The vast bulk of flats sold in England and Wales are leasehold. Unlike a freehold home that sits on its own plot of land a flat is just a part of a structure which contains other houses. An individual resident can not own the freehold since the land on which the building is built is shown other occupiers. Consequently the designer of the building normally keeps the freehold and sells long-term leases to individual flat owners or ‘leaseholders’.
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In leasehold blocks there will always be a freeholder or property manager and even if a flat is promoted as freehold it simply indicates its owner has a share of a freehold, which would be held by a resident freehold company. There are very couple of flats that are commonhold, which is a reasonably current form of tenure where the flat-owners likewise own the common locations and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under proprietor and tenant legislation and a prospective purchaser must look for legal suggestions before purchasing.

What is a lease?

A lease, which is a legally binding written agreement, transfers possession of a flat for an agreed set time period referred to as the lease ‘term’. It specifies the occupier’s commitments such as the payment of service charges and ground lease and the centers readily available such as parking and the access to and pleasure of communal areas, such as gardens or citizens’ lounge.

There is no standard form of lease for existing or recently constructed residential or commercial properties despite the reality that the majority of leases will consist of lots of comparable terms. Residential leases within the exact same residential or commercial property will typically be substantially the same however may vary in some respects such as the percentage of the service charge payable.

The terms of the lease

For the most part it will be difficult to change the lease terms and for that reason prospective buyers of leasehold residential or commercial property must seek expert suggestions at an early phase in the purchasing process to ensure they totally understand the commitments and expenses included.

The Leaseholder Association (LA) recommends any potential purchaser of leasehold residential or commercial property to obtain a copy of the lease at an early stage. Sometimes a Leaseholders’ Handbook will be provided by the seller however this will just consist of a summary of the main lease terms. This is no replacement for the complete lease, which will require completely analyzing by a solicitor or professional consultant to see if all of its terms will be appropriate to the prospective buyer.

When a leasehold residential or commercial property is sold or moved, all of the rights and duties of the lease will pass to the buyer, including any future payments of ground rent and service fee. It will either be difficult or extremely tough to change the terms of the lease and therefore the prospective buyer must know they would be lawfully bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease ought to set out in some information the legal rights and obligations of the leaseholder and the freeholder. In some cases there may be a 3rd party to the lease such as a management company and if so the lease should also provide a summary of their duties. Typically the freeholder will have the legal responsibility for the management and upkeep of the structure, outside and typical parts of the residential or commercial property, which might consist of any gardens or grounds. Many freeholders will designate supervisors to bring out the above along with other tasks such as setting and gathering service charges and producing accounts. The leaseholder ought to keep in mind that they will be responsible for all of the expenses of the services being provided.

The lease will usually set out some conditions, called covenants, relating to not only the use of the communal areas but also the use and occupation of the flat itself, which may require to be considered in advance. A purchaser of a leasehold flat will frequently be needed to participate in a brand-new deed of covenant which gives the landlord the right to take enforcement action if the flat-owner stops working to comply with the agreed conditions.

What are service fee?

Flat owners are generally needed to pay a contribution towards the upkeep of the whole structure and the typical parts. This is called a service charge. The lease needs to stipulate the proportion of service charges payable, which might be equal with all other occupiers or to reflect the size of the flat and the services taken pleasure in. If the lease makes arrangement for a parking area this might sustain a service charge.

A potential buyer must acquire details of the level of charges for the residential or commercial property they are considering purchasing an early stage and request copies of the accounts for the previous 2 to 3 years. They ought to likewise enquire whether there are likely to be considerable boosts. The quantity of service charges will vary from year to year in relation to the costs of the upkeep of the building, which will inevitably rise. The potential buyer should know that these boosts might typically be higher than the rate of inflation. (Please see the LA Information Sheet 103 Service Fee).

If I am buying my flat why do I have a landlord?

The freeholder is likewise called the landlord since he owns the land or ground on which the building is constructed. This entitles the freeholder to charge an annual ground rent to all occupiers of the building and the lease should specify the percentage of lease payable, which my vary according to the size of the flat. The property manager is accountable for the maintenance of the premises and all the shared parts of the building such entryways, corridors, stairways and any shared facilities such as a lounge, utility room or visitor space. These are jointly called the ‘common parts’.

When leasehold flats are marketed for sale the identity of the property manager is not constantly explained. The landlord could be an individual, a private business, the regional authority, a housing association or a Citizen Freehold Company (RFC). A prospective buyer must think about the implications of each kind of landlord and would be encouraged to discuss this with the solicitor or conveyancer. Where there is an RFC the buyer might be entitled to purchase a share of the business that owns the freehold, which might bring additional duties in addition to advantages. (Please see the LA details sheet 113 Enfranchisement).

What does the purchaser own?

