What does 'Share of Freehold' mean when buying a property?
Find out what Share of Freehold means when you are buying a property. 'What does Share of Freehold mean?' plus over 150 other property related terms and jargon in plain English
Share of Freehold
Freehold and Leasehold
If you understand these two terms just skip to the next heading. Otherwise here's the lowdown.
A freehold property means you own everything. The land, the bricks and the mortar.
You don't own the land or the bricks and mortar. A person or organization referred to as The Freeholder does and they will get your property back when the lease runs out.
Moving to Share of Freeholder
Now let's say you own a leasehold flat in a block with 5 other flats. You pay the freeholder every year a service charge to maintain the building but your not happy with how the freeholder is performing.
Perhaps the building has a large loft that could be converted into two more apartments and all the leaseholders smell profit but only if you had control of the freehold.
Well the six of you can make an offer to the freeholder for the freehold and cut them out of the picture. Sounds tempting in many ways. Freeholders are often faceless corporations that are more focused on their share prices than repainting your building.
If the freeholder refuses or agrees but demands an astronomical price there are ways and means to force the sale at market value.
Setting up Share of Freehold
So the question is if all six of you are buying the freehold how do you become the freeholder.
Its usually done by setting up a limited company to which you are all equal shareholders. Most common is to call the company the name of the address. So if the block is at 22 Rummel Drive you would call the company 22 Rummel Drive Ltd.
Now you have a one sixth share in the company 22 Rummel Drive Ltd which is the freeholder but that's a bit of a mouthful so we just say you have a "Share of the Freehold".
But you are all still leaseholders - leaseholders to 22 Runnel Drive Ltd.
Is Share of Freehold a good idea?
Quite a few people in the property industry play up Share of Freehold as a good thing. You have control after all.
I'm not a great fan it though when there are only a handful of properties doing the sharing. You are all responsible for the upkeep of the building you all have to agree what gets done and when. There's usually someone who wants to spend a lot of money all the time keeping the building in absolute tip top condition and replacing the roof with gold tiles (well "Buy Cheap, Buy Twice") and someone at the other end of the scale who never wants to part with a penny.
That means a constant underlying conflict in most share of freehold blocks and way more fireworks when trying to undertake something like a loft conversion because everyone thinks they know best how to maximize profit.
And what if someone doesn't keep up their service charge payments, you end up with neighbours taking neighbours to court.
If there are a lot of flats in a development, say more than 20, share of freehold works a bit better because leaseholders generally set up a committee who can cat fight with each other but come to some kind of eventual compromise on what color window paint should be used in the upcoming redecoration work.
Isn't leasehold just as risky?
I've never had a leasehold property with a bad freeholder and that's not a question of luck.
If you carry out the right checks before you buy (they're all in How to Really Buy a Property!) you'll see the warning signs and back out just as you'll be able to spot a well run Share of Freehold set up.