Leasehold Knowledge Partnership featured in the Observer last Sunday in an article on the perils of leasehold. The full article can be read here
The article, by Emma Lunn, also included this interesting case study on the perils of jointly owning the freehold with neighbours who don’t like you.
Freehold owners have to sign off the transfers on a sale, for which many demand tiresome and exploitative fees. But that is better than a neighbour who just won’t co-operate at all:
Case study: Freehold also has its pitfalls
When I bought my flat in Manchester, writes Sally Briggs, I was convinced I’d made a smart move by buying a share of freehold, rather than a leasehold, property. The freehold was only shared with the owners of one other flat, so it seemed like a great arrangement. However, I soon revised this view when I came to sell.
“When you’re buying a flat, alarm bells should ring if you see individual owners as the freeholders,” says Paul Goward, property partner at law firm Joelson Wilson. “It might not be a problem when you buy, but you should always think of how it might impact when you want to sell.”
When I came to sell I could not get one of the other freeholders to sign the document that transfers the freehold property into the name of the new owner. The problem went on for months and very nearly cost me my buyer. Only the threat of court action did the trick.
I had never heard of problems with selling a share of freehold flat before, but it seems I am not alone. The Leasehold Advisory Service says it sees numerous disputes relating to share of freehold, some identical to mine. There are things you could – and should – do before you buy a share of freehold property.
“From the outset, the freehold owners should consider setting up a management company, which owns the freehold property,” says Goward. “Each owner has a share in the company and at the direction of a director the company would be the entity to provide consent.”
On a sale, an individual owner would sell its share in the management company which avoids obtaining each shareholder’s signature.
Because of the problems it has seen relating to share of freehold, the advisory service has issued advice to people buying this type of property to consider a declaration of trust.
“Where the building contains only a few flats it is not always appropriate to form a company to share the freehold. For so few leaseholders, this can be prove cumbersome,” says Simon Tye, legal adviser at the LAS. “The alternative, where there are four or fewer leaseholders, is to own it jointly on the title deeds. Where this happens it is advisable to enter into a declaration of trust which will set out, in a binding document, the relationship and obligations between the co-owners.”
The declaration is not a cure-all, he adds, but can include things such as stipulating that the share of freehold relating to each flat is transferred when each one is sold and that the other joint owners agree to co-operate in transferring the freehold on sale.
Sally Briggs is a pseudonym