A share in the freehold

Ray Magill considers the difficulties that may occur if a lessee chooses to extend their lease or purchase the freehold on their property

When marketing a flat, estate agents will often say that the seller also has a share in the freehold. In practice, however, that is rarely so. The seller actually has a share in the company that owns the freehold. Typically, there will be one share for each flat’s lessee(s) and the directors will be some or all of the lessees. The difference is very significant, especially for tax purposes. 

In most cases, the company owning the freehold will collect service charges and meet the costs of providing services to a building. Generally, these amounts are held in trust under the Landlord and Tenant Act 1987 s 42. The company’s own revenue should be confined to any ground rents payable.