The large bulk of flats sold in England and Wales are leasehold. Unlike a freehold house that sits 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 because the land on which the structure is constructed is shown other occupiers. Consequently the developer of the building generally maintains the freehold and sells long-term leases to private flat owners or 'leaseholders'.

In leasehold blocks there will constantly be a freeholder or landlord and even if a flat is advertised as freehold it simply implies its owner has a share of a freehold, which would be held by a resident freehold company. There are extremely few flats that are commonhold, which is a fairly recent form of period where the flat-owners also own the communal locations and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under property manager and occupant legislation and a prospective buyer ought to seek legal recommendations before purchasing.

What is a lease?

A lease, which is a legally binding composed agreement, transfers possession of a flat for an agreed fixed time period called the lease 'term'. It defines the occupier's commitments such as the payment of service charges and ground rent and the centers available such as parking and the access to and satisfaction of communal locations, such as gardens or citizens' lounge.
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There is no standard kind of lease for existing or recently built residential or commercial properties in spite of the truth that the majority of leases will consist of lots of comparable terms. Residential rents within the same residential or commercial property will generally be considerably the same however may vary in some respects such as the percentage of the service charge payable.

The terms of the lease

In many cases it will be challenging to alter the lease terms and for that reason prospective buyers of leasehold residential or commercial property ought to seek expert recommendations at an early stage in the purchasing process to guarantee they totally understand the commitments and expenses involved.

The Leaseholder Association (LA) recommends any potential buyer of leasehold residential or commercial property to obtain a copy of the lease at an early stage. In some cases a Leaseholders' Handbook will be offered by the seller however this will only include a summary of the main lease terms. This is no replacement for the complete lease, which will need completely taking a look at by a lawyer or professional consultant to see if all of its terms will be appropriate to the potential purchaser.

When a leasehold residential or commercial property is sold or transferred, all of the rights and duties of the lease will pass to the buyer, consisting of any future payments of ground rent and service charges. It will either be impossible or exceptionally difficult to alter the regards to the lease and therefore the prospective purchaser need to be mindful they would be legally bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease ought to set out in some information the contractual rights and obligations of the leaseholder and the freeholder. In many cases there might be a 3rd party to the lease such as a management company and if so the lease ought to also provide a summary of their obligations. Typically the freeholder will have the legal obligation for the management and upkeep of the structure, exterior and common parts of the residential or commercial property, which might include any gardens or premises. Many freeholders will designate managers to perform the above along with other responsibilities such as setting and collecting service charges and producing accounts. The leaseholder must remember that they will be responsible for all of the costs of the services being provided.

The lease will normally set out some conditions, called covenants, relating to not only making use of the common areas however also the usage and occupation of the flat itself, which might require to be considered beforehand. A buyer of a leasehold flat will frequently be needed to participate in a brand-new deed of covenant which provides the proprietor 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 upkeep of the entire structure and the typical parts. This is called a service charge. The lease needs to 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 taken pleasure in. If the lease makes arrangement for a parking space this may incur a surcharge.

A prospective buyer needs to get information of the level of charges for the residential or commercial property they are thinking about purchasing an early phase and request copies of the represent the previous 2 to 3 years. They must likewise ask whether there are likely to be substantial boosts. The amount of service charges will differ from year to year in relation to the expenses of the maintenance of the structure, which will undoubtedly increase. The prospective purchaser ought to understand that these boosts might often be greater 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 proprietor?

The freeholder is likewise understood as the proprietor 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 should define the proportion of rent payable, which my vary according to the size of the flat. The property owner is accountable for the maintenance of the grounds and all the shared parts of the building such entrances, passages, staircases and any shared facilities such as a lounge, laundry space or visitor space. These are collectively known as the 'typical parts'.

When leasehold flats are marketed for sale the identity of the landlord is not constantly made clear. The property owner might be a private, a personal business, the regional authority, a housing association or a Citizen Freehold Company (RFC). A prospective buyer should consider the implications of each type of landlord and would be advised to discuss this with the solicitor or conveyancer. Where there is an RFC the purchaser may be entitled to buy a share of the company that owns the freehold, which may bring additional responsibilities along with advantages. (Please see the LA details sheet 113 Enfranchisement).

What does the purchaser own?

