Share of freehold with no service charge — is that a good thing?

There is no service charge — the leaseholders own the freehold and pay as they go

It is genuinely an advantage and it has a specific failure mode, and both are worth seeing clearly before you buy. Nobody is taking a management fee and nobody has an interest in creating work. But there is also no mechanism: when the roof needs doing and one of two owners does not want to spend the money, nothing in the arrangement makes it happen.

From the e-ROT archive

This scenario is drawn from Report on Title material dealing with this specific circumstance.

Lexsure master Report on Title paragraph: Arrangements for Collection of Service Charge - Own Share in Freehold · See the wording

What the arrangement actually is

In a converted house with two or three flats, the leaseholders commonly own the freehold between them, usually through a company. There are still leases and the leases still provide for a service charge. What is absent is the practice of collecting one: instead, work is done when it needs doing and the cost is split at the time.

That is not an irregularity. It is the sensible answer for a small building with predictable, infrequent expenditure, and it is why so many of these arrangements exist.

The advantage, stated precisely

There is no managing agent charging a fee, and no landlord with an interest in finding work to do or structures to charge for. On a two-flat building, professional management can easily cost more than the maintenance it manages.

You also have control. Decisions about the building are made by the people who live in it, and the money is spent on the building rather than on administering the spending.

How it fails

It depends entirely on the people. Where the arrangement is informal, there is nobody to pursue a co-owner who will not pay, and nobody whose job it is to insist that the work is done. The Lexsure wording below puts it bluntly: the success of the maintenance is down to the chemistry of the individuals who own the flats.

That has consequences you can check for before you buy. Ask what has actually been spent on the building over the past ten years, and on what. Ask whether there is any money set aside. Ask how the last significant piece of work was agreed and paid for, and whether anyone had to be chased.

A building with a decade of sensible shared maintenance behind it is telling you something. So is a building where nothing has been done since the leases were granted.

Arrangements for Collection of Service Charge - Own Share in Freehold

Master precedent Lexsure e-ROTScope Ad hoc maintenance, two flatsWord count 127Status Current master paragraph

The existing arrangement has its benefits and drawbacks. The benefit is that you do not have a managing agent or landlord who charges fees or who has an independent agenda in terms of making sure they claw some profit from putting structures in place for the management of the building. The drawback is that the arrangements are so informal that quite often it can prove difficult to have works completed. With an independent agent, that agent will take action against other tenants who are late in making payments or indeed refusing to make payments for certain works. If the arrangements are informal then the success of the maintenance of the building is very much down to the chemistry of the individuals who own properties in the building.

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