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What does share of freehold mean?

What is share of freehold?

Owning your own home is one of the most important kinds of security, but it is also one of the biggest financial commitments most people make in their lives. In today’s economy affording a home is no mean feat, particularly for those burdened with student debt, the cost of childcare or other expenses.

Nevertheless, in an era where renting outright or paying ground rent and maintenance costs for a leasehold property are the norm – especially in urban areas – acquiring the freehold to a property remains a dream shared by many.

Government policy has encouraged the shared ownership of properties, particularly urban flats, to enable buyers to get on the housing ladder – it is also possible to buy a share of your flat’s freehold if you cannot afford an entire freehold.

If you are currently the lessee of a leasehold property, you also have the opportunity to purchase a share of its freehold. This is an ideal solution if you could not afford to purchase a share of the freehold outright before moving into the property, but have since managed to save the capital to do so.

There are two means by which a buyer can acquire a freehold:

  1. In their own name. This is most usual in converted properties, such as the many townhouses converted into flats in large cities.
  2. Through a freehold company. This is the more common means by which the freehold to a property is acquired.

Share of freehold / lease extension: which is best?

If you already own a leasehold property, you may be wondering what the advantage is to owning a share of freehold. Lease extension is often a less expensive option than a freehold purchase, but not necessarily, especially if the lease has run down a great deal.

Which option will be more cost-effective for you is determined by factors such as the length of your current lease, your current ground rent and maintenance costs and the relationship you have with the other lessees or those who already own shares of the freehold of your existing property.

Ultimately, although purchasing the freehold of a property represents a large investment both in terms of time, with a solid contract and proper management it is worth it.

Share of freehold problems

There are several potential problems that can occur when you own a share of your property’s freehold.

An important factor to consider is that those who own a share of a freehold property are not exempt from the communal maintenance costs associated with that property. They simply have a greater degree of control over who exactly carries out this maintenance.

When an equal number of lessees exist, all of whom own a share of the freehold (for instance, a conversion property with 3 flats, each of which is occupied by an owner who has bought their share) the lack of a formal agreement regarding maintenance can cause major issues.

With this in mind it is absolutely vital for those who own a share of a property’s freehold to properly draft a contract setting out the rules and restrictions for matters such as the obligations of freeholders and what happens in the event of a dispute or conflict of interest.

This ensures that everyone’s rights are protected and prevents freeholders from encountering any unpleasant surprises.

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