Strictly speaking a buyer will never actually own a flat or house because one can not individually own the traditionals of the building or the land the structure sits on. What is acquired is the right to exclusive ownership and profession of the residential or commercial property for the duration or regard to the lease, generally 99 years or more. A lease is simply an agreement with the freeholder of the building that gives the right of belongings. The longer the regard to the lease the greater is its market worth. Unlike a rent-paying renter, a leasehold owner maintains the right to sell the leasehold ownership and take advantage of increases in residential or commercial property costs.

Ownership will typically apply to everything within the borders of the flat however it would not normally consist of the external walls or windows. Typically the structure, the common parts of the building and the land the entire properties are situated on would be owned by the freeholder. The freeholder would be responsible for the repair work and maintenance of the parts of the building they keep. This responsibility is normally entrusted to a professional company called a handling agent, which might be an independent company or a subsidiary of the freeholder. The freeholder has no responsibilities to fund the maintenance of the structure or grounds. All these expenses need to normally be fulfilled collectively by the leaseholders. The potential buyer is advised to ask their to examine the lease to clarify the parts of the constructing the flat-owner will be accountable for and the most likely costs involved.

What information is vital before purchasing?

The length of the unexpired term of the lease is one of the very first considerations to a potential purchaser as this will be among the primary elements impacting the rate spent for the residential or commercial property and the re-sale worth. Although the large bulk of leaseholders will have a legal right to a lease extension at a later date this will involve additional expenses. For the most part purchasers would be encouraged to ensure 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 lending institution will just give a mortgage if there is an appropriate period left to work on the lease, normally at least 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 lease. If charges are not set out plainly and unambiguously in the lease they are unlikely to be payable.

A buyer should be satisfied the building has actually been appropriately kept. It is important to see three 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 defaults, which could lead to other leaseholders paying extra amounts to satisfy the cash shortage.

Potential buyers need to understand 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 need to be represented in cash to satisfy future major expenditure. This is an important consideration when buying a flat as the absence of a reserve fund or insufficient balance in the fund might suggest that the buyer will need to pay a significant swelling sum when any significant works are needed. Diligent landlords and managing representatives will carry out a structure study and prepare a cyclical upkeep strategy revealing how much cash will be required to fund the future upkeep of the structure. Buyers must ask to see this plan and compare it with funds in the reserve fund.

The lease should state whether a reserve fund is financed from leaseholders' annual service charge contributions, a lump 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 neighborhood of owners and the lease will set out standard rules that are required for everybody's well being. These responsibilities, which are in some cases referred to as covenants, are enforceable in law and if they are persistently ignored in breach of the lease it might 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 responsibilities.

Oftentimes the prospective purchaser will need to get a mortgage and therefore will need to take into account the level of service charges and rent that will be payable when thinking about the amount of mortgage repayments that may be workable. A mortgage lending institution will normally require an appraisal of the residential or commercial property to be brought out but the prospective purchaser needs to be mindful that this is no replacement for a professional study and acceptable enquiries about future planned maintenance.

Additional info will be acquired by the buyer's solicitor sending out to the seller's solicitor a standard survey published by the Law Society, referred to as LPE1.

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

What rights does the leaseholder have?
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Among the most crucial is the right of quiet satisfaction of the flat for the term of the lease, which indicates the right to occupation with no unnecessary interference from the proprietor or supervisor. This right must reach the property owner or supervisor resolving any neighbour or problem problems that might arise. The leaseholder has the right to anticipate the proprietor to perform all of the tasks that are required by legislation and the regards to the lease such as the maintenance, looking after the finances of the block and guaranteeing no occupant triggers noise or nuisance that impacts their neighbours. The leaseholder has a variety of legal rights in relation to challenging service fee, obtaining monetary info and taking over duty for the management, which are covered in information in other LA information sheets.

What are the leaseholders' commitments?

As leases are in a different way worded leaseholders in one block may have various obligations to another block nearby. However, there will be some basic provisions that would be found in practically all leases and these are a few of the most commonly discovered responsibilities:

- To keep the inside of the flat in a reasonable state of repair work.

• To pay the service charge and ground rent completely without hold-up.
• To act in such a way which will not produce problem for neighbours.
• To ask for property manager's approval, normally for structural alterations or subletting.