What Does Share Of Freehold Mean? Share Of Freehold Meaning Explained

When searching for a new property, you may come across properties that include a share of freehold, which can be confusing if it’s a term you haven’t seen before.

But what does ‘share of freehold’ mean?

In this blog, I’ll explain everything you need to know about share of freehold properties, including the meaning of share of freehold, its benefits and drawbacks, and more.

Share of freehold meaning

So, what does ‘share of freehold’ mean?

If you purchase a property with a share of freehold, this means that not only will you own your property’s leasehold, you’ll also own a share of the freehold for the entire building and the land it is on.

For this reason, share of freehold is most often an additional consideration when buying a flat or apartment, where the individual flat owners also share ownership the freehold for the whole building and its land.

There are two ways of managing a share of freehold property:

In personal names

Also known as ‘tenants in common’, this method involves the freehold being held in the individual names of its owners, who each have an equal percentage of the freehold.

The share of freehold in personal names operates on a trust basis and may be more suitable for smaller freeholds as you can only register four owners’ names with the Land Registry.

This method may also involve additional admin as you will have to transfer the title to the new owner every time someone sells their property and share of freehold.

However, tenants in common typically involves fewer fees than the alternative method.

Limited company

The other way of managing a share of freehold is to set up a private limited company to act as the freehold owner while you and the other freehold owners register as shareholders.

Setting up a property management company to manage your freehold may provide you with more security and legal protection.

However, you may also need to contend with contracts, company law and generally more admin and fees than a share of freehold in personal names.

What is the purpose of a share of freehold?

So, what’s the point of a share of freehold?

It may sound like an unnecessary complication when you could simply own the leasehold on your property, but there’s an important reason for its existence.

By having a share of freehold included with the property, key responsibilities can be transferred more easily from the former property owner to the new one. These include property maintenance, ground rent and service charge payments.

Freehold vs leasehold

If you have a leasehold, that means you own the lease on your property, but will still pay ground rent to whoever owns the property freehold as they own the building and its land.

Purchasing a leasehold property means that you own it until the lease runs out, at which point ownership reverts to the freeholder.

However, if you own a property with a freehold, you own it until you decide to either sell the property or transfer the title to someone else.

Share of freehold: pros

One of the major benefits of owning a property with a share of freehold is that you have greater control over things like ground rent, service charges and building insurance.

This means you and your co-owners can negotiate to get better deals, which can save you money compared to owning the property with a leasehold.

You may also find that it helps you to keep the building and its communal areas to a higher standard. This is because the freeholders are all invested in the property’s maintenance and cleanliness, as opposed to it being owned by a company or landlord who does not live there.

Owning your property’s freehold also means you only have to pay legal fees when renewing your lease, instead of also having to pay the property’s freeholder to extend your lease when it runs out.

A share of freehold also has the potential to increase the value of your property as it may result in a building that’s managed and maintained better, which may be of interest to potential buyers.

For properties with shorter leases, having a share of freehold can be attractive to buyers as they won’t have to worry about paying to extend the lease once it expires.

Moreover, properties with leases under 80 years become less valuable and more difficult to get a mortgage on. This means that future buyers may be interested in having a share of freehold so renewing the lease will be cheaper.

Share of freehold: cons

However, there are some potential disadvantages of a share of freehold, which you should consider carefully before entering into one.

If you’re thinking about setting up a share of freehold, it’s important to know that at least half the property owners within the building must agree to buy it and, of course, be able to afford it.

Purchasing a freehold as a group can be very costly, as it requires that you are able to cover not only the purchase price, but also the cost of surveys and legal fees.

Once you are part of a share of freehold, you may find that your costs for services and maintenance vary quite a bit from month to month. 

This is because some months will require little to no maintenance, whereas the building may need more serious work in others, which you will have to contribute towards.

You may also encounter difficulties if you want to rent out your property, as the other freehold owners must agree to this.

Lease extensions

While owning a share of freehold on your property enables you to renew your lease without having to pay a freeholder, there are other possible obstacles.

First, all of the other freeholders in the property must agree to your requested lease extension in order for it to be allowed. 

You will also still have to pay any legal fees associated with the lease extensions and your co-owners of the freehold may also have to be involved in the transaction process.

Mortgages

While it is possible to get a mortgage on a property with a share of freehold, the potential for unexpected costs may put off some lenders.

This is something you should keep in mind if you’re thinking about purchasing a property with a share of freehold.

It’s possible only certain lenders will consider you, and you may face a higher deposit or interest rates due to the perceived risk.

Selling a share of freehold property

In order to sell a property with a share of freehold, all of the other freeholders must agree to the purchase.

Then, if they agree, you need to use a formal deed to transfer ownership of the share of freehold to the new owner.

Share of freehold: summary

Owning a share of freehold on your property means that you don’t just own the property’s leasehold, you also share ownership of the building it’s in and the land it’s on.

This can have key advantages in that it gives you greater control over the building you live in, may help you to keep costs down and generally result in a better maintained property as all the freeholders have a greater incentive to look after the building.

However, it’s critical that you consider the potential complications or disadvantages before entering into a share of freehold arrangement. I would recommend consulting an expert like a conveyancing solicitor if you have concerns about sharing a freehold.

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