Buying a Shared Freehold Flat

camulus77256

Dear all,

I am currently looking to purchase a two bedroom flat and have had an offer accepted for a 'shared freehold flat'. Obviously I thought it being a freehold would mean no ground-rent or service charges. The property is the top floor of a semi-detached house with the other 'half' of the freehold being owned by the bottom floor of the house. There is no communal ground apart from front / back gardens.

It wasn't until I went to the Halifax to organise the mortgage (well within my budget and affordability) that shared freehold became a problem. At present I have yet to pay a penny and want to try and get as much information as possible before I make a decision on whether to go ahead. Halifax's surveyor/valuer is going to have a look to see if the property is eligible for a mortgage and I imagine there will be conditions e.g. setting up a management company to 'own' the freehold with myself and the other freeholder as directors.

Are any of you in a similar situation or been in a similar situation? How easy was it to resell? Did it affect potential buyers? And how costly was it to set up?

Many thanks in advance.

steve2005

We currently live in a flat, and own 1/18th of the Freehold, with the other 17 flats owning the other 17/18ths.
No we don't pay any ground rent
Yes we do pay a service charge, which all the flats agreed to pay each month (yearly) - if there is no service charge and something needs to be done then there will be no reserve funds to pay for it, leaving each person with a potentially huge bill.

G_M

England?

If it is genuinely a 'shared freehold flat' it may be unmortgageable.

More likely it has been mis-described and is acually leasehold, but with a share of the freehold also being sold as part of the agreed purchase price.

You will thus own two things:
* the lease and
* part of the reehold.

In this case it is likely that either ground rent and/or a service charge will be payable by the leaseholder (you) to the freeholder (you and the downstairs flat-owner). The freehold may well be structured as a company in which you and downstairs own a 50% share each.

yoshiyella

Never heard of a shared freehold however it does sound like a tyneside leasehold where by the flat below is the landlord to your flat and you are the landlord to their flat thus meaning there is no ground rent or service charge. If it is this then it shouldn't cause a problem as I have a 2 bed maisonette on a tyneside leasehold and have a mortgage through the halifax!

propertyman

No you are not there is no such thing:mad:.
http://leaseholdpropertymanager.blogspot.co.uk/2013/07/i-have-share-of-freehold-no-you-dont.html
http://leaseholdpropertymanager.blogspot.co.uk/2013/12/what-to-do-when-buying-flat.html

:money:Go now to HMLR online and search the address of the flat and I'll bet you'll find its a long lease and that the freehold is owned by some or all of the residents or their company.
http://www.landregistry.gov.uk/public/property-ownership
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Richard_Webster

The trouble is that you go to a lender (particularly a branch office or through a broker) and mention the words "freehold" and "flat" and they immediately get confused because they have been told they don't lend on freehold flats. They don't. This probably isn't really freehold flat. Propertyman is trying to find the person who invented the term "shared freehold" because of the confusion it can cause.

When you go to borrow money on a flat just tell them its a flat and they will assume it is leasehold. Once you start mentioning freehold they get worried because they don't understand.

However "shared freehold" generally means that each flat has its own lease and the freehold is either literally jointly owned by up to 4 individuals or (better) is owned through a company which is in turn owned by the flat lessees. In the latter case it is no different from the freehold being owned by a company nothing to do with the lessees. Lenders accept that.

Most lenders also accept the shared individual ownership of the freehold - see below for an extract from Halifax's version of the CML Handbook. (I have removed the bits of the paragraphs in question which relate to a totally different criss/cross or Tyneside Flat situation which is not relevant here.)

5.8.5Where the security will comprise:

* one of a block of not more than four leasehold flats and the borrower will also own the freehold jointly with one or more of the other flat owners in the building; ........
check part 2 to see if we will accept it as security and if so, what our requirements will be.
............
Bullet 1 ...... - Yes. We require a mortgage of the leasehold interest in the flat owned by the borrower. We do not require a mortgage of the borrower's share of the freehold.
...........

You probably won't pay any ground rent but you may well pay a service charge. The building is shared so any costs related to the building as a whole that are shared have to be collected somehow - the most obvious is buildings insurance but there will normally be some cost for maintenance of the structure and shared areas.

da_rule

This sounds like a situation known as commonhold. This is where all of the properties which would normally be leasehold are owned freehold. Each freeholder then also owns a share of the common/shared areas and are responsible for their upkeep. This is usually done by employing a management agent in the same way as leasehold.

This is becoming increasingly popular because it offers a few advantages:
1) Leaseholds are wasting assets where as freeholds aren't
2) The developer (who would normally retain the freehold over leasehold properties) has no liability for the property
3) There is no land rent to pay for the purchaser
4) Can make stamp duty calculations easier
5) The freeholders have greater powers to change management companies when the current one starts causing problems

Richard_Webster

This sounds like a situation known as commonhold. This is where all of the properties which would normally be leasehold are owned freehold. Each freeholder then also owns a share of the common/shared areas and are responsible for their upkeep. This is usually done by employing a management agent in the same way as leasehold.

This is becoming increasingly popular

Commonhold does exist, but is very rare. Why does da_rule think it is becoming increasingly popular? I've never seen one.

It may be that some builders have set up leasehold schemes where there is a very long lease with no ground rent and the freehold is transferred more or less straight-away to a residents owned management company. They are not commonhold. My son owns such a flat in a Wimpey built development in SE London.

princeofpounds

Commonhold was meant to be the bright new model of flat ownership, but despite its technical legal advantages there are probably more wild wallabies in the UK than commonhold flats. Indeed until recently you could count them on your hands and feet.

http://www.leaseholdknowledge.com/the-15-commonholds

Almost certainly the problem is one of communication. The OP is clearly not actually aware of how the freehold is actually held, and so the Halifax want to check it out for themselves. Probably it is a leasehold flat with a share in a company that owns the freehold. It might be a leasehold flat with direct joint ownership of the freehold. Or it might actually be a freehold flat, which is typically not easy to mortgage as there is no sensible way to ensure proper care of the common parts.

To the OP - yes you can get ground rent and service charges even if you own a share in a company that owns the freehold. It's not a particularly precise or accurate analogy but you can think of it a little like transferring money into a joint account that is used to maintain common areas, rather than splitting each and every bill as it arrives. You part-own the account, but it's a totally separate pocket of money.

camulus77256

Thanks for all your feedback. It has been very helpful. The property is 50/50 shared freehold with each flat owning a long lease also. My question now would be how does this affect mortgage prospects. The Freehold is owned by those occupying the flats rather than a company.

How does the value of the freehold compare with the leasehold.

And yes I totally agree with propertyman's opinion of "shared freehold" it should be removed.

Richard_Webster

My question now would be how does this affect mortgage prospects.

Tell Halifax to look at their version fthe Council of Mortgae Lender's Handbook as quoted in my previous post.

If the freehold is literally jointly owned by 2 of you you will always need the other person's signature to sign it over when you sell so this can produce issues if he refuses or has disappeared (because his leasehold flat has been repossessed.)

Get your solicitors to advise you about this risk. You can get round it by getting the other flat owner to enter into a deed of trust with wording that allows only one of you to sign over the freehold if the other refuses or had gone away. problem is that typically the other flat owner doesn't understand why this is necessary!