Share of freehold and leasehold; no right or wrong way to go?

gilesm89

I am trying to get on the property ladder and because I live in London I will almost certainly be buying a flat.

There is one property that I have found that is really great (leasehold 99 years) and has potential to have various modifications made (removing kitchen wall and building second bedroom into remainder of loft [flat is a loft conversion].

I have spent hours reading about leasehold vs share of freehold - in fact over the last week this has completely taken over the way I search for properties. And I'm not even sure if it's that important.

From what I have seen online:
- Share of freehold seems to hold a higher market value (perhaps 5-10% additional)
- Share of freehold is only as good as the other people who you share the freehold with
- Leasehold properties can start to lose value once you reach the 85 year mark
- Leasehold can have more restrictions in terms of making changes to your flat (e.g. removing or installing a partition wall); however, in share of freehold you may need acceptance from the other freeholders (?)
- Leaseholders can be stung with spiraling service charges
- You may not be allowed to sub let leasehold properties (depends on the agreement)
- You might not even be allowed a pet in a leasehold property

I've drawn a bit of a blank as I'm sure I read about many more contesting points. However, my question is whether or not it really does matter if it's one or the other. Is it simply better to have a good leasehold over a bad share of freehold and vice versa?- I suppose figuring out whether it is 'good' is a science in itself.

At what point should you get a solicitor involved to iron out any potential issues? Perhaps there is a chance to get an agreement to modify or sub-let a leasehold property before signing your life away? (Answer from estate agent; "should be fine" haha)

I do apologise as I know this is a topic that has been covered here before but I suppose I just wanted to start a discussion about it in a broader sense rather than covering specific parts of the two forms of ownership.

Thanks for any input

lindze

Hi
I have lived in a leasehold flat for years and recently we all bought a share of the freehold so have experience from both sides. Basically it is exactly the same apart from you have more control over costs for maintenance and building insurance.

Even if you have a share of freehold you will still be bound by the conditions set out in your lease. So if no pets are a condition then you would still have to ask your fellow freeholder/s for permission.

You would not be able to make structural changes without permission and loft space is owned by the freehold and so if you wanted the extra space for yourself you would have to offer to buy the space from the freehold company...they may refuse to sell you the space even if it is just a small area.

So after all that I prefer the security of having a share in the freehold of my property but I am still bound by my lease as I always was BUT we can control our costs and do maintenance on our timetable (getting everyone to agree can be a whole other issue). We can also extend our leases for no cost.

Sapphire

Leasehold is no problem at all for me. I have a long lease, no ground rent, and an old-fashioned lease drawn up many years ago, which states that one owner looks after the top half of the building, and the other the bottom half. The maisonettes were originally bought by the freeholder's grandfather, in a canny investment long ago. This arrangement has always worked fine for me (including for doing things like knocking down walls). I did once have a share of freehold flat and it was somewhat bothersome, but I suppose it depends on who the other freeholders are.

Wouldn't touch the types of leases being drawn up for all those 'luxury new-build apartments' with a barge pole, or such 'apartments' for that matter.

eddddy

When you buy a 'share of freehold', you are really buying 2 things:

1) A leasehold flat
2) Joint ownership of the freehold of building that the flats are in

By default, jointly owning the freehold (i.e. having a 'share of freehold') doesn't change the terms of the leasehold...

• The lease length stays the same (or you can pay to extend it)
• If the lease says you need consent for alterations - you'll still need it
• If the lease says you're not allowed to keep pets - you're still not allowed
• If the lease says sub-letting isn't allowed - it still isn't allowed

What is different, is the joint freeholders (i.e. you and your neighbours) can choose to change the terms of the lease, if you want to.

So if you want, you can all jointly decide to:

• Extend the leases for free
• Allow people to alter their flats without consent
• Allow people to keep pets

etc

But realistically, if just one leaseholder (i.e. joint freeholder) objects - it probably won't be possible to change the leases.

e.g. If just one person objects to the leases being altered to allow pets - that alteration probably can't be made.

SeasideSally

Leasehold can have more restrictions in terms of making changes to your flat

Whether you own a share of the freehold or not, you'll still be a leaseholder, and your lease will still contain restrictions. And you still have to abide by them. It's not wise to buy a leasehold property assuming you can make alterations because you are also a shareholder in the freehold company. The other members of the company may object to changes.

