I am looking at buying a retirement flat (one in a block of 6). Can you tell me what a ‘shared freehold’ is and what are the pros/cons and things to look out for/ be wary of??
Freehold and leasehold property ownership
In England and Wales properties can be owned by either freehold or leasehold.
Scotland has a different set of rules for property ownership. Freehold equates to feuhold and leasehold doesn’t exist there. This article therefore refers only to England and Wales.
What’s the difference between freehold and leasehold?
Freehold means that you own the property, and the land it’s built on, outright. Subject to planning and other laws, you can do what you like with your property, including bequeathing it in your will.
Leaseholders do not own their property outright but own the property only for the duration of the lease. There may also be several conditions and restrictions contained in the lease, so a leaseholder is not free to do as they wish with the property.
If you consider buying a leasehold property you should take the greatest care to make sure you understand the terms of the lease. You should seek legal advice from a professional who specialises in this area of law before signing any lease.
What are the advantages and disadvantages?
One suggested advantage of leasehold over freehold is that rights and responsibilities are clearly laid down regarding repairs and maintenance and what you are entitled to expect. On the other hand, with freehold you have more control over how your flat is managed. You have more freedom to choose what is and isn’t done to the property.
It can be more difficult to obtain a mortgage on a leasehold property, depending on how long the lease has left to run and other factors. Freehold properties are also usually easier to sell than leasehold, which is likely to add to the property’s value.
Freehold ownership is more secure than leasehold. Just about the only way you could be evicted is if you fail to make payments on a mortgage or other loan secured on the property. Leaseholders don’t have the same level of security and eviction may be possible if they break the terms of the lease.
Freehold is therefore a more desirable form of ownership than leasehold and, as such, freehold properties are often more expensive than equivalent leasehold properties.
(Sometimes it is possible for a leaseholder to buy the freehold but this can be a complex and expensive process. The legal term for this process is enfranchisement.)
In the case of flats, the freehold is shared between the owners (shared freehold). This is where it starts to get a bit complicated, so please read on to Part 2 of this article which specifically discusses ownership by shared freehold.
A final point about types of ownership which may be worth mentioning:
Additionally there is a new form of ownership which was introduced in 2004. This is called commonhold. This is where a company or association owns all the common parts of the block of flats and individual flat owners pay a service charge to the owners for services. This form of ownership is not yet widespread but it’s possible you might encounter it if you’re buying a purpose-built retirement flat. If you need any more information about commonhold ownership, please get in touch again.