The 4 Hidden Problems with Share of Freehold
A share of freehold is when a flat or apartment leaseholder owns a share of the freehold of their entire building.
Because owning the freehold of a flat can’t be done on an individual basis, flat or apartment leaseholders are instead granted the option to own a share of the building’s freehold by becoming a member of the collective group that wishes to take over the freehold of the building. When a group of leaseholders band together to take over the freehold of their building, the process is referred to as a collective enfranchisement.
If a new leaseholder purchases a flat which has a share of freehold, they become a shareholder in the building. Along with other apartment owners who own a share of the freehold, they are in control of the freehold and the management of the building. The apartments and flats within the building still remain on a leasehold basis, but as a member of the freehold company they have a say in how the building is managed, prioritise work and set service charges at a desirable level. Their leases are also generally extended to 999 years.
What are the Responsibilities of a Freehold Shareholder?
Freehold owners, or the collective freehold shareholders, are responsible for the maintenance of the building and its land, as well as ensuring its smooth function. This includes key responsibilities such as ensuring things like communal lifts, stairways and halls meet industry health and safety regulations, carrying out repairs, and keeping up with ever changing property legislation. They can decide on the budget and what works are done and how they are prioritised. However, many buildings (or collectives) employ a managing agent to take care of this for them.
What is a Managing Agent?
The responsibilities of a managing agent include tendering contracts for work to be carried out, collecting service charge, facilitating payments for any work done on the building and preparing budgets for planned building works. A managing agent can maintain just part of a building or the entire block, and can be very helpful to leaseholders looking to buy their freehold.
What are the Benefits of Buying a Freehold?
You may be weighing up whether or not to form a collective with the other leaseholders in your block. Though it might appear an overwhelming process if done properly it is not and there are many benefits to buying your freehold outright, including:
- Increasing the value of your property
- Full oversight of the quality of works and maintenance done to the building
- Taking full control of the management
- No ground rent or other hidden costs
- The ability to take out insurance plans which are more comprehensive or affordable
Though a freehold purchase will reap some or all of these benefits, owning a share of a freehold comes with some considerations.
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Key Problems with Buying a Share of Freehold
A share of freehold is not the same as buying a freehold house. When you purchase a freehold house, you have the complete right to control everything that happened to your property. You get to make all decisions with regards to what gets done or not done. When you only own a share of a freehold, decisions are made between yourself and the other share of freehold owners.
This means it can be possible for your co-owners (shareholders) to make decisions that affect your property. However, if you did not own a share of the freehold you would be in a worse situation, where you would receive no input into decisions that affect the property.
This makes shared management a minor problem with the share of freehold. Other freeholders will still potentially be able to make decisions that you may disagree with (if a majority vote is cast), but it is important to remember without a share at all there would be no opportunity for discussion in the first place. Because of the complexity of this and other issues, we recommend getting expert advice on buying a Freehold.
Lack of Expertise
It’s vital that all freeholders have, or have appointed a representative that has, a good understanding of Landlord and Tenant laws to ensure that building maintenance and upkeep responsibilities, as well as health and safety legislations are being met. Lack of expertise in these areas could lead to building deterioration, alongside unhappy or vulnerable residents living in potentially dangerous environments. Failure to comply with legislation could also lead to criminal prosecution, amongst fines or even imprisonment, which is why we always advise that you seek expert advice before purchasing a share of the freehold.
However, employing a managing agent will save you many headaches in this area – all good managing agents keep up to date with Landlord and Tenant laws, and any other building regulations you may need to follow.
Problems With Development
Problems with development can include things like: insufficient foundations, incorrect or substandard materials, poor drainage systems etc. In the majority of cases these problems will only come to light when you have a problem with your property, such as water penetration, so this is why it’s important to be aware of what can go wrong.
The final consideration is the one we see most often, hidden building defects. These problems will typically show up quickly after moving in. They can include: cracks in the walls/floors (or even above windows and doors), broken tiles, broken glass, faulty drainage systems etc and could leave you liable for finding thousands of pounds worth of repair costs. In order to avoid exposure to these hidden problems you should consider purchasing a share in a freehold property with a warranty, or employing expert advice before buying a share in a freehold.
With both development problems and other building defects, leaseholders would end up paying anyway, through their service charge, so why not buy your freehold and be in control of how your money is spent?
Looking For Support To Purchase Your Freehold?
If you’re thinking about purchasing a share of a freehold but are worried about the potential hidden share of freehold problems, we can help. At the Freehold Collective, we help leaseholders buy their freeholds. We consult with leaseholders at any stage of their freehold journey, and offer a wealth of industry expertise developed over years of freehold purchases.