What is a share of freehold?
What is a share of freehold?
Let’s say you’ve been scrolling through property adverts and come across your dream apartment — it’s got huge windows, a spare bedroom, and a nice, little balcony for all your potted plants out front. But then you see something in the advert that gives you pause for thought… it’s a leasehold that offers a “share of freehold”? What exactly does that mean?
If you’ve rushed to Google for the answer and found us, we’re happy you’re here! In this article, we’ll cover questions like… what is a share of freehold? Is a share of a freehold a good idea? And, is a share of freehold better than a leasehold? So if you’re ready to become an expert on the topic, let’s get into it…
What does share of freehold mean?
To fully explain “share of freehold”, we’ll need to run through the meaning of “freeholds” and “leaseholds” too — so, let’s do some quick vocab busting:
Freehold is absolute ownership, ie. if you’re a freeholder and/or you own a freehold, then that’s 100% your property to do with as you wish.
Leasehold is temporary ownership, ie. if you're a leaseholder and/or own a leasehold, you can stay for a set period of time (as written in your lease agreement), but you won’t have the same rights as the freeholder.
Share of freehold means you own a share of a building as a whole, but you’ll still be a leaseholder of your own flat (or something similar) within that building. This means you won’t own your place in the traditional sense, but you will have more of a say in your lease length and how the building is managed.
Quick note: For more detail on the differences between freehold and leasehold, why not check out: ‘Is it worth buying the freehold to my house’?
How does a share of a freehold work?
So as the word “share” suggests, a share of a freehold means ownership is split across several parties — but how is that organised? Well, the two most common set-ups are as follows…
- A freehold is split evenly across several flat owners (up to 4) and the freehold is held in their names.
- A company owns the freehold and each tenant holds a share in (or membership to) that company. This can be documented in a couple of different ways — you might have your name on the deeds to the property or a share in the company that manages the freehold.
But no matter how it’s organised, the outcome is generally the same. You’ll still be the leaseholder for your part of the building (whether that’s an apartment, a studio, or something similar), but you’ll also have a stake in the building as a whole.
What are the benefits of freehold shares?
So now you’ve got a good grasp on the meaning, why would you want a share of a freehold at all? Well, freehold shares are desirable because leaseholders don’t tend to have much control or freedom when it comes to decision-making in their building. That’s because the building still belongs to the freeholder, so even if you have leasehold ownership of a flat inside, the building as a whole is still governed by someone else. When leaseholders are offered a share of the freehold, it’s basically a portion of the control and freedom that the freeholder usually has.
As a result, leaseholders with a share of the freehold can often…
- Set their own lease lengths — for example, some people choose 999 years to span ownership of that flat across several generations.
- Have a say in how the property is maintained — this can lead to buildings becoming much nicer places to live as the freeholders are residents and personally invested in keeping the place in good shape.
- Contribute to decisions about renovations and redecorating — this could even add value to the property of which you now own a portion.
- Extend your lease without extra cost — this can cost thousands of pounds, so it’s no small saving if you’re able to approve your own extension.
In most cases, you also won’t need to deal with a singular freeholder or landlord in quite the same way. This can be a particular blessing if your landlord’s a bit hard to talk to, or if they’re more concerned with turning a profit than with the people living at their property.
What are the negatives of freehold shares?
While there’s a pretty strong case for getting a share of freehold if you can, there are a few drawbacks that are worth mentioning…
- When a freehold is shared across several tenants, it can make decision-making a tad difficult — if you’ve ever heard the phrase “too many cooks”, it can sometimes be a bit like that.
- If one shareholder wants to sell up and transfer their share of the freehold to a buyer, they’ll need all the other owners to agree. This can be a problem if your neighbours are picky about who moves in after you.
- If shareholders decide to replace regular building maintenance with ad-hoc work, it can lead to fewer, but more significant, costs.
- In some cases, there might be a bit of admin to do each year — ie. filing returns for the company that holds the freehold, general accounting, or collecting property insurance payments from all shareholders.
While it’s good to bear these things in mind, the pros do often outweigh the cons here… So if you’re looking at a leasehold property that offers a share of the freehold? In many cases, we’d say that’s a really positive thing.
A few final tips…
If you’re considering a share of freehold living arrangement, it’s a good idea to meet any existing shareholders first. In some cases, you might need to live and work quite closely with these individuals — communicating effectively and making decisions about the freehold together. So it’s important to make sure you all get along before committing!
Starting out somewhere new? Why not check out: ‘9 ways to protect your new home’.
Or dealing with some outdated interior design? Get tips for redecorating in: ‘How to decorate a flat on a budget’.