The vast majority of flats offered in England and Wales are leasehold. Unlike a freehold house that rests on its own plot of land a flat is only a part of a building which contains other homes. An individual occupant can not own the freehold due to the fact that the land on which the building is built is shared with other occupiers. Consequently the developer of the structure usually maintains the freehold and sells long-lasting leases to private flat owners or 'leaseholders'.

In leasehold obstructs there will always be a freeholder or landlord and even if a flat is promoted as freehold it just 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 relatively current form of tenure where the flat-owners likewise own the communal areas and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or security under proprietor and tenant legislation and a potential buyer should look for legal recommendations before buying.

What is a lease?

A lease, which is a lawfully binding composed contract, transfers belongings of a flat for a concurred fixed period of time 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 available such as parking and the access to and pleasure of communal locations, such as gardens or citizens' lounge.

There is no standard type of lease for existing or recently built residential or commercial properties despite the fact that a lot of leases will include lots of similar terms. Residential leases within the exact same residential or commercial property will generally be substantially the exact same however may differ in some respects such as the percentage of the service charge payable.

The regards to the lease

In a lot of cases it will be tough to alter the lease terms and for that reason potential purchasers of leasehold residential or commercial property must look for expert suggestions at an early stage in the buying procedure to ensure they fully understand the obligations and costs 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 stage. In some cases a Leaseholders' Handbook will be used by the seller but this will just include a summary of the main lease terms. This is no replacement for the complete lease, which will need thoroughly analyzing by a lawyer or professional advisor to see if all of its terms will be acceptable to the prospective buyer.

When a leasehold residential or commercial property is sold or transferred, all of the rights and obligations of the lease will pass to the buyer, consisting of any future payments of ground lease and service charges. It will either be difficult or extremely hard to alter the terms of the lease and for that reason the prospective purchaser should be conscious they would be lawfully bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease should set out in some information the legal rights and commitments of the leaseholder and the freeholder. Sometimes there might be a 3rd party to the lease such as a management company and if so the lease should also provide a summary of their obligations. Typically the freeholder will have the legal responsibility for the management and maintenance of the structure, exterior and typical parts of the residential or commercial property, which might consist of any gardens or grounds. Many freeholders will select supervisors to perform the above in addition to other tasks such as setting and collecting service charges and producing accounts. The leaseholder should bear in mind that they will be liable for all of the expenses of the services being offered.

The lease will normally set out some conditions, called covenants, associating with not only making use of the communal areas but also the usage and occupation of the flat itself, which might need 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 provides the property manager the right to take enforcement action if the flat-owner fails to follow the agreed conditions.

What are service charges?

Flat owners are usually needed to pay a contribution towards the maintenance of the entire structure and the typical parts. This is known as a service fee. The lease must specify the proportion of service charges payable, which may be equivalent with all other occupiers or separately calculated to show the size of the flat and the services taken pleasure in. If the lease makes arrangement for a parking area this might incur 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 phase and request copies of the accounts for the previous 2 to 3 years. They need to likewise enquire whether there are likely to be significant boosts. The quantity of service charges will differ from year to year in relation to the costs of the maintenance of the structure, which will inevitably increase. The prospective purchaser needs to be conscious that these boosts might typically be higher than the rate of inflation. (Please see the LA Information Sheet 103 Service Fee).

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

The freeholder is likewise known as the landlord since he owns the land or ground on which the structure is constructed. This entitles the freeholder to charge an annual ground lease to all occupiers of the building and the lease ought to define the percentage of rent payable, which my differ 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 structure such entryways, passages, stairways and any shared centers such as a lounge, utility room or visitor room. These are jointly understood as the 'typical parts'.

When leasehold flats are marketed for sale the identity of the proprietor is not always explained. The property manager could be a private, a private business, the regional authority, a housing association or a Resident Freehold Company (RFC). A possible purchaser ought to consider the ramifications of each type of property manager and would be advised to discuss this with the lawyer or conveyancer. Where there is an RFC the purchaser may be entitled to buy a share of the business that owns the freehold, which might bring extra obligations in addition to advantages. (Please see the LA details sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a purchaser will never in fact own a flat or apartment or condo because one can not individually own the physicals of the building or the land the building sits on. What is acquired 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 simply a contract with the freeholder of the structure that gives the right of belongings. The longer the term of the lease the higher is its market value. Unlike a rent-paying tenant, a leasehold owner keeps the right to sell the leasehold ownership and gain from increases in residential or commercial property prices.