Strictly speaking a purchaser will never actually own a flat or house because one can not separately own the traditionals of the building or the land the building rests on. What is obtained is the right to exclusive possession and occupation of the residential or commercial property for the period or regard to the lease, generally 99 years or more. A lease is merely a contract with the freeholder of the building that grants the right of possession. The longer the regard to the lease the greater is its market price. Unlike a rent-paying occupant, a leasehold owner maintains the right to sell the leasehold ownership and benefit from increases in residential or commercial property rates.

Ownership will generally use to everything within the limits of the flat but it would not usually include the external walls or windows. Typically the structure, the common parts of the structure and the land the whole facilities are positioned on would be owned by the freeholder. The freeholder would be responsible for the repair and maintenance of the parts of the structure they keep. This responsibility is normally handed over to a professional business called a handling agent, which might be an independent business or a subsidiary of the freeholder. The freeholder has no commitments to finance the maintenance of the structure or grounds. All these costs should usually be satisfied collectively by the leaseholders. The potential purchaser is recommended to ask their lawyer to check the lease to clarify the parts of the developing the flat-owner will be accountable for and the likely costs involved.

What info is important before buying?

The length of the unexpired term of the lease is one of the first factors to consider to a prospective buyer as this will be among the main factors affecting the price paid for the residential or commercial property and the re-sale value. Although the vast majority of leaseholders will have a legal right to a lease extension at a later date this will involve additional costs. In many cases purchasers would be recommended to ensure there is over 80 years remaining on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the vast bulk of cases the loan provider will just approve a mortgage if there is an appropriate duration delegated run on the lease, normally a minimum of 60 years.

A leaseholder’s financial responsibilities are set out in the lease, which will make flat-owners accountable for service fee and in a lot of cases ground rent. If charges are not set out clearly and unambiguously in the lease they are unlikely to be payable.

A buyer needs to be satisfied the structure has been properly preserved. It is necessary to see 3 years service fee accounts and observe the pattern in the quantity owners have been required to contribute. The accounts will show if there is a high level of service charge financial obligations, which could result in other leaseholders paying additional sums to fulfill the cash deficiency.

Potential purchasers ought to know whether there is a reserve fund and just how much there is in the fund. It will often be called a sinking fund, contingency fund or future maintenance fund and should be represented in money to fulfill future major expenditure. This is an important consideration when purchasing a flat as the absence of a reserve fund or inadequate balance in the fund could imply that the purchaser will need to pay a significant lump amount when any major works are needed. Diligent property managers and handling representatives will undertake a structure study and prepare a cyclical upkeep plan revealing how much money will be required to fund the future upkeep of the building. Buyers should ask to see this plan and compare it with funds in the reserve fund.

The lease needs to specify whether a reserve fund is funded from leaseholders’ yearly service fee contributions, a swelling amount at the time of re-sale or a mix of both. (Please see the LA Information Sheet 105 Reserve Funds).

A flat owner will enter into a community of owners and the lease will set out basic rules that are necessary for everyone’s well being. These responsibilities, which are often referred to as covenants, are enforceable in law and if they are constantly overlooked in breach of the lease it could eventually lead to the surrender of the lease and foreclosure of the flat. Before purchasing a flat purchasers must check out the lease carefully and fully understand these responsibilities.

Oftentimes the potential buyer will need to get a mortgage and therefore will require to take into consideration the level of service charges and rent that will be payable when considering the amount of mortgage payments that might be workable. A mortgage lender will normally need an evaluation of the residential or commercial property to be performed but the potential purchaser needs to be conscious that this is no substitute for an expert survey and acceptable queries about future scheduled maintenance.

Additional info will be gotten by the purchaser’s solicitor sending to the seller’s solicitor a standard survey published by the Law Society, known as LPE1.

A copy of this questionnaire is readily available on the LA site or from the Law Society at www.lawsociety.org.uk. Buyers are recommended to study this details thoroughly before completion.

What rights does the leaseholder have?

One of the most crucial is the right of quiet enjoyment of the flat for the regard to the lease, which suggests the right to profession without any undue interference from the property manager or supervisor. This right must reach the landlord or manager resolving any neighbour or problem issues that may emerge. The leaseholder deserves to anticipate the proprietor to perform all of the duties that are required by legislation and the terms of the lease such as the upkeep, looking after the financial resources of the block and ensuring no resident triggers sound or annoyance that affects their neighbours. The leaseholder has a variety of legal rights in relation to challenging service charges, getting financial details and taking over obligation for the management, which are covered in detail in other LA information sheets.

What are the leaseholders’ commitments?
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As leases are in a different way worded leaseholders in one block may have various responsibilities to another block close by. However, there will be some standard stipulations that would be discovered in almost all leases and these are some of the most frequently found responsibilities:

- To keep the within the flat in a sensible state of repair.

• To pay the service fee and ground rent in complete without hold-up.
• To behave in a manner which will not develop nuisance for neighbours.
• To request landlord’s consent, normally for structural modifications or subletting.