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??
In Part 1 of this article we discussed the differences between freehold and leasehold ownership. In the case of flats, the choice is usually between shared freehold and leasehold. And explaining shared freehold can get a little bit tricky. Let’s have a closer look.
To recap, freehold means that you own the property, and the land it’s built on, outright. This clearly isn’t possible when you’re talking about flats so there are various scenarios – some logical and some not – which could arise.
Shared Freehold – how does it work?
First, how it doesn’t work.
One might expect that all the owners in the block (six in this case) own a joint share of the freehold and this entitles them to the use of a particular flat as well as having a share in the land it’s built on and the common areas.
This would be a very strange situation as legal matters are very rarely as simple as this. You can probably ignore this possibility as it’s highly unlikely to ever happen. If it does turn out that this is the case for the flat you’re considering buying – run away!
A more likely scenario
The most usual way for shared freehold to work is that a company owns the freehold and the flat purchaser/owner leases the flat from that company. (So now we’re back talking about leasehold again.)
When you buy a shared freehold flat it’s possible that you’ll be buying a proportional share of the company which owns the freehold. You’ll be buying one flat out of six, therefore you could assume that you will own a sixth share of the company. You will then take a lease on your flat from this company.
Mostly this is quite safe. After all, think about how many people own flats via shared freehold and never have any problems. However, it doesn’t hurt to be aware of the implications and potential pitfalls of shared freehold ownership.
Many people, including mortgage lenders and even shared freehold owners themselves, don’t understand the issues involved. The flat owners might insist that they own the freehold and the mortgage lenders dispute this, by saying it’s only a leasehold property.
Further complications could also arise if all the flat owners’ names are indeed on the freehold title. Or maybe someone else entirely different owns the company that owns the freehold!
It could be a can of worms despite being such a popular and perfectly good type of ownership. The main thing is to be aware of and understand the issues involved – and don’t sign anything without first having taken appropriate professional advice.
The next step?
As you’ve seen, just like any legal process, it can be a bit of a maze for the unwary or the novice to get through. Don’t despair; there are thousands of people successfully buying shared freehold flats every day in England and Wales. But don’t attempt this alone. This is something where you really MUST have a qualified professional working for you. At least if s/he gets it wrong you’ll have some comeback.
To minimise legal costs you can do some of the initial digging yourself. Lawyers usually charge an hourly rate so the fewer hours you need from them the cheaper the process should be.
The next thing to do is to find out who actually owns the freehold of the block of flats where you’re thinking of buying yours. You could ask the seller to give you copies of their title deeds.
Better still, go to the Land Registry website (http://www.landregistry.gov.uk/) to find out – with any luck the flat will have been registered there and you’ll be able to find out who owns the freehold.
Armed with this knowledge, you’ll have a much better idea of whether buying the flat is an attractive proposition for you.
Good luck with your retirement and your search to find a new home!