The Share of Freehold Conundrum

Did you know that there are only three types of title in England and Wales and “Share of Freehold” is not one of them? The terms is commonly used by estate agents when they advertise properties.

The three titles are leasehold, freehold and a rather obscure one called commonhold.

It is estimated that there are fewer than 50 commonhold blocks throughout the UK and is actually the closest that there is to a share of freehold title. The commonhold title was introduced in 2005 but as you can see due to the number of blocks that have actually been formed with this title it has failed to catch on.

The other two forms of title are freehold and leasehold.

A freehold title means that you own the land that the property is built on outright. There is no lease governing the property and no determining length to ownership.

Leasehold title on the other hand means that you effectively rent the property fora set number of years. When leases are granted terms of 99, 125 or 999 years are common. At the end of the term the property reverts back to the freeholder who granted the lease or their successors in title. Usually with a leasehold property you would pay a ground rent, which can be as obscure as a peppercorn or a single red rose, but is usually money paid to the freeholder. You would also usually pay a management or service charge for the upkeep of the building and its insurance.

So where does share of freehold lie?

The answer is simple – all share of freehold properties are essentially leasehold and have a freeholder who is usually responsible for the upkeep and management of the building. The freeholder in these circumstances can be a company and this is common in larger blocks of flats. If the share of freehold is held in this way, the leaseholder would also have a share or membership certificate in the company which owns the freehold. This is usually transferred to the new owner when the property is sold. So this form of ownership is more accurately described as leasehold with a share in the company which owns the freehold. The company would usually be responsible for the maintenance and insurance of the building and would collect service charge from the tenants. Ground rents are not normally collected though.

The other way that the freehold can be owned is in the registered names of the leaseholders. This is more common in smaller blocks simply because the maximum number of legal owners that can be registered at the Land Registry is four. In these circumstances the freehold is owned, normally in equal shares by the leaseholders. The lease is still in place and the freeholders (in other words the collective group of leaseholders) would be responsible for maintenance and insurance of the building. It would be usual on sale for the freehold element to betransferred to the joint names of the buyer and the remaining leaseholders. This form of share of freehold ownership can sometimes cause problems, especially if one of the joint or co-freeholders are overseas as there can be logistical issues in, for example, agreeing maintenance provisions and signing documents on sale.