Question

The property I am buying is in an apartment complex and it is leasehold. I have been told by the seller that once all the units are sold the titles will be converted to freehold. Is this a simple procedure?

Answer

It is not generally beneficial to buy a freehold rather than leasehold flat, as this can have raise more ramifications.

More likely the seller means you will get a share of the freehold of the building, which is not the same as owning a freehold flat. If it is a relatively small block of flats, the leaseholders can between them purchase the freehold title of the building. This allows them to have democratic control over the running of the building.

When their leases come up for renewal they can grant long leases easily and make decisions about the maintenance of the building and accompanying grounds, giving them more control. In structures with a larger number of units, the leaseholders can hold shares in a company which controls the freehold. Forming a company is the recommended route if the flat block has more than 4 lessees. The company structure is normally a limited shares model.

An apartment will rarely by freehold as the freeholder wouldn’t have a mechanism to share maintenance arrangements with the other titleholders sharing the building and common areas, while leaseholders are obliged to adhere to articles in the contract regarding their monetary and upkeep commitments.

When you eventually put your freehold apartment on the market, you might struggle to find a buyer, as lenders do not like to lend on freehold flats. But lenders are accustomed to granting mortgages on leasehold flats where the leaseholder has a share in the freehold interest, and the freehold association can dictate obligations on the lessees, and leases can be relinquished subject to stipulations in the contract.

What process does the freeholder follow when selling the freehold interest to the lessees once all the flats have been sold and completed?

The rules are generally:

The freehold interest must be offered to the leaseholders first, before the freeholder can offer it on the free market to a third party investment group.

A democratic majority of leaseholders, over 50%, must consent to buy the freehold interest.

A declaration of trust can also be beneficial, and your solicitor would recommend it, as it will cover plans for resolving disagreements, and what to do in special cases, for example if one of the freeholders dies.