at work but will check when I get home).

Having a share of the freehold isn't going to frighten mortgage lenders off then? I have read so many articles it's hard to know what is best. Do you think that paying 5k more is worth it for having the extra powers and rights?

Thanks again.

As I said a key issue is that many buyers get muddled between straight up freehold and leasehold-with-a-share-in-the-freehold-title, most FTBs don't research the implications before buying flats. We have had buyers on here who have erroneously argued that share of freehold is not leasehold.

Also as I said you don't want to be leasehold only when you have the option of a share in the freehold title IMO. Read the LEASE website thoroughly, it is government funded so independent and trustworthy, explains much of the legislation in plain English. It is helpful to have a rounded understanding as either a prospective leaseholder or a freeholder or indeed both.

Paul_London

Thanks again to you both for the clarification!

I have just downloaded the freehold title again and it only has one name on it. I think this is the name of the person selling my flat. There seems to be a muddle up between the leasehold documents on HMLR as I have purchased the title document for flat A and B and they both download the same (for flat A - not the one I want).

Anyway, the leasehold document for flat A mentions a lease between Nick and Andrew. The leasehold title for flat A is in the name of Andrew. The freehold title is in the name of Nick so I would guess that Nick is the owner of my flat.

From what you say, this would seem strange as they should both be on the freehold, correct?

Fire_Fox

Sorry I am not following. Are you sure you have downloaded the freehold title and not the long leases? There should be a total of three titles available for that building if there are two flats. The freehold title should not say the individual flat number on AFAIK, just the building name/ address. If you definitely have the freehold title with a single name the flat is not share of freehold, one flat only owns the freehold OR the freehold was not properly registered at some time in the past.

If you are going to be the sole freeholder you need to do loads of research, you have all sorts of repairing and maintenance obligations but must serve notices and consult EXACTLY according to the legislation or the other leaseholder may not have to pay. One option is to offer to share the freehold with the other flat, this can be done as part of the conveyancing.

Paul_London

Sorry, I don't think I explained myself very well there.

The freehold title (the building address) only has one name on it, Nick, who I think is the name of the person selling my flat. I can only get one leasehold title document which is for the other flat, flat A, which is in the name of Andrew. On Andrew's leasehold title it mentions a lease between Andrew and Nick. I just took from that that the other leasehold title is in the name of Nick.

I most certainly don't want to be the sole freeholder.

I'll contact the estate agent again and see why the freehold is just in one name.

Thanks again!

Fire_Fox

If the freehold title is only in one name and you refuse to purchase it the outgoing leaseholder may offer it to the leaseholder of the other flat meaning that they have control over you. If the lease needs to be extended (falls below 80 years) the leaseholder(s) have to pay the freeholder for this. If you are share of freehold there is no issue you waive the charges rather than pay yourselves, but if one owns the freehold they can profit.

Paul_London

If I choose to buy on leasehold terms I'm being offered a new 125yr lease.

I think the best route for me to go down would be to have the other leaseholder come and share the freehold with me. That way we are both on equal footing. I can't own it all or I won't be able to get a mortgage on the property.