Ownership will typically apply to everything within the boundaries of the flat however it would not usually include the external walls or windows. Typically the structure, the common parts of the building and the land the whole facilities are located on would be owned by the freeholder. The freeholder would be responsible for the repair work and upkeep of the parts of the structure they retain. This obligation is normally handed over to an expert company called a handling representative, which might be an independent business or a subsidiary of the freeholder. The freeholder has no commitments to fund the maintenance of the building or grounds. All these expenses should typically be fulfilled collectively by the leaseholders. The prospective purchaser is recommended to ask their lawyer to check the lease to clarify the parts of the building the flat-owner will be accountable for and the most likely costs included.

What information is vital before buying?

The length of the unexpired regard to the lease is among the very first factors to consider to a prospective buyer as this will be among the main aspects affecting the rate paid for the residential or commercial property and the re-sale value. Although the huge bulk of leaseholders will have a legal right to a lease extension at a later date this will involve extra costs. In many cases purchasers would be encouraged to guarantee there is over 80 years remaining on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the large majority of cases the lender will only approve a mortgage if there is an appropriate duration delegated operate on the lease, generally at least 60 years.

A leaseholder's financial responsibilities are set out in the lease, which will make flat-owners responsible for service charges and most of the times ground lease. If charges are not set out plainly and unambiguously in the lease they are unlikely to be payable.

A buyer ought to be satisfied the structure has actually been properly maintained. It is essential to see 3 years service charge accounts and observe the pattern in the amount owners have been needed to contribute. The accounts will reveal if there is a high level of service charge defaults, which might result in other leaseholders paying additional amounts to fulfill the cash shortage.

Potential purchasers ought to know whether there is a reserve fund and just how much there is in the fund. It will typically be called a sinking fund, contingency fund or future upkeep fund and must be represented in money to satisfy future significant expenditure. This is an essential consideration when purchasing a flat as the lack of a reserve fund or insufficient balance in the fund might mean that the purchaser will need to pay a significant swelling amount when any significant works are required. Diligent property managers and managing representatives will carry out a building study and prepare a cyclical maintenance plan revealing how much money will be required to fund the future upkeep of the structure. Buyers should ask to see this strategy and compare it with funds in the reserve fund.

The lease needs to specify whether a reserve fund is financed from leaseholders' yearly service fee 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 enter into a community of owners and the lease will set out basic guidelines that are required for everyone's well being. These obligations, which are sometimes described as covenants, are enforceable in law and if they are persistently neglected in breach of the lease it could ultimately result in the forfeit of the lease and foreclosure of the flat. Before buying a flat buyers must check out the lease carefully and totally understand these commitments.

In a lot of cases the potential buyer will need to obtain a mortgage and therefore will require to take into consideration the level of service charges and lease that will be payable when considering the quantity of mortgage payments that might be manageable. A mortgage lender will generally need an evaluation of the residential or commercial property to be performed but the potential buyer requires to be conscious that this is no replacement for an expert study and satisfactory queries about future scheduled upkeep.

Additional info will be obtained by the purchaser's lawyer sending to the seller's solicitor a basic questionnaire released by the Law Society, called LPE1.

A copy of this survey is readily available on the LA website or from the Law Society at www.lawsociety.org.uk. Buyers are advised to study this information carefully before conclusion.

What rights does the leaseholder have?

Among the most essential is the right of peaceful pleasure of the flat for the term of the lease, which indicates the right to profession without any unnecessary interference from the property manager or manager. This right should encompass the property manager or supervisor resolving any neighbour or annoyance problems that might develop. The leaseholder can anticipate the property manager to bring out all of the tasks that are needed by legislation and the regards to the lease such as the maintenance, looking after the financial resources of the block and ensuring no resident causes noise or annoyance that impacts their neighbours. The leaseholder has a number of legal rights in relation to tough service fee, getting financial information and taking over obligation for the management, which are covered in detail in other LA info sheets.

What are the leaseholders' obligations?

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

- To keep the within of the flat in an affordable state of repair work.
- To pay the service charge and ground lease in complete without hold-up.
- To act in such a way which will not produce annoyance for neighbours.
- To ask for property manager's authorization, usually for structural modifications or subletting.