Leasehold and share of freehold: what London flat buyers should understand
If you have spent any time looking at flats for sale in London, you will almost certainly have come across the terms 'leasehold' and 'share of freehold'.
They are particularly common across Pimlico, Westminster and the surrounding areas, where much of the housing stock consists of period conversions, mansion blocks and purpose-built apartment buildings.
While these ownership arrangements are familiar to those working in the property market, they can understandably be confusing for buyers.
What does owning a share of freehold actually mean? Do you still have a lease? And who pays when the building needs a new roof?
The distinctions are important, and understanding them can help you make a more informed decision when buying a flat.
What does leasehold mean?
When you buy a leasehold flat, you purchase the right to occupy and use the property for a specified period under the terms of a lease.
The building itself, including the land on which it stands, is owned by the freeholder.
The lease sets out the rights and obligations of the flat owner and the freeholder. It will generally address matters such as repairs, maintenance, insurance, alterations and contributions towards the upkeep of the building.
Leases are commonly granted for long periods, sometimes 99, 125 or 999 years, although the remaining term will naturally reduce over time.
A leasehold flat can be bought, sold and mortgaged in much the same way as other residential property, subject to the terms of the lease and the requirements of any lender.
What is a share of freehold?
A share of freehold means that the flat owner also has an ownership interest in the freehold of the building.
In many cases, the freehold is held by a company, with individual flat owners owning shares or becoming members of that company.
Alternatively, the freehold may be owned directly by a group of flat owners.
This arrangement is common in smaller converted buildings, although it is also found in larger residential developments.
Owning a share of freehold can provide residents with greater influence over decisions affecting their building, including maintenance, management and certain leasehold matters.
However, it is important to understand that this does not usually mean you own your individual flat on a freehold basis.
Do you still have a lease if you own a share of freehold?
Yes, in most cases.
This is probably the most common misunderstanding we encounter when discussing share of freehold properties.
Although you may jointly own the building's freehold, your individual flat will generally remain subject to a lease.
That lease continues to define the rights and responsibilities associated with the property.
For example, it may set out which parts of the building you are responsible for maintaining, whether you need consent for alterations and how communal costs are divided between the flats.
Owning a share of freehold does not automatically remove the lease or the obligations contained in it.
It also does not automatically extend the lease to 999 years, despite this sometimes being assumed.
If a lease extension is required, the appropriate legal steps must still be taken.
Who pays for repairs and maintenance?
Whether a building is owned by an independent freeholder or collectively by its flat owners, someone must remain responsible for maintaining it.
This can include the roof, external walls, foundations, communal hallways, drainage and other shared areas.
The way these costs are divided is generally determined by the individual leases.
In a traditional leasehold arrangement, the freeholder or appointed managing agent will typically coordinate maintenance and recover the relevant contributions through service charges.
Where the flat owners hold a share of freehold, they may have greater control over which works are undertaken, who carries them out and how the building is managed.
However, their financial obligations do not disappear.
If the building requires substantial repairs, the flat owners will ordinarily remain responsible for contributing in accordance with their leases.
Are service charges payable on share of freehold properties?
Often, yes.
Some buyers assume that acquiring a share of freehold means there will be no service charge.
In practice, most buildings still need funds for ongoing maintenance, insurance and shared expenditure.
These may be collected through a formal service charge administered by a managing agent or through arrangements agreed by the freehold company, subject to the leases.
For example, a converted Victorian house containing four flats may have relatively modest shared expenses, but its owners must still make arrangements for building insurance, external decoration and repairs to communal parts.
In a larger mansion block, expenditure may be more substantial, particularly where lifts, communal heating, porterage or extensive common areas are involved.
The important question is not simply whether a service charge exists, but whether the building is being managed and maintained appropriately.
Is share of freehold always better than leasehold?
Not necessarily.
A well-run leasehold building with an experienced managing agent, clear accounts and adequate reserves can be an attractive proposition.
Equally, a share of freehold can work very well where the participating owners communicate effectively and take a sensible approach to maintenance.
Difficulties can arise, however, if owners disagree about expenditure or necessary repairs are repeatedly postponed.
The advantages of share of freehold depend to a large extent on the way the arrangement is structured and managed.
It is worth considering the practical reality of the building rather than relying solely on the description of its ownership.
What should buyers check before purchasing?
Whether you are buying a leasehold flat or one with a share of freehold, we recommend establishing the following:
Lease length: How many years remain on the lease?
Service charges: What are the current charges and how have they changed?
Ground rent: Is any ground rent payable?
Major works: Are substantial repairs or improvements planned?
Building management: Who is responsible for the maintenance and administration of the building?
Insurance: How is the building insured, and who arranges the policy?
Share of freehold arrangements: If applicable, how is the ownership held and transferred?
Lease restrictions: Are there conditions affecting alterations, subletting or other intended uses?
Your solicitor should investigate the legal position and review the relevant documentation during conveyancing.
These enquiries are particularly important for older London properties, where ownership and management structures can sometimes be more complicated than they first appear.
What about sellers?
If you are selling a flat with a share of freehold, it is sensible to establish how the freehold interest will be transferred to your buyer.
Where a company owns the freehold, this may involve transferring shares or company membership alongside the leasehold title.
Your solicitor will need the relevant documents and may also need information from the other directors or shareholders.
If the company has not maintained its records properly, resolving matters can take time.
For this reason, we often recommend that sellers begin gathering their leasehold and freehold documentation before the property goes on the market.
Understanding the building matters as much as understanding the flat
There are many excellent examples of both leasehold and share of freehold ownership throughout Westminster and Pimlico.
Ultimately, the most important considerations are the terms of the lease, the financial obligations associated with the property and the quality of the building's management.
A good understanding of these matters should help you approach a purchase with greater confidence.
At Tuckerman Residential, we regularly handle sales involving traditional leasehold properties, mansion flats and conversions with share of freehold arrangements.
If you are considering buying or selling a flat in Westminster or Pimlico, we would be pleased to discuss the property and help you understand the information that may be relevant to your decision.
Explore properties for sale or find out more about selling with Tuckerman.