The vast majority of flats sold in England and Wales are leasehold. Unlike a freehold home that rests on its own plot of land a flat is just a part of a building that contains other houses. A specific resident can not own the freehold due to the fact that the arrive at which the building is built is shown other occupiers. Consequently the developer of the structure normally retains the freehold and offers long-lasting leases to specific flat owners or 'leaseholders'.

In leasehold obstructs there will constantly be a freeholder or property owner and even if a flat is marketed as freehold it just suggests its owner has a share of a freehold, which would be held by a resident freehold company. There are extremely couple of flats that are commonhold, which is a reasonably recent 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 defense under landlord and occupant legislation and a prospective buyer need to look for legal suggestions before purchasing.

What is a lease?

A lease, which is a lawfully binding written contract, transfers belongings of a flat for a concurred set amount of time known as the lease 'term'. It defines the occupier's commitments such as the payment of service charges and ground lease and the centers available such as parking and the access to and satisfaction of common locations, such as gardens or homeowners' lounge.

There is no standard kind of lease for existing or recently constructed residential or commercial properties despite the reality that a lot of leases will consist of lots of similar terms. Residential leases within the same residential or commercial property will usually be considerably the very same but might differ in some aspects 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 need to seek expert advice at an early stage in the purchasing process to ensure they fully comprehend the responsibilities and expenses involved.

The Leaseholder Association (LA) encourages any prospective purchaser of leasehold residential or commercial property to get a copy of the lease at an early phase. In many cases a Leaseholders' Handbook will be offered by the seller but this will just consist of a summary of the primary lease terms. This is no substitute for the full lease, which will need completely examining by a solicitor or professional advisor to see if all of its terms will be appropriate to the potential buyer.

When a leasehold residential or commercial property is offered or moved, all of the rights and duties of the lease will pass to the buyer, consisting of any future payments of ground rent and service fee. It will either be impossible or extremely difficult to change the regards to the lease and for that reason the potential buyer must understand they would be lawfully bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease should set out in some detail the legal rights and obligations of the leaseholder and the freeholder. Sometimes there may be a third party to the lease such as a management company and if so the lease must likewise offer a summary of their duties. Typically the freeholder will have the legal duty for the management and upkeep of the structure, exterior and typical parts of the residential or commercial property, which may include any gardens or grounds. Many freeholders will appoint supervisors to perform the above in addition to other duties such as setting and collecting service fee and producing accounts. The leaseholder should remember that they will be liable for all of the expenses of the services being offered.

The lease will usually set out some conditions, called covenants, associating with not only making use of the communal locations but also the usage and profession of the flat itself, which may require to be considered in advance. A buyer of a leasehold flat will often be needed to get in into a new deed of covenant which provides the property owner the right to take enforcement action if the flat-owner stops working to follow the agreed conditions.

What are service charges?

Flat owners are generally needed to pay a contribution towards the upkeep of the entire building and the typical parts. This is called a service fee. The lease must specify the percentage of service charges payable, which might be equivalent with all other occupiers or separately computed to show the size of the flat and the services delighted in. If the lease makes provision for a parking space this might sustain a surcharge.

A potential purchaser ought to acquire information of the level of charges for the residential or commercial property they are thinking of purchasing an early stage and demand copies of the accounts for the previous 2 to 3 years. They must also enquire whether there are most likely to be significant boosts. The quantity of service charges will vary from year to year in relation to the costs of the upkeep of the structure, which will inevitably rise. The potential purchaser ought to know that these increases may frequently be higher than the rate of inflation. (Please see the LA Information Sheet 103 Service Charges).

If I am purchasing my flat why do I have a property owner?

The freeholder is likewise known as the property manager because he owns the land or ground on which the structure is constructed. This entitles the freeholder to charge an annual ground rent to all occupiers of the building and the lease must specify the proportion of rent payable, which my differ according to the size of the flat. The landlord is accountable for the upkeep of the grounds and all the shared parts of the structure such entryways, corridors, stairways and any shared facilities such as a lounge, laundry space or visitor room. These are collectively referred to as the 'common parts'.

When leasehold flats are marketed for sale the identity of the property manager is not always explained. The property owner might be an individual, a personal company, the local authority, a housing association or a Citizen Freehold Company (RFC). A possible purchaser must consider the ramifications of each kind of landlord and would be advised to discuss this with the lawyer or conveyancer. Where there is an RFC the buyer may be entitled to purchase a share of the business that owns the freehold, which might bring additional obligations as well as advantages. (Please see the LA info sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a buyer will never ever in fact own a flat or house because one can not individually own the bricks and mortar of the structure or the land the building rests on. What is obtained is the right to special possession 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 a contract with the freeholder of the building that gives the right of belongings. The longer the regard to the lease the greater is its market value. Unlike a rent-paying occupant, a leasehold owner maintains the right to offer the leasehold ownership and gain from increases in residential or commercial property prices.

