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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 only a part of a building that contains other homes. A private resident can not own the freehold due to the fact that the arrive on which the structure is constructed is shared with other occupiers. Consequently the designer of the building typically maintains the freehold and offers long-lasting leases to specific flat owners or 'leaseholders'.

In leasehold blocks there will always be a freeholder or property manager and even if a flat is marketed as freehold it simply indicates its owner has a share of a freehold, which would be held by a resident freehold business. There are very few flats that are commonhold, which is a fairly recent kind of period where the flat-owners likewise own the communal locations and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under landlord and renter legislation and a prospective purchaser need to look for legal advice before purchasing.

What is a lease?

A lease, which is a lawfully binding composed contract, transfers belongings of a flat for an agreed fixed time period called the lease 'term'. It specifies the occupier's obligations such as the payment of service charges and ground lease and the facilities available such as parking and the access to and satisfaction of common areas, such as gardens or citizens' lounge.

There is no standard form of lease for existing or newly developed residential or commercial properties in spite of the truth that many leases will include lots of comparable terms. Residential rents within the exact same residential or commercial property will normally be significantly the same however might vary in some respects such as the proportion of the service fee payable.

The terms of the lease

In many cases it will be hard to alter the lease terms and therefore prospective purchasers of leasehold residential or commercial property should seek specialist suggestions at an early phase in the buying procedure to guarantee they totally understand the obligations and expenses included.

The Leaseholder Association (LA) encourages any potential purchaser of leasehold residential or commercial property to acquire a copy of the lease at an early stage. In many cases a Leaseholders' Handbook will be provided by the seller but this will just consist of a summary of the primary lease terms. This is no replacement for the complete lease, which will require thoroughly analyzing by a lawyer or expert adviser to see if all of its terms will be appropriate to the potential buyer.

When a leasehold residential or commercial property is offered or transferred, all of the rights and responsibilities of the lease will pass to the purchaser, consisting of any future payments of ground rent and service charges. It will either be impossible or exceptionally difficult to change the terms of the lease and for that reason the potential purchaser should understand 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 detail the contractual rights and obligations of the leaseholder and the freeholder. In many cases there may be a 3rd celebration to the lease such as a management company and if so the lease should likewise offer a summary of their duties. Typically the freeholder will have the contractual obligation for the management and maintenance of the structure, exterior and typical parts of the residential or commercial property, which may include any gardens or premises. Many freeholders will designate managers to perform the above together with other tasks such as setting and collecting service fee and producing accounts. The leaseholder ought to bear in mind that they will be accountable for all of the expenses of the services being provided.

The lease will usually set out some conditions, called covenants, associating with not just using the communal areas but also the usage and occupation of the flat itself, which might need to be thought about in advance. A purchaser of a leasehold flat will typically be required to participate in a new deed of covenant which gives the property owner the right to take enforcement action if the flat-owner fails to follow the agreed conditions.

What are service fee?

Flat owners are typically required to pay a contribution towards the maintenance of the entire building and the typical parts. This is understood as a service charge. The lease ought to state the proportion of service charges payable, which might be equivalent with all other occupiers or individually calculated to show the size of the flat and the services enjoyed. If the lease makes arrangement for a parking space this may incur an added fee.

A potential purchaser ought to obtain information of the level of charges for the residential or commercial property they are considering purchasing an early phase and request copies of the accounts for the previous 2 to 3 years. They must likewise ask whether there are likely to be significant increases. The amount of service charges will vary from year to year in relation to the costs of the maintenance of the structure, which will undoubtedly increase. The potential buyer should be conscious that these increases may frequently be higher than the rate of inflation. (Please see the LA Information Sheet 103 Service Charges).

If I am buying my flat why do I have a landlord?

The freeholder is also called the landlord because 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 specify the percentage of lease payable, which my vary according to the size of the flat. The property owner is accountable for the maintenance of the premises and all the shared parts of the building such entryways, passages, staircases and any shared facilities such as a lounge, utility room or visitor space. These are jointly referred to as the 'typical parts'.

When leasehold flats are marketed for sale the identity of the property owner is not always made clear. The property owner might be an individual, a personal business, the regional authority, a housing association or a Local Freehold Company (RFC). A possible purchaser should think about the implications of each type of proprietor and would be recommended to discuss this with the solicitor or conveyancer. Where there is an RFC the purchaser might be entitled to buy a share of the company that owns the freehold, which may bring extra responsibilities in addition to benefits. (Please see the LA info sheet 113 Enfranchisement).

