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  • Leasehold Property

    Buying a flat with a share of the freehold

    what are my risks? and what questions should I be asking?

    I've lived in a leasehold property before and know this subject area as an occupier of leasehold property, but as a landlord and having a share of the freehold, what risks do I need to be aware of.

    I've viewed the flat, it's in very good condition and recently refurbished, and keen to put in an offer this week.

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    In almost all aspects freehold is better than leasehold. If you are buying a share of freehold it is also a leasehold but you also have a separate share of the freehold.

    questions to consider:

    1) are the freehold finances in surplus or deficit

    2) are there any significant arrears by any leaseholder (the freeholder needs to finance these but ultimately can grab their l/hold property and recover)

    3) what is you lease length

    4) what are the other lease lengths (possible extensions could give you value)

    5) what are the obligations of the landlord in the lease(s) - that's now a cost you share

    6) are there any planned capital expenditures as you might need to fund your share as it may not be part of the leaseholders obligations (eg building another flat)

    7) is there a right to manage company (thus is a lost profit stream to a freeholder but gives occupiers better control)

    8) is the voting  structure fair

    9) is there proper D&O insurance cover

    sorry I am a bit rushed today.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


    I used to have a flat in a block of 5 which was shared freehold. It was a nightmare, getting anything agreed took an age, there was no sinking fund, people only wanted work done that directly affected them ,very different attitudes towards adhering to legislation and quality of works done.

    I’d only ever consider doing it again, if the block was only owner occupied and there was a documented record of management and meetings/correspondence. In theory its a great idea, but in practice ......

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    I concur with Philip.

    Shared freehold can be a nightmare.

    My mother lives in a flat in London, its in a small block of four with shared freehold. Obviously, when the freehold was bought all flats were owner occupied and there was a committee attitude to running the day to day requirements.

    Now two of the flats have resold, are tenanted, and both the owners are allegedly overseas investors but most definitely out of communication. Ghost landlords I would describe them. The only contact for one is a nephew who is extremely guarded about sharing any information and only says I will try and contact my uncle which can take weeks to get a reply if you ever do .

    He wont agree to repairs or expenditure and we are effectively carrying him with regard to the gardeners, cleaning of communal areas and decoration of communal areas.

    The other overseas landlord is better but still not at all hands on, at least we have an email address for him which is something

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    what are my risks?

    Mortgageability

    Slower buying process

    Less liquidity if you want to sell because of the above

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    If buying a flat having a share of the freehold can be a positive.

    It depends on how big the block is and who runs the freehold and the management companies.

    A fairly typical set up may be -

    Freehold company with all leaseholders as shareholders and two or three leaseholders as directors.  Assuming there is also a management company then the main function of this company would be to deal with lease extensions, if no management company the freehold company would also have responsibility for all matters listed below as management company responsibilities.

    Management company with two or three leaseholders as directors, the management company may appoint a managing agents to deal with the day to day management of the building and collection of service charges.

    As the leaseholders own the freehold they would have control of budgets, how often decorations are carried out, gardening, cleaning, window replacement, sky television, etc etc.  If the leaseholders are active then generally I would expect the building to be better maintained.

    There would be collective control if a premium was to be charged for lease extensions or if only legal fees would be payable.

    Generally, assuming the block was of a reasonable size, and the freehold was owned by a limited company with the leaseholders as shareholders I think it preferable than having an external freehold owner.

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    To be fair, despite the negativity on here, there are positives of this setup.

    I've always said to myself that, if I ever buy leasehold, I will only buy where the leaseholders own the freehold/management company. Far too often on other third party freeholds, the service charge fees are excessive, not to mention ground rent (money for old rope). At least you are in control of the service charges in this setup. The fewer the number of members, the better.

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    Ashley Connell
    Lease Extension Solicitor at Hetts

    http://lease-extensions.org.uk

    Undoubtedly you have notionally more control, but the theory and reality can be very different. I most certainly would’nt buy a pure leasehold ever again, but would now would be very much aware of what can happen in terms of share of freehold  etc.

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