Setting up a joint freehold advice please

Maxthebrave

I am buying a flat and there is only one other flat in the building. It is a house that's been split by a developer and the idea is for a joint freehold to be set up between the two properties. I have spoken to the other purchaser and we've agreed that it would be good to start a bank account now for any issues that may arise.

Has anyone been in this situation before and could advise? Is it best to set up a company even if its only 2 of us? I'm not keen on setting up a joint account with someone I don't know.

Any help gratefully received

AlexMac

Ask your solicitor, but every "shared freehold" I've ever owned had been held by a newly established Company (usually "Limited by Guarantee") with the flat owners as Directors of members of the company.

So you have two roles; you as a leaseholder with your obligations and your rights defined in a lease. Plus, you part -own a separate Company, bound by law which you have (presumably) a 50% share in, to look after the whole building, (especially the roof, external surfaces, common areas, etc) grant leases to yourselves, and collect service charges.

When you come to sell on, you might hit legal challenges from prospective purchasers (or more likley, their solicitors) if there is either no sharing of the freehol, no clarity about the legal staus of the freeholder, or an ad-hoc arrangement. If you choose to both own separate freeholds, one of them, the upper flat, will be a "Flying Freehold" which lawyers don't like.

Ditto, propspective buyers may be worried if there is any confusion about who is responsible for maintenance, buildings insurance, safety of common areas (asbestos checks, etc), how all these are funded, or if the shared freeholders are not "protected" from liability or legal action (e.g if you are held responsible for any accident caused by possible neglect) by the Company's "Limited" status.

An alternative would be for either one of you to retain the freehold (or for the developer to sell the freehold to an absent party. But if you weren't in control you'd be in thrall to them for service charges, decisons on repairs etc...

I did once own the freehold and upper leasehold flat of a similr 2-flat conversion of a Victorian house, but I was lucky in that when I decided we needed a new roof, the downstairs leaseholder was happy to share the cost 50-50 with me.

So I'd personally prefer to go down the conventional route of setting up a freehold company which then grants leaseholds to each individual flat owner, with control, maintenence and service-charge sharing clearly spelled out in the Company Constitution and Leases.

Just watch out that the Lawyer who drafts the leases doesn't slip in any sneaky clauses like one I inherited in another shared freehold- an obligation for them to get involved in every future leasehold sale and to be able to charge £50-£100 or so for a wholly unnecessary bit of legal bumph even if they were not representing the vendor or buyer in the conveyance.

While you must make arrangements to jointly fund buildings insurance, it's not essential to have a joint "sinking fund" for major or cyclical repairs (like roofing or external decorations). But whether or not that is built into the lease, you two owners might usefully decide to have one. Another plus point when you eventually sell; it's always reassuring to have a kitty so that big bills don't come as a shock to someone who has just bought a flat then discovers that the 10-yearly external scaffolding and paint job has to be paid for via a big one-off levy!

eddddy

As there are two flats, and hence, two joint freeholders, your main options are:

1. Form a company to own the freehold - with each leaseholder as a shareholder/director.

The rules of the company can specify how decisions are taken about the property, etc.

But forming a company means extra ongoing admin.

2. The two leaseholders jointly own the freehold - with both leaseholders signing a 'Declaration of Trust'

The Declaration of Trust can specify how decisions are taken about the property, etc.

See: https://www.lease-advice.org/article/share-of-freehold-when-joint-owners-should-consider-a-declaration-of-trust/


However, whatever way you structure things, you might still have disagreements.

e.g. one leaseholder says a falling down fence needs to be replaced, the other says it just needs to be repaired. How do you reach agreement?

(One way might be that an independent 3rd party - like a surveyor - has to be called in whenever you can't reach agreement. But that can get expensive. Especially if the disagreement is on a low cost issue - like whether to use cheap or expensive paint for the front door.)

Maxthebrave

Thank you both so much. Thats given me an excellent grounding to talk to my solicitor and other party about. Very clear and helpful answers. Extremely grateful x

AlexMac

Good info edddy; the Declaration idea is good, as I forgot to mention that with a Limited Company, one of you has to file accounts and annual returns online with Companies House. Can be done online and only a £13 fee, but a £150 or more fine if you miss the deadline (as embarrassingly, I did once!)