Katie Cohen: Share Of The Freehold
Katie Cohen is a Partner at Child & Child and a full member of the Association of Leasehold Enfranchisement Practitioners (ALEP).
For this article Katie explains what having a ‘share of the freehold’ means.
Flats within a building are held on a leasehold basis. Collectively at some point, the tenants have bought the freehold of the block of flats usually in the name of a company. Although the individual flats are still held on leases, the freehold is owned by a company in which all tenants who participated in the purchase are members.
Each tenant will have a share issued in the company if the company is limited by shares, or a membership certificate if limited by guarantee.
A flat marketed with a “share of freehold” generally refers to a leasehold flat plus a share in the company which owns the freehold.
Often, not all tenants in a block will have a share of freehold, but it is sometimes possible for such tenants to buy into the freehold. A premium will be payable for this but note that a freehold company owned collectively by the tenants is under no obligation to sell a share in the freehold.
What are the benefits of owning a flat with a Share of Freehold?
The main advantages in owning a share of freehold are:
- The leases can be extended at little or no cost to 999 years at a peppercorn rental (i.e. nil). Do take tax advice if there has been a considerable lapse in time between the tenants collectively acquiring the freehold and the property company granting themselves the extended leases;
- As the freehold is collectively owned by the tenants of the block, any changes to the terms of the leases that are causing problems (for example, pets or wooden flooring) can be varied so long as the majority of shareholders in the freehold company agree;
- The tenants have far more control over the day-to-day management of their building;
- The tenants have the ability to govern the level of service charges and insurance premiums levied as they are in control; and
- The saleability of a flat with a share of freehold is generally increased. Often, a property is an individual’s most valuable asset and securing a share of freehold will protect it.
Are there any disadvantages?
In larger blocks, always engage the services of a professional Managing Agent who will undertake the day-to-day management of the block. Relying on a group of tenants who collectively own the freehold can be problematic unless there is professional management in place. Tenants can have differing priorities and may be uncooperative.
Whilst the price of a share of freehold flat could well be higher than a leasehold one, any difference is likely to be small unless a leasehold flat has a short lease remaining. Furthermore, the advantages associated with a share of freehold flat are numerous and do in our view outweigh the main disadvantage concerning management.
For further information on this and other leasehold services provided by Child & Child, please contact Katie on:
Tel: 020 7201 1865
e-mail: [email protected]