My husband and I were the freeholders of a converted building containing four leasehold flats (we lived in one of them). The other leaseholders in the building thought we were having a great time, charging them more than we should, doing whatever we wanted, etc. In reality, we were the only ones who didn't breach the lease, and we built up strong relationships with tradesmen to get good quotes for maintenance work - after all, we were paying our share of that too.

We were sick of owning the freehold in the end, and the leaseholders wanted it and bought it. They formed a freehold company and they now have the pleasure of running it. They have discovered what we knew all along: they are still leaseholders, with all of the obligations of being leaseholders. They now have the added obligations of being joint freeholders. We still own that flat, and there hasn't been a single bit of maintenance work agreed on since we sold the freehold; 'agreed upon' being the operative words. Put four thirsty humans in a room with four large bottles of water and ask them to jointly choose which one they'll all drink from... they'll probably die of thirst.

If a group of leaseholders are all on the same page, owning a share of the freehold is ideal. If they can't agree on the wattage of a lightbulb in a communal hallway, how will they cope with major repairs to a roof?

We have only two neighbours where we are living now. One is a converted building of several flats. The leaseholders are incapable of running a tap, let alone a building, so they have an outside management company who tells them what they can and cannot do (legally).

Personally, I think it's all about the lease. Regardless of whether or not a flat comes with a share of the freehold, the lease is the thing that dictates what you can and cannot do. If it contains things you're not happy to live with, don't buy the flat assuming you can change them.

Richard_Webster

Leasehold with an efficient (but not rip-off) manager is good.

Share of freehold can be better but as has been mentioned it does depend on the other freeholders. Better really if freehold held by a company jointly owned by flat owners. Up to 4 people can jointly own a title so it is common with small conversions to avoid setting up a company and simply transfer the freehold title into the joint names of the flat owners (provided there are no more than 4 of them).

Problem arises when you want to sell your "share of freehold" and you need to get a TR1 deed signed by all the other freeholders to transfer your share to your buyer. Yes they do all have to sign!

So, if one of them is awkward, either because he is having an argument about the property with the other co-freeholders, or becuase he doesn't understand why he needs to sign (remember he is not selling so he won't be using a solicitor) or has disappeared or has had his mortgaged leasehold title repossessed you are stuck in securing a transfer of the frehold to a new set of co-owners. A company is better because the company continues to own the freehold - no change is needed - simply issue a share certificate to new member or make hima memebeer if company limited by guarantee.

SmashedAvacado

eddddy wrote: »

When you buy a 'share of freehold', you are really buying 2 things:


But realistically, if just one leaseholder (i.e. joint freeholder) objects - it probably won't be possible to change the leases.

e.g. If just one person objects to the leases being altered to allow pets - that alteration probably can't be made.

This isnt true in a lot of cases. If the freehold is owned by a company where the owners of flats are shareholders, then it is the board of directors who make the decisions. They are to act in the best interests of the company / shareholders as a whole. So one shareholder in many objecting will not impact sensible decision making. The cases where this is more likely to be true is where every shareholder is also a director, but even then you would pass board resolutions by majority not unanimity in most cases.

arciere

I recently bought a leasehold flat (999 years) with a share of the freehold (only one other freeholder) in north London.
While I can't comment on the value of the share (I'll see what happens when I re-sell), it does make your life easier if you can get along with the other freeholders. In my case it's just two flats, so that probably makes it easier, but as long as you understand what your responsibilities are (i.e. buildings insurance), my advise is that it's always better to have a share than not.

eddddy

SmashedAvacado wrote: »

This isnt true in a lot of cases. If the freehold is owned by a company where the owners of flats are shareholders, then it is the board of directors who make the decisions. They are to act in the best interests of the company / shareholders as a whole. So one shareholder in many objecting will not impact sensible decision making. The cases where this is more likely to be true is where every shareholder is also a director, but even then you would pass board resolutions by majority not unanimity in most cases.

No - you're missing the point.

Assuming I'm a leaseholder, in simple terms, my lease might typically say...

1) I covenant not to keep pets (i.e. I cannot keep pets)

2) The freeholder covenants that every other lease will have similar covenants (i.e. Every other lease will have the same rule on pets)

3) I can insist that the freeholder enforces covenants on other leaseholders (i.e. I can insist that the freeholder takes action if another leaseholder keeps a pet)

The freeholder(s) cannot change my lease - unless I agree.

So if I (as just one leaseholder) refuse to allow my lease to be changed...

- No other leases can have the pet covenant removed

- If any other leaseholder keeps a pet, I can insist that the freeholder takes enforcement action