InsightsInsight - Property and Conveyancing - POSTED: May 12 2017
Owning a share of the freehold
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Owning the freehold of a property means that parties will own it as a whole and can dispose of freely. If the property is part of a block of flats, there are facilities that enable parties to also acquire a share in the freehold either by enfranchisement, the Right for First Refusal or through a purchase.
Such transactions would require that party to hold a Lease which could be for any period up to 999 years. Ways of holding a share in the freehold Individuals If the property is part of a small block of flats, the individual flat owners may decide to hold the property in their individual names on trust for each other.
A Declaration of Trust would usually be created to show their respective individual interests and any decisions relating to the building, would be made by unanimous vote. Administrative tasks relating to the freehold such as insurance would be delegated internally. The title would record the individual names of the parties which can be up to four.
Difficulties, however, can arise if one of the owners recommends a set of works to be carried out, whereas others may disagree. If matters cannot be resolved through negotiation, although recourse is available through the courts, parties should consider the costs of litigation and future relationships, as they would still be neighbours.
The freeholders could create a company which would be registered at Companies House. It would have its own Articles of Association to set out how the company should be run and how decisions are to be made. These would usually be passed through a board resolution and then passed onto the directors to implement.
The title would be updated with the company’s name as the freeholder and each member of the company would receive a share certificate as proof of membership. Although the creation of a company could be more advantageous, it does create additional administrative duties, as annual returns would need to be filed, along with arranging maintenance schedules and insurance of the building.
For larger developments, these roles would be passed onto a separate management company however, a fee would be charged for this service.
Roles and responsibilities
As a freeholder and leaseholder, each party would have two different roles and responsibilities. Freeholders would still be liable to maintain the building and would be required to give leaseholders the requisite notice according to s20 of the Landlord and Tenant Act 1985. Any costs incurred would be incorporated through the service charges.
As a leaseholder, a party will still require the consent of the freeholder (despite owning a share) to either sub-let the property or carry out alterations, which although should be straightforward, dependent on the stipulations within the Lease, the relevant permissions should be sought first.
Leases can lose value as the term gets shorter thus requiring an application for extension. This should be fairly straightforward as the benefit of being a freeholder is that lease extensions should be granted more easily with no additional charges. If the party is only a leaseholder, there is no automatic right for an extension to be granted and therefore negotiations can sometimes be problematic. A fee would also be incurred which could be quite costly.
Advantages of having a share in the freehold
The freeholder would have greater control over the maintenance of the building, which results in keeping service charge costs to a minimum. If a party wants to dispose of the lease and is also a freeholder, this can be more attractive to potential buyers. Advertising the property as being sold with a ‘share in the freehold’, is desirable. Disadvantages of owning a share in the freehold If the flat is part of a large development, owning a share of the freehold could be more restrictive resulting in less control over their block of flats.
Purchasers should be informed of all implications relating to the purchase and enquiries should be made to other co-owners to ascertain whether there are any outstanding disputes and confirmation as to how matters are dealt with. If there are or have been disputes and the freehold is held by the individuals, difficulties could arise surrounding the transfer of the sale to the new owners.
This article has shown that despite possible difficulties that may arise as owner of a share in the freehold, it is certainly more advantageous to own a share in the freehold.
Whether you are a leaseholder or part freeholder or considering purchasing a share in the freehold, do contact the team with your enquiries whether simple or complex.
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