Ownership will normally apply to whatever within the limits of the flat but it would not typically consist of the external walls or windows. Typically the structure, the typical parts of the structure and the land the entire premises are located on would be owned by the freeholder. The freeholder would be accountable for the repair and maintenance of the parts of the structure they retain. This responsibility is typically delegated to an expert company understood as a handling representative, which may be an independent business or a subsidiary of the freeholder. The freeholder has no commitments to fund the upkeep of the structure or premises. All these costs need to typically be fulfilled collectively by the leaseholders. The potential buyer is encouraged to ask their lawyer to inspect the lease to clarify the parts of the constructing the flat-owner will be accountable for and the likely expenses involved.

What details is essential before buying?

The length of the unexpired term of the lease is among the very first factors to consider to a prospective buyer as this will be one of the primary elements affecting the cost paid for the residential or commercial property and the re-sale worth. Although the huge bulk of leaseholders will have a legal right to a lease extension at a later date this will include extra costs. In many cases purchasers would be advised to make sure 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 lending institution will only give a mortgage if there is an appropriate period delegated run on the lease, normally a minimum of 60 years.

A leaseholder's financial commitments are set out in the lease, which will make flat-owners accountable for service charges and in most cases ground rent. If charges are not set out plainly and unambiguously in the lease they are not likely to be payable.

A buyer should be pleased the building has actually been effectively preserved. It is very important to see 3 years service fee accounts and observe the pattern in the amount owners have actually been required to contribute. The accounts will show if there is a high level of service charge arrears, which might result in other leaseholders paying extra sums to satisfy the cash shortage.

Potential buyers need 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 upkeep fund and ought to be represented in cash to meet future major expenditure. This is a crucial factor to consider when purchasing a flat as the absence of a reserve fund or insufficient balance in the fund might suggest that the purchaser will require to pay a considerable lump sum when any significant works are required. Diligent proprietors and managing representatives will undertake a building study and prepare a cyclical upkeep strategy showing how much money will be needed to money the future maintenance of the structure. Buyers need to ask to see this strategy and compare it with funds in the reserve fund.

The lease needs to mention whether a reserve fund is funded from leaseholders' yearly service fee contributions, a swelling 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 become part of a community of owners and the lease will set out fundamental rules that are needed for everyone's well being. These commitments, which are often referred to as covenants, are enforceable in law and if they are persistently overlooked in breach of the lease it might ultimately result in the forfeit of the lease and foreclosure of the flat. Before acquiring a flat buyers should read the lease thoroughly and completely comprehend these obligations.

Oftentimes the potential purchaser will require to acquire a mortgage and therefore will require to take into account the level of service charges and lease that will be payable when thinking about the quantity of mortgage repayments that may be manageable. A mortgage lending institution will generally need an evaluation of the residential or commercial property to be performed however the potential buyer needs to be mindful that this is no replacement for a professional study and satisfying queries about future planned upkeep.

Additional information will be obtained by the purchaser's solicitor sending out to the seller's lawyer a standard survey released by the Law Society, called LPE1.

A copy of this survey is available on the LA site or from the Law Society at www.lawsociety.org.uk. Buyers are advised to study this information thoroughly before completion.

What rights does the leaseholder have?

One of the most essential is the right of peaceful satisfaction of the flat for the term of the lease, which means the right to profession without any undue interference from the property owner or supervisor. This right should extend to the landlord or supervisor addressing any neighbour or problem problems that may arise. The leaseholder deserves to expect the property owner to carry out all of the duties that are required by legislation and the terms of the lease such as the maintenance, caring for the financial resources of the block and guaranteeing no resident causes sound or annoyance that affects their neighbours. The leaseholder has a number of legal rights in relation to challenging service charges, obtaining monetary info and taking control of responsibility for the management, which are covered in information in other LA info sheets.

What are the leaseholders' responsibilities?

As leases are differently worded leaseholders in one block might have different obligations to another block close by. However, there will be some standard provisions that would be discovered in nearly all leases and these are a few of the most frequently discovered responsibilities:

- To keep the within the flat in an affordable state of repair.
- To pay the service fee and ground rent in complete without delay.
- To behave in a manner which will not develop annoyance for neighbours.
- To request property manager's authorization, normally for structural alterations or subletting.