Ground rent and Service charge on a freehold property

GooseDeer

I am looking to purchase a property which is one of 4 flats. The post said that is property is a freehold.

I inquired about this with regards to ground rent and service charge and the estate agent has come back with:

The house is share of the freehold – 1/4
Under lying lease – 112 years left
Ground Rent - £125 per year
Service Charge - £500 per year

I am a bit confused as I thought these charges were payments to the people who own the lease. But if I own part of the freehold who is this money going to?

can anyone shed some light on this as I don't really understand it.

sammyjammy

Just because you own a share of the freehold does not mean you don't need to contribute to a fund for works/buildings insurance etc.

lisyloo

Ground rent I don't understand either if it's freehold. I would check again with the estate agent.


Service charge will be for communal items e.g. shared buildings insurance, maintenance of communal areas e.g. hallway, window cleaning perhaps and probably a "sinking fund" for repairs e.g. roof.


You need to find out exactly what it covers.
A solicitor would get all the details but it's a good idea to make sure you are happy with the overall arrangements e.g. is there a management company involved or do the owners arrange paid window cleaning or is it DIY. £500 per year is not a lot, but of course some flats have managers, lifts, swimming pool and on-site facilities.

SmashedAvacado

As owner of the share of freehold, you are entitled to a proportion of the ground rent receipts if they are distributed as profit by the freehold company. You still have to pay the ground rent. Many such structures put waivers in place for this, if all of the owners are also owners of the freehold, but its not particularly unusual.

GooseDeer

I do not have a issue with paying the ground rent and service charge, I just don't understand the process with regards to a freehold. So as a part owner of the freehold would I be able to see exactly where the money is going to and what it is spent on? and hypothetically if that ground rent was not spent on anything over the course of a year, would that money be returned to the freeholders?

xylophone

I just don't understand the process with regards to a freehold. So as a part owner of the freehold would I be able to see exactly where the money is going to and what it is spent on? and hypothetically if that ground rent was not spent on anything over the course of a year, would that money be returned to the freeholders?

Your conveyancing solicitor should be reading the lease/freehold documents and be in a position to elucidate.

SmashedAvacado

In a properly devised and operated structure all expenditure would come from service charge leaving the ground rent to be distributed to the owners of the freehold.

As a shareholder you would not have decision making rights (other than in respect of matters reserved for shareholder approval) unless you are a director of the freehold company.

Tom99

With only 4 freehold owners it could be joint ownership rather than via a company so need to check that.

kingstreet

You have to think of yourself as two separate legal entities.

As the leaseholder of the flat, you pay service charges for the block, to insure it and for the upkeep and repaid of the roof and of common areas.

Any ground rent is paid to the freeholder.

As a member of the freeholder, you are entitled to a share of the ground rent and should manage the service charges to ensure they are properly invested and spent on the upkeep of the block.

Owning a share of the freehold doesn't mean the flat you inhabit isn't leasehold.