Freehold or Share of Freehold

yanioaioan

Hi everyone,


as a first time buyer I am about go forward with a 4 bed house converted to 2 separate 2 bed flats. I have the option to set the tenure up as I want as there's currently no lease so they will be written from scratch to 999 years.
I can either obtain the freehold of the building and have 2 separate leases for both upstairs and the ground floor flat (which I am going for), or not have the freehold at all or put it as a share of freehold for both. I am a bit confused with which one to go for and most specifically the pros and cons. The sale is from an investor. I would like your opinions on the responsibilities (how difficult is to run a management company if you are the exclusive freeholder.. or how is it going to be set up if it's a share of freehold? Will there be a ltd management company which we as leaseholders will manage? and how? Is it extremely complicated to run??.and also should each flat be insured separately or should the building be insured as a whole?

G_M

What are your plans for the properties?
Will you live in one?
For how long?
Will your family live in the other or will it be let out?
When do you envisage selling?
Would you be selling both together, or might you sell one and keep one.


The answers might influence the most appropriate way to go.

yanioaioan

What are your plans for the properties? --> Not real plans just general maintenance
Will you live in one? Yes I will live in one as I am only buying 1 of them
For how long? 16 years at least (given everything goes well)
Will your family live in the other or will it be let out? The other one is up for sale from the same investor
When do you envisage selling? 16 years from now maybe
Would you be selling both together, or might you sell one and keep one. N/A


The answers might influence the most appropriate way to go.

Kmhmc

If you obtain the freehold then you will own both flats and be responsible for the maintenance of the building and shared spaces. If you only purchase the leasehold the developer will either be the freeholder or will sell it to another company/person who will then be responsible for setting ground rents etc. Having a share in the freehold would mean between yourself and the other flat owner you are equally responsible. I would speak with a specialist solicitor because both will have negatives and positives. If the developer sells it to a company you won't have control over ground rent/service charge. As a shareholder you can make those decisions between the other residents. Still talk it through with an experienced solicitor

Kmhmc

I have seen tenants run it themselves quite successfully but you would need the constant assistance of a solicitor and possibly a financial advisor until you know exactly what you are doing. If there are only two of you it might not be that difficult (providing you get along with this person). You will insure your own flat but you will need to insure the whole building as the freeholder. You could set the ground rent/service charges but theres the risk of major works needed and the money you have collected up to that point doesn't cover it. You would then need to cover the rest. If you were a shareholder then you can choose to split it 50/50. I believe a shareholder position is more preferable, especially when it comes to lease extensions etc.

AlexMac

I'm not sure whether you are buying the whole house with the intention of selling one flat, or if the vendor is selling both flats separately, in which case, the current owner or any prospective second purchaser might have views.

Either way I've had experience of all three tenures over the years. In fact four if you include the unconverted houses I've owned as plain vanilla freeholder)

A: Freeholder of a 2-unit conversion. I owned a property exactly like yours (where I bought the upper flat but was also freeholder of this Victorian house where the lower ground floor had been converted in the past and sold on a long lease)...plus

B: Shared Freehold. I've owned leasehold flats in three different colloquially-called "shared freeholds" where the leaseholders, as shareholders or co-directors, collectively owned the Freehold Company. In each case these were constituted as a "Company Limited by Guarantee" or similar non-profit company /

C: Leaseholder. Two separate 2-bed Buy to Let Flats where there is an absent Freeholder.

There are pros and cons (in my wholly non-expert opinion) but...

In your case, I'd avoid C as this give you the least control; allowing the vendor to flog the freehold of the building to another investor or any absent third party whose only motive could be to milk it for profit. They (the absent owner) would have freeholder responsibilities of Insurance and Repair, but would re-charge all of these to you, potentially with a fat admin or management fee. Read other posts and you'll see many tales of mis-management, delay, neglect, refusal to agree extensions or even minor internal re-structuring, imposing "no pets" rules and worst of all, charging fat fees to answer basic pre-sale enquiries from solicitors when you or the other flat owner should eventually sell on. I'm happy with my two leasehold BTLs, as the freeholder is the local Council, who behave efficiently, and charge fair Service Charges, but I have no say in repairs and I have to cough up several thousand pounds each time they decide to redecorate common areas or replace windows, as there is no "sinking fund" (which I do happily, as their prices are fair and it's only happened every 7 years or so)

B is probably the most common arrangement, but everything would depend on how your solicitor drafts the leases and Company constitution. These are probably fairly standard, but in one of mine, the firm of solicitors who did this (a few years prior to my ownership) sneaked in a wholly unneccesary clause demanding every subsequent sale to be run across their desk, for a fee, even if they were representing the seller of buyer!

Just ensure the new paperwork (The Company Mem & Arts and Leases) define Constitution, Company control, how Directorial responsibility is assigned, how communal costs (Service Charges for Insurance, Maintenance - both regular and major cyclical items such as roofs, external decor) are charges or apportioned - equally or pro-rata to size or RV of Flats, and whether there will be a Sinking Fund for major future stuff. Ideally written in Plain English rather than 17th century legalese.

And assuming equal shares and thus, shared decision powers, note that you won't be able to alter or extend your flat without your co-owners agreement. You won't necessarily own the loft even if you have the upper flat, may have to buy the rights to extend and you'll have to spell out access to gardens etc.

On the other hand, the other leased flat may be more attractive to prospective purchases if it comes with a share of the freehold Company.

If you do set up a Company, one of you (or an agent or accountant) wmay have to do a couple of leagl things (eg safety or asbestos reviews of common areas) and you must do a couple of online returns to Companies House. But these are easy- you don't need auditors, accountants, managing agents or surveyors! It's not rocket science and nor is letting the odd building repairs, re-roofing or decorating contact

A: won't necessarily even involve setting up a Company (as when you Insure the building as you'll have to as Freeholder, you can take out liability insurance - which is what "Limited" Liability is partly for. You'll have total control, but will have to ensure the lease is clear on the subordinate leaseholder's obligations to cough up. When I was in this position, I was lucky, in that the ( basement) leaseholder was happy to pay up for the new roof (I'd bought a wreck at auction), and to pay their share of insurances. If you want to extend or alter, it will be your decision; although you wouldn't want to bulldoze your leasehold "tenant" as a matter of good behaviour!

I have heard that some lenders are less keen on this freehold tenure with a leased flat, but I didn't have problems and nor did the family I eventually sold to.

Good luck- take advice but remember, you tell Solicitors or other experats what YOU want, after taking their advice. I'd be happy with A or B

And sorry if all these points have already been covered; I wandered off mid flow to cook lunch!

cherry76

Share of freehold with 999 yrs lease. Is it better than buying a leasehold flat.Anybody on this forum bought such property maisonette? What should I be looking for and what questions to ask the agent? Thanks

yanioaioan

Thank you all so much for your suggestions.
This is indeed ace advice.
I suppose it's better to be the Freeholder and make sure everything is well written and according to my will in the leases.
Thank you once again

Tom99

I would buy the freehold and providing my mortgage co was happy, subject only to the one 999yr lease of the other flat.
If that was a problem with the mortgage then buy freehold and one of the two 999yr leases. That is more complicated to administer and since I don't think you can be your own landlord you may have to set up a ltd co to own the freehold.
With either of the above you will be in 100% control of insurance and repairs to fabric and common parts but recover 50% from the other flat leaseholder.
Make sure you read the other lease carefully eg for a major repair are you allowed to collect an advance payment from the other leaseholder?