Thanks to Michael Gove’s recent suggestions for changes to leasehold property law, which would make it easier for flat owners to buy a share of their freehold, many first-time buyers are exploring the notion of a shared freehold.
While the plan has been scrapped for the time being, many homeowners are still exploring the option of buying a shared freehold home. However, the term can be confusing, especially if you’ve never purchased your own home before.
Fundamentally, a shared freehold is a type of property ownership arrangement typically involving multiple-unit buildings such as blocks of flats or large estates of houses with shared areas like car parks. This arrangement involves the owners of any flat or individual property also having a share of the freehold, meaning they have a direct stake in the land upon which the property is built. That means that shared freeholds often offer more control and freedom than leasehold arrangements.
As a first-time buyer, understanding the concept of a shared freehold can be crucial in the process of purchasing a shared freehold home. While it might look like a cost-effective solution, it’s important to know that a shared freehold isn’t the same as a freehold home and understand how this type of ownership affects your rights, which is why we’ve put together this guide to how shared freeholds affect property owners.
How Does A Shared Freehold Work?
When you buy a property with a shared freehold, you own part of the freehold for the property. Usually, a company is established for the management of the building, and you will own a share of this company. The bigger the percentage of your share, the more control you will have. You will have to work with your fellow shareholders to make decisions jointly. Here are some of the ways that shared freehold ownership affects you as a homebuyer.
Allows You To Increase The Length Of Your Lease
One of the biggest downsides to owning a leasehold property is that your lease runs out, usually after 100 years. That means that you’ll then have to renegotiate the lease and pay to renew it with the freehold over. As a shared freehold homeowner, you would technically have a share of the freehold and a lease. However, you (and the other owners) can agree to extend the lease to a very long term (often 999 years), effectively removing concerns about the lease running out. The terms of this will be outlined when you purchase the property, so you need to make sure that you get professional support from a team of experienced conveyancers. If you’re looking for dedicated conveyancing solicitors in Sheffield, then consider Wilford Smith. Learn more about their residential conveyancing services and how they can help you to understand the terms of your shared freehold and property lease.
Set The Property Rules And Deal With Your Fellow Homeowners
When you buy a leasehold property with communal areas, such as a flat in a building with corridors and amenities like a lift, the freeholder will set rules on how these areas can be used. As part of the shared freehold company, you and the other owners can set the rules for the building. This could include things like noise restrictions, pet policies, or usage of common areas. The rules you set will affect how much maintenance you have to do and the usability of the property, and you’ll usually have to vote on them when you’re trying to make changes. When setting rules for your shared freehold building, disagreements can arise among the freeholders. It’s important to have mechanisms in place for resolving disputes, and make clear arguments when trying to push through rule changes, so that you can reduce the chance of arguments and make it easier for you to get your points across.
Manage Your Own Service Charges
In a leasehold, the landlord typically determines service charges, which are the costs everyone pays to maintain the communal areas and shared amenities. With a shared freehold, however, you and the other owners can decide on the level of service charges. This gives you more control over your expenses. Service charges are usually between £1000 and £2000 per year, but for leasehold flats owned by external companies, some of that money will go towards profits and administration fees. So, by setting your own service charges, you can ensure that you have to pay a reasonable fee and know that the money will be used for the management and care of the property, rather than going into someone else’s pocket.
In summary, a shared freehold can offer a higher degree of control and potential cost savings for property owners, but also comes with additional responsibilities and potential challenges. Understanding these factors will be crucial in making an informed decision as a first-time buyer. Use this guide to get the basics and start making informed choices when you’re exploring a shared freehold home for your first property purchase.
Author: Ryan Byrne
