 Leasehold
Explained
What is a leasehold?
Leasehold flats can be in purpose-built blocks, in
converted houses or above commercial or retail premises.
Leasehold ownership of a flat is simply a long tenancy,
the right to occupation and use of the flat for a long
period - the 'term' of the lease. This will usually
be for 99 or 125 years and the flat can be bought and
sold during that term. the term is fixed at the beginning
and so decreases in length year by year. Thus, if it
were not for inflation, the value of the flat would
diminish over time until the eventual expiry of the
lease, when the flat reverts to the landlord (although
an assured tenancy would them become a possibility).
The ownership of the flat usually relates to everything
within the four walls of the flat, including floorboards
and plaster to walls and ceiling, but does not usually
include the external or structural walls. The structure
and common parts of the building and the land it stands
on are owned by the landlord, who is responsible for
the maintenance and repair of the building.
The landlord can be a person or a company, including
a local authority or a housing association. It is also
becoming quite common for the leaseholders to own the
freehold of the building, although residents' management
company, effectively becoming their own landlord. With
the advent of the right to manage, the lessees will
not own the freehold but will be able to manage the
building as if they were the landlord.
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What is a lease?
A lease is a contract between the leaseholder and the
landlord giving conditional ownership for a fixed period
of time. It is an important document and leaseholders
must ensure that they have a copy and that they understand
it. The wording of the leases is usually in legal language
and can vary from property to property. Leaseholders
who cannot understand their lease should get advice.
It is difficult to change the conditions of the lease
after you buy, so make sure that the services provided
in the lease are those that you want or can accept.
The lease sets out the contractual obligations of the
two parties: what the leaseholder has contracted to
do, and what the landlord is bound to do. The leaseholder's
obligations will include payment of the ground rent
(if any) and contribution to the costs of maintaining
and managing the building. The lease will probably also
place certain conditions on the use and occupation of
the flat. The landlord will usually be required to manage
and maintain the structure, exterior and common areas
of the property, to collect contributions from all the
leaseholders and keep the accounts.
Leaseholders are not necessarily entirely free to do
whatever they want in ore with the flat - the lease
comes with conditions, to protect the rights of everyone
with an interest in the building. For example, retirement
schemes will usually have restrictions on the age of
those who can live there.
When a flat changes hands, the seller assigns all the
rights and responsibilities of the lease to the purchaser,
including any future service charges that have not yet
been identified.
Read the lease - understand your rights and responsibilities.
Ask if the landlord or manager produces a plain English
summary for you to read whether there are any additional
house rules.
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What are your contractual rights?
First and foremost, the right of peaceable occupation
of the flat for the term of the lease, usually referred
to as 'quiet enjoyment'. In addition, the leaseholder
has the right to expect the landlord to maintain and
repair the building and manage the common parts - that
is, the parts of the building or grounds not specifically
granted to the leaseholder in the lease but to which
there are rights of access, for example, the entrance
hall and staircases.
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What are your responsibilities?
Principally, these will be the requirements to keep
the inside of the flat in good order, to pay (on time)
a share of the costs of maintaining and running the
building, to behave in a neighbourly manner and not
to do certain things without the landlord's consent,
for example, make alterations or sub-let. The landlord
has an obligation to ensure that the leaseholder complies
with such responsibilities for the good of all the other
leaseholders. these rights and responsibilities will
be set out in the lease.
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What are service charges?
Service charges are payments by the leaseholder to
the landlord for all the services the landlord provides.
these will include maintenance and repairs, insurance
of the building and , in some cases, provision of central
heating, lifts, porterage, lighting and cleaning of
common areas etc. Usually the charges will also include
the costs of management, either by the landlord or by
a professional managing agent.
Service charges can vary from year to year; they can
go up or down without any limit other than that they
are reasonable.
Details of what can (and cannot) be charged by the
landlord and the proportion of the charge to be paid
by the individual leaseholder will all be set out in
the lease.
The landlord arranges provision of the services. The
leaseholder pays for them.
All costs must be met by the leaseholders; the landlord
will generally make no financial contribution. Most
modern leases allow for the landlord to collect service
charges in advance, repaying any surplus or collecting
any shortfall at the end of the year.
The landlord can only recover those costs which are
reasonable. Leaseholders have powerful rights to challenge
service charges they feel are unreasonable at the Leasehold
Valuation Tribunal (LVT).
When considering the purchase of a leasehold flat,
it is important to find out, for personal budgetary
purposes, what the current and future service charges
are likely to be. Also check if there is a reserve fund,
ands what plans are there for major works that could
affect the service charge in the next few years after
your purchase.
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What are reserve funds?
Many leases provide for the landlord to collect sums
in advance to create a reserve or 'sinking' fund to
ensure that sufficient money is available for future
scheduled major works, such as external decorations
or lift replacement. The lease will set out the sums
involved and when regular, cyclical, maintenance works
are due.
Contributions to the reserve fund are not repayable
when the flat is sold.
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How is the building insured?
The lease will normally require the landlord to take
out out adequate insurance for the building and the
common parts,a nd will give him or her the right to
recover the cost of the premium through the service
charges. The policy will not normally cover the possessions
of individual leaseholders.
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What happens if the leaseholder doesn't pay?
It is the leaseholder's obligation to pay the service
charges and ground rent promptly under the terms of
the lease. If they are not paid and the landlord is
able to show that the charges are reasonable, then he
can begin forfeiture proceedings. If approved by a court,
this can lead to the landlord repossessing the flat.
However under the Commonhold and Leasehold Reform Act
2002, the right of the landlord will be restricted.
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What is a managing agent?
Sometimes the landlord carries out the management of
the property himself; alternatively, a managing agent
may be appointed to manage and maintain the building
on behalf of the landlord, in accordance with the terms
of the lease, current relevant legislation and codes
of practice. The agent takes instruction from the landlord,
not the leaseholders, but should constantly be aware
of the leaseholder's wishes and requirements. The agent
will receive a fee which will usually be paid by leaseholders
as part of the service charges. This may be based on
a specified percentage of the day-to-day service charges,
but good and common practice is for it to be a fixed
fee per annum. Where major works are involved, the agent
may charge an additional fee, which will normally be
a percentage of the total cost of such works.
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