What does the purchaser own?

Strictly speaking a buyer will never ever in fact own a flat or home since one can not separately own the bricks and mortar of the structure or the land the building rests on. What is obtained is the right to special ownership and profession of the residential or commercial property for the period or term of the lease, generally 99 years or more. A lease is simply an agreement with the freeholder of the structure that approves the right of belongings. The longer the regard to the lease the higher is its market price. Unlike a rent-paying renter, a leasehold owner retains the right to sell the leasehold ownership and gain from boosts in residential or commercial property costs.

Ownership will usually apply to whatever within the borders of the flat however it would not generally include the external walls or windows. Typically the structure, the common parts of the structure and the land the entire facilities are positioned on would be owned by the freeholder. The freeholder would be for the repair and maintenance of the parts of the building they retain. This obligation is typically entrusted to an expert business called a handling agent, which may be an independent business or a subsidiary of the freeholder. The freeholder has no obligations to fund the upkeep of the building or premises. All these expenses need to generally be satisfied collectively by the leaseholders. The prospective purchaser is advised to ask their lawyer to inspect the lease to clarify the parts of the developing the flat-owner will be accountable for and the likely costs included.

What info is necessary before purchasing?

The length of the unexpired term of the lease is among the first considerations to a prospective purchaser as this will be one of the primary factors affecting the rate paid for the residential or commercial property and the re-sale value. Although the vast bulk of leaseholders will have a legal right to a lease extension at a later date this will involve additional expenses. In many cases purchasers would be recommended to guarantee there is over 80 years staying on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the large majority of cases the lender will just approve a mortgage if there is a proper period delegated operate on the lease, normally at least 60 years.

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

A purchaser ought to be satisfied the building has been correctly kept. It is essential to see 3 years service fee accounts and observe the pattern in the amount owners have actually been needed to contribute. The accounts will show if there is a high level of service charge arrears, which could result in other leaseholders paying extra sums to satisfy the money shortfall.

Potential purchasers need to know whether there is a reserve fund and how much there is in the fund. It will typically be called a sinking fund, contingency fund or future maintenance fund and should be represented in cash to meet future major expense. This is an essential consideration when buying a flat as the absence of a reserve fund or inadequate balance in the fund could imply that the purchaser will need to pay a considerable swelling amount when any major works are needed. Diligent landlords and handling representatives will undertake a building survey and prepare a cyclical maintenance strategy demonstrating how much cash will be needed to money the future maintenance of the structure. Buyers must ask to see this plan and compare it with funds in the reserve fund.

The lease should specify whether a reserve fund is financed from leaseholders' annual service fee contributions, a swelling 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 community of owners and the lease will set out basic guidelines that are necessary for everyone's well being. These commitments, which are often described as covenants, are enforceable in law and if they are persistently ignored 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 fully understand these commitments.

In many cases the prospective buyer will need to obtain a mortgage and for that reason will need to take into account the level of service charges and lease that will be payable when considering the amount of mortgage repayments that might be workable. A mortgage lending institution will generally need an evaluation of the residential or commercial property to be carried out but the potential buyer needs to be conscious that this is no alternative to an expert study and satisfying enquiries about future organized upkeep.

Additional details will be obtained by the purchaser's lawyer sending out to the seller's lawyer a basic survey published by the Law Society, referred to as LPE1.

A copy of this questionnaire is offered on the LA website or from the Law Society at www.lawsociety.org.uk. Buyers are encouraged to study this info thoroughly before conclusion.

What rights does the leaseholder have?

One of the most important is the right of peaceful satisfaction of the flat for the regard to the lease, which indicates the right to profession without any unnecessary disturbance from the landlord or manager. This right must extend to the landlord or supervisor resolving any neighbour or nuisance concerns that might arise. The leaseholder can expect the property owner to carry out all of the tasks that are required by legislation and the terms of the lease such as the upkeep, taking care of the financial resources of the block and guaranteeing no resident causes noise or nuisance that impacts their neighbours. The leaseholder has a number of legal rights in relation to tough service fee, obtaining monetary info and taking control of duty for the management, which are covered in detail 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 nearby. However, there will be some basic clauses that would be found in practically all leases and these are some of the most commonly found commitments:

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

• To pay the service charge and ground rent completely without delay.
• To act in a method which will not create nuisance for neighbours.
• To request property owner's approval, typically for structural alterations or subletting.