share of freehold - worth it?

JeffMason

Hi All,
I'm looking at flats, many are leasehold but some say they have a share of the freehold - this seemed like an advantage but now I'm not so sure. I've also been hearing that share of freehold might also include a lease and am baffled. Have I heard this correctly? Can it be both?

lindze

I live in a flat with share of freehold. Yes it's worth it. You become both a leaseholder and a freeholder.

The lease still exists as this sets out the rules that everybody has to follow, and as a shareholder of the freehold you have a vote regarding maintenance etc.

So you basically wear two hats - one as a leaseholder and one as a freeholder.

We set up a limited company to hold the freehold interest and each flat owner is a director of the company. We have found that it has saved us a lot of money as we obtain our own quotes for maintenance issues and buildings insurance etc.

It is a bit time consuming, which is why some employ an external company to look after the building, but they will work for you so can change management company if you want to.
The only downside is getting the other freeholders to agree to maintenance and when to do it so you rely on others to be involved. 

If in England, I think that all flats must have a lease to be mortgagable. 

[Deleted User]

lindze said:

If in England, I think that all flats must have a lease to be mortgagable. 

really good response to the lease and freehold bit. However, this is just slightly incorrect.  Very few lenders mortgage them but there are some high street lenders who would do it. 

The point stands though, the nature of them being hard to mortgage will have an impact on the value

eddddy

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

1. A leasehold flat
2. Joint ownership of the building that the flat is in

"Share of freehold" can be good or bad.

• It's good if your joint freeholders are sensible; rational; understand about property maintenance; have a reasonable understanding of leasehold law; and have similar views to you about how a building should be maintained.

• It's bad if your joint freeholders are difficult, indifferent, don't understand about property maintenance, don't understand leasehold law, and have different views to you about building maintenance. Unless you all jointly decide to pay for a property management company to look after that stuff.

Similarly, a 3rd party freeholder can be good or bad. They might be efficient professional property managers, who charge reasonable service charges etc. Or they may be useless.

lindze

Deleted_User said:

lindze said:

If in England, I think that all flats must have a lease to be mortgagable. 

really good response to the lease and freehold bit. However, this is just slightly incorrect.  Very few lenders mortgage them but there are some high street lenders who would do it. 

The point stands though, the nature of them being hard to mortgage will have an impact on the value

Thanks for clarifying the mortgage bit
As a side note replying to a post on this new forum is a bit tricky on a mobile phone. 

JeffMason

Thanks all. Very helpful.
I'm still confused by the fact I've seen a property that still seems to have a length of lease but is a share of freehold. If you jointly own the building with others then why does the lease have a length? Aren't you the lease owners by being the freeholders? If I wanted to extend the lease, wouldn't I just have to ask myself? I'm sure I'm getting something wrong...

kuratowski

You are the owner of 1 share of the freehold.  Others own the remaining shares.  So you don't just have to ask yourself, nearly everyone needs to agree (likely they will agree, but usually only if everyone with share of freehold is offered the same extension on the same terms).  Once you have an extremely long lease (mine is 999 years) the extension question is somewhat academic, but the covenants of the lease remain binding.

Technically the freeholder is a company, and you are a shareholder in that company.  So you ask the directors of the company (who are elected by the shareholders).  So you do have a say, but you are not personally in control.

JeffMason

kuratowski said:

You are the owner of 1 share of the freehold.  Others own the remaining shares.  So you don't just have to ask yourself, nearly everyone needs to agree (likely they will agree, but usually only if everyone with share of freehold is offered the same extension on the same terms).  Once you have an extremely long lease (mine is 999 years) the extension question is somewhat academic, but the covenants of the lease remain binding.

So you are in a good position. Share of freehold and 999 years lease. I'd heard that long leases like that are only with ex council properties, and that often having the council as the freeholder is not a good idea.

[Deleted User]

JeffMason said:

Thanks all. Very helpful.
I'm still confused by the fact I've seen a property that still seems to have a length of lease but is a share of freehold. If you jointly own the building with others then why does the lease have a length? Aren't you the lease owners by being the freeholders? If I wanted to extend the lease, wouldn't I just have to ask myself? I'm sure I'm getting something wrong...

JeffMason owns a flat and it has a lease of 100 years.  
RandomPerson owns the other flat and it has a lease of 100 years

Together JeffMason&RandomPerson jointly own the freehold.   

The lease documents stipulate how the property is allowed to be used and what the freeholder has to approve.  So,  if JeffMason wants to reconfigure some walls in his flat, he has to ask the freeholder (JeffMason&RandomPerson).   Now you are obviously going to say yes to yourself but you still need RandomPerson to say yes as he/she is the other freeholder. 

Think of it as almost having a veto over each others plans with the building.

eddddy

JeffMason said:

 If I wanted to extend the lease, wouldn't I just have to ask myself? 

No - you have to ask the owners of the freehold building.

You will be one joint owner of the building (either directly or via a company), so you won't have the authority to grant the lease extension by yourself. You'll need agreement from the other joint owners.

And depending on the history and circumstances, you might have to pay the other joint owners a chunk of money to get the lease extension.

lindze

JeffMason said:

Thanks all. Very helpful.
I'm still confused by the fact I've seen a property that still seems to have a length of lease but is a share of freehold. If you jointly own the building with others then why does the lease have a length? Aren't you the lease owners by being the freeholders? If I wanted to extend the lease, wouldn't I just have to ask myself? I'm sure I'm getting something wrong...

The best way I can think of explaining it, look at a chest of drawers. Take the draws out....the draws you've pulled out are the flats and the carcass left, and what it stands on, this is the freehold. 

You will have a lease on your 'drawer' and you abide by this lease. You will own a share of the carcass, along with others, so you will obtain permission to extend your lease from all involved in the freehold. Depending on how the company is set up you may need everyone to agree or just a majority.