Buying a leasehold property such as a flat in a block can be a complex process and it is important to understand what it is you are buying and what to look out for.
The set up for leases can vary, some of which can include head leases, ground rent, service charges or where you will own a share of the freehold but what does that really mean?
What is a leasehold property:
- Where you own the property under the terms of a lease for a set amount of years. Whilst you own the property, essentially it is only for the term as set out in the lease. You do not own the land below or the sky above (as ultimately there is likely to be another flat above and/ or below!). When the term ends, the ownership reverts to the freeholder unless the lease is extended or the freehold is purchased.
- A Freeholder (landlord) then owns the building and the land the building stands on.
- A leasehold flat gives you long‑term rights to live in and use the property, but the freeholder owns the building and land. You must pay charges and follow lease rules, and the value of your flat depends heavily on the length of the lease.
What are the benefits where you own a share of the freehold:
A lease with share of freehold means you own your flat on a leasehold basis but also jointly own the freehold of the building (usually with the other flat owners). You still have a lease, but you also have a share in the freehold company or title, giving you more control over management, costs, and lease extensions.
You still require a lease as this will set out the rights and obligations between flat owners such as;
- Repair and maintenance responsibilities
- Service charge contributions
- Rules and regulations about what you can and cannot do at the property such as alterations and how the property can be used
Collectively, with the other leaseholders you will decide on how the property is maintained, repaired and how the costs for such are covered and paid for. There is also usually no ground rent payable as you would essentially be paying yourself for the ground in which you hold a share of. It also allows for lease extensions to be entered into easier and cheaper as you are effectively your own landlord. Given the above, the value of leasehold properties that come with a share of freehold tends to be more attractive to buyers.
What are the challenges of owning a leasehold property with a share of freehold:
You will be responsible with the other leaseholders to manage the building, this can sometimes lead to disputes if the owners do not all agree on matters.
There is also additional administration that is required if the freehold is held via a company meaning that accounts may need to be filed, shares need to be maintained and appropriate information prepared and shared when a property is sold.
The lease terms still apply, as the Landlord you would essentially be responsible along with the other leaseholders to enforce the rules and regulations for example if there were unauthorised alterations to a property.
Conclusion
A lease with share of freehold gives you the security of leasehold ownership plus the benefits of co‑owning the freehold. It offers more control and flexibility than standard leasehold, but requires cooperation with other owners to manage the building effectively.
If you would like more information on this subject, please contact me on freephone 0800 011 6666 or via email at legal@timms-law.com.
