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Is leasehold or share of freehold better?

Posted: February 2016

By Jo Eccles

Q. I am looking to buy a flat and have been told that share of freehold is better. Is that correct?

A: When buying a house, you usually buy it as a freehold building. However when buying a flat, it is usually owned on a share of freehold basis or a leasehold basis.

A share of freehold typically refers to when you and the other owners each own a share of the freehold, collectively owning the whole freehold. Leasehold is when there is often one freeholder for the building, who may be a company or an individual, and each resident owns their flat on a leasehold basis for a certain number of years. Because the freeholder essentially owns the land that the building sits on, when you own a property on a leasehold basis, you pay ‘ground rent’ to the freeholder. The amount of ground rent payable will be specified in your lease and often ranges from a notional value to around £350 per year, although I have seen leases where the ground rent was more than £10,000 per year, so it’s always worth asking when you view a property.

Approximately 70% of flats in London are owned on a leasehold basis, so when you search for a property, focus on the property itself and whether it’s a good purchase and a property you genuinely like. Leasehold versus share of freehold is more of a technicality, in my opinion, and this shouldn’t be a driving factor at the initial decision-making stage.

Share of freehold ownership can give more flexibility as you have slightly more control over the building. However, it comes with more responsibility too and requires a good working relationship with your co-freeholder neighbours; it is up to all of you to work together to run the building, insure it, maintain it, and ensure that it meets health and safety requirements. If you and your neighbours all agree about expenditure and you have similar standards in terms of how you want the common parts to look – as well as having the time to organise it – then great. If not, you may want to enlist a very good block management company to organise this for you.

If you own on a leasehold basis, you have less responsibility as it’s up to your freeholder to run the building on behalf of the lessees. Most leases state that permission for works, and so on, may not be reasonably withheld so, in theory, you should still have flexibility with the property. It does, however, mean that you don’t have the responsibility to chase up a neighbour if they’re refusing to pay their service charge as the freeholder should do this.

With any purchase, I would recommend using a good solicitor who can scrutinise the lease thoroughly and report to you on how the building is run. There is no rule of thumb, so it really depends on the individual building, rather than the ownership structure. Remember to check the lease length too, as there will be cost implications depending on the length.

If you have a question you’d like Jo to answer please email info@sourcingproperty.co.uk or tweet her @joeccles.