The huge bulk of flats offered in England and Wales are leasehold. Unlike a freehold house that sits on its own plot of land a flat is only a part of a structure which contains other residences. A private resident can not own the freehold since the arrive on which the structure is constructed is shown other occupiers. Consequently the developer of the structure typically maintains the freehold and sells long-term leases to specific flat owners or 'leaseholders'.

In leasehold obstructs there will always be a freeholder or proprietor and even if a flat is marketed as freehold it simply means its owner has a share of a freehold, which would be held by a resident freehold company. There are really few flats that are commonhold, which is a reasonably current kind of period where the flat-owners likewise own the common areas and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under landlord and tenant legislation and a potential buyer must look for legal advice before buying.

What is a lease?

A lease, which is a lawfully binding composed agreement, transfers possession of a flat for an agreed set time period referred to as the lease 'term'. It defines the occupier's obligations such as the payment of service charges and ground rent and the centers offered such as parking and the access to and satisfaction of common areas, such as gardens or homeowners' lounge.

There is no basic type of lease for existing or recently built residential or commercial properties regardless of the reality that the majority of leases will consist of many similar terms. Residential rents within the exact same residential or commercial property will typically be substantially the same however may vary in some respects such as the proportion of the service fee payable.

The terms of the lease

Most of the times it will be challenging to change the lease terms and therefore potential purchasers of leasehold residential or commercial property must look for specialist guidance at an early phase in the buying process to guarantee they fully understand the responsibilities and expenses included.

The Leaseholder Association (LA) encourages any prospective buyer of leasehold residential or commercial property to obtain a copy of the lease at an early phase. In many cases a Leaseholders' Handbook will be used by the seller but this will just consist of a summary of the primary lease terms. This is no replacement for the full lease, which will require thoroughly examining by a lawyer or professional adviser to see if all of its terms will be acceptable to the prospective buyer.

When a leasehold residential or commercial property is offered or moved, all of the rights and obligations of the lease will pass to the purchaser, including any future payments of ground rent and service fee. It will either be difficult or incredibly challenging to change the regards to the lease and therefore the prospective buyer ought to understand they would be legally bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease should set out in some detail the contractual rights and commitments of the leaseholder and the freeholder. In some cases there may be a 3rd party to the lease such as a management business and if so the lease need to also provide a summary of their responsibilities. Typically the freeholder will have the legal responsibility for the management and maintenance of the structure, outside and common parts of the residential or commercial property, which might consist of any gardens or premises. Many freeholders will appoint supervisors to perform the above along with other responsibilities such as setting and collecting service fee and producing accounts. The leaseholder needs to remember that they will be accountable for all of the costs of the services being supplied.

The lease will usually set out some conditions, called covenants, associating with not just making use of the common areas but also the use and profession of the flat itself, which may need to be considered ahead of time. A buyer of a leasehold flat will frequently be needed to participate in a new deed of covenant which offers the proprietor the right to take enforcement action if the flat-owner fails to comply with the agreed conditions.

What are service charges?

Flat owners are normally needed to pay a contribution towards the maintenance of the whole building and the typical parts. This is called a service fee. The lease needs to specify the proportion of service charges payable, which may be equivalent with all other occupiers or separately computed to reflect the size of the flat and the services delighted in. If the lease makes arrangement for a parking area this may sustain a surcharge.

A potential purchaser ought to get information of the level of charges for the residential or commercial property they are thinking of purchasing an early phase and demand copies of the represent the previous 2 to 3 years. They must also enquire whether there are most likely to be substantial boosts. The quantity of service charges will vary from year to year in relation to the expenses of the maintenance of the building, which will inevitably increase. The potential buyer must know that these increases might typically be greater 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 also referred to as the landlord because he owns the land or ground on which the structure is constructed. This entitles the freeholder to charge a yearly ground rent to all occupiers of the structure and the lease need to define the proportion of lease payable, which my vary according to the size of the flat. The landlord is accountable for the maintenance of the grounds and all the shared parts of the structure such entryways, passages, staircases and any shared facilities such as a lounge, utility room or visitor room. These are collectively understood as the 'typical parts'.

When leasehold flats are advertised for sale the identity of the landlord is not constantly explained. The property manager could be a private, a private business, the regional authority, a housing association or a Homeowner Freehold Company (RFC). A potential purchaser ought to think about the ramifications of each kind of proprietor and would be recommended to discuss this with the lawyer or conveyancer. Where there is an RFC the buyer may be entitled to acquire a share of the company that owns the freehold, which may bring extra duties as well as benefits. (Please see the LA info sheet 113 Enfranchisement).

What does the purchaser own?

Strictly speaking a purchaser will never ever actually own a flat or apartment due to the fact that one can not individually own the bricks and mortar of the building or the land the building rests on. What is gotten is the right to special belongings and occupation of the residential or commercial property for the duration or regard to the lease, generally 99 years or more. A lease is merely an agreement with the freeholder of the structure that grants the right of ownership. The longer the term of the lease the greater is its market price. Unlike a rent-paying occupant, a leasehold owner keeps the right to offer the leasehold ownership and gain from boosts in residential or commercial property rates.

Ownership will usually use to everything within the borders 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 entire premises are positioned on would be owned by the freeholder. The freeholder would be accountable for the repair and upkeep of the parts of the building they maintain. This responsibility is typically handed over to an expert company referred to as a handling representative, which might be an independent business or a subsidiary of the freeholder. The freeholder has no responsibilities to finance the upkeep of the building or premises. All these costs need to usually be met jointly by the leaseholders. The prospective purchaser is advised to ask their lawyer to inspect the lease to clarify the parts of the building the flat-owner will be accountable for and the most likely expenses included.

What info is vital before buying?

The length of the unexpired regard to the lease is one of the first factors to consider to a potential buyer as this will be one of the main factors affecting the cost spent for the residential or commercial property and the re-sale worth. Although the vast majority of leaseholders will have a legal right to a lease extension at a later date this will involve extra expenses. In many cases purchasers would be encouraged to guarantee there is over 80 years staying on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the huge bulk of cases the lender will only give a mortgage if there is a proper period left to work on the lease, typically a minimum of 60 years.

A leaseholder's monetary responsibilities are set out in the lease, which will make flat-owners responsible for service charges and in many cases ground rent. If charges are not set out clearly and unambiguously in the lease they are unlikely to be payable.

A buyer ought to be pleased the structure has actually been effectively kept. It is important to see three years service fee accounts and observe the pattern in the quantity owners have been needed to contribute. The accounts will show if there is a high level of service charge financial obligations, which could lead to other leaseholders paying additional amounts to meet the cash shortage.

Potential buyers ought to know whether there is a reserve fund and just how much there remains in the fund. It will typically be called a sinking fund, contingency fund or future maintenance fund and ought to be represented in cash to fulfill future significant expenditure. This is a crucial factor to consider when purchasing a flat as the lack of a reserve fund or insufficient balance in the fund could mean that the buyer will require to pay a significant lump sum when any significant works are needed. Diligent property managers and handling representatives will carry out a structure survey and prepare a cyclical maintenance plan demonstrating how much money will be needed to money the future maintenance of the building. Buyers should ask to see this plan and compare it with funds in the reserve fund.

The lease should specify whether a reserve fund is funded from leaseholders' annual service charge contributions, a lump amount at the time of re-sale or a combination of both. (Please see the LA Information Sheet 105 Reserve Funds).

A flat owner will end up being part of a neighborhood of owners and the lease will set out fundamental guidelines that are required for everyone's well being. These commitments, which are in some cases described as covenants, are enforceable in law and if they are constantly disregarded in breach of the lease it could eventually result in the forfeit of the lease and foreclosure of the flat. Before buying a flat buyers must read the lease thoroughly and completely comprehend these obligations.

In numerous cases the prospective purchaser will require to obtain a mortgage and therefore will require to take into account the level of service charges and rent that will be payable when thinking about the quantity of mortgage repayments that may be manageable. A mortgage lender will typically need an appraisal of the residential or commercial property to be performed however the potential purchaser needs to be aware that this is no alternative for an expert study and satisfying queries about future organized maintenance.

Additional info will be gotten by the buyer's solicitor sending out to the seller's lawyer a basic survey released by the Law Society, referred to 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 encouraged to study this information carefully before conclusion.

What rights does the leaseholder have?

One of the most crucial is the right of quiet satisfaction of the flat for the term of the lease, which indicates the right to occupation without any excessive disturbance from the landlord or manager. This right ought to reach the property manager or supervisor addressing any neighbour or problem issues that may develop. The leaseholder has the right to anticipate the proprietor to carry out all of the tasks that are required by legislation and the regards to the lease such as the upkeep, caring for the finances of the block and guaranteeing no resident causes sound or nuisance that affects their neighbours. The leaseholder has a variety of legal rights in relation to challenging service charges, obtaining financial info and taking control of duty for the management, which are covered in information in other LA info sheets.

What are the leaseholders' responsibilities?

As leases are in a different way worded leaseholders in one block might have different responsibilities to another block close by. However, there will be some basic clauses that would be found in nearly all leases and these are some of the most commonly found responsibilities:

- To keep the inside of the flat in a sensible state of repair work.
- To pay the service fee and ground rent completely without delay.
- To behave in such a way which will not produce annoyance for neighbours.
- To ask for property owner's approval, normally for structural changes or subletting.