The large majority of flats offered in England and Wales are leasehold. Unlike a freehold home that sits on its own plot of land a flat is only a part of a structure that consists of other dwellings. A private occupant can not own the freehold since the arrive on which the structure is constructed is shared with other occupiers. Consequently the designer of the building generally keeps the freehold and sells long-term leases to private flat owners or 'leaseholders'.

In leasehold blocks there will always be a freeholder or property manager and even if a flat is promoted as freehold it simply means its owner has a share of a freehold, which would be held by a resident freehold company. There are very couple of flats that are commonhold, which is a relatively recent type of period 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 property manager and occupant legislation and a potential purchaser ought to seek legal recommendations before buying.

What is a lease?

A lease, which is a lawfully binding written agreement, transfers ownership of a flat for a concurred set duration of time referred to as the lease 'term'. It defines the occupier's obligations such as the payment of service charges and ground lease and the facilities offered such as parking and the access to and satisfaction of communal locations, such as gardens or homeowners' lounge.

There is no basic form of lease for existing or newly built residential or commercial properties in spite of the truth that most leases will consist of lots of comparable terms. Residential rents within the very same residential or commercial property will usually be substantially the same but might differ in some aspects such as the proportion of the service charge payable.

The terms of the lease

Most of the times it will be difficult to alter the lease terms and for that reason prospective purchasers of leasehold residential or commercial property must look for expert advice at an early stage in the buying process to guarantee they totally understand the commitments and expenses included.

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

When a leasehold residential or commercial property is offered or transferred, all of the rights and responsibilities of the lease will pass to the buyer, including any future payments of ground rent and service charges. It will either be impossible or incredibly difficult to alter the regards to the lease and therefore the prospective purchaser ought to know 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 contractual rights and responsibilities of the leaseholder and the freeholder. In some cases there might be a 3rd party to the lease such as a management business and if so the lease ought to also supply a summary of their duties. Typically the freeholder will have the legal duty for the management and upkeep of the structure, outside and typical parts of the residential or commercial property, which may include any gardens or premises. Many freeholders will select managers to perform the above in addition to other responsibilities such as setting and gathering service fee and producing accounts. The leaseholder needs to remember that they will be liable for all of the costs of the services being offered.

The lease will generally set out some conditions, called covenants, relating to not only making use of the communal areas however also the use 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 participate in a brand-new deed of which provides the property manager the right to take enforcement action if the flat-owner stops working to abide by the agreed conditions.

What are service charges?

Flat owners are usually needed to pay a contribution towards the maintenance of the entire building and the common parts. This is referred to as a service fee. The lease should stipulate the percentage 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 taken pleasure in. If the lease makes arrangement for a parking area this might sustain a surcharge.

A potential buyer must acquire details of the level of charges for the residential or commercial property they are believing of purchasing an early stage and demand copies of the accounts for the previous 2 to 3 years. They ought to also enquire whether there are likely to be substantial increases. The quantity of service charges will differ from year to year in relation to the expenses of the maintenance of the building, which will inevitably increase. The potential buyer needs to be conscious that these increases might typically be greater 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 referred to as the proprietor because he owns the land or ground on which the building is built. This entitles the freeholder to charge a yearly ground rent 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 responsible for the maintenance of the grounds and all the shared parts of the structure such entrances, corridors, staircases and any shared centers such as a lounge, laundry room or guest space. These are collectively called the 'common parts'.

When leasehold flats are promoted for sale the identity of the property manager is not constantly made clear. The landlord could be a private, a personal business, the regional authority, a housing association or a Citizen Freehold Company (RFC). A potential buyer must consider the ramifications of each kind of landlord and would be encouraged to discuss this with the lawyer or conveyancer. Where there is an RFC the purchaser may be entitled to acquire a share of the business that owns the freehold, which may bring additional obligations as well as advantages. (Please see the LA details sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a purchaser will never ever really own a flat or home since one can not individually own the physicals of the building or the land the building sits on. What is obtained is the right to unique belongings and occupation of the residential or commercial property for the duration or term of the lease, generally 99 years or more. A lease is just a contract 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 offer the leasehold ownership and benefit from boosts in residential or commercial property rates.

Ownership will typically use to whatever within the boundaries of the flat however it would not normally consist of the external walls or windows. Typically the structure, the typical parts of the structure and the land the whole properties are situated on would be owned by the freeholder. The freeholder would be accountable for the repair and maintenance of the parts of the building they keep. This duty is typically delegated to a professional company understood as a managing agent, which might be an independent company or a subsidiary of the freeholder. The freeholder has no commitments to fund the upkeep of the structure or grounds. All these expenses should typically be met collectively by the leaseholders. The potential purchaser is advised to ask their solicitor to examine the lease to clarify the parts of the developing the flat-owner will be accountable for and the most likely costs included.

What information is essential before buying?

The length of the unexpired term of the lease is one of the very first factors to consider to a potential buyer as this will be among the primary factors impacting the rate spent for the residential or commercial property and the re-sale worth. Although the large majority of leaseholders will have a legal right to a lease extension at a later date this will include additional costs. Most of the times purchasers would be encouraged to ensure there is over 80 years staying on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the vast bulk of cases the loan provider will only give a mortgage if there is an appropriate period left to work on the lease, typically at least 60 years.

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

A purchaser should be satisfied the building has been appropriately preserved. It is very important to see 3 years service fee accounts and observe the trend in the quantity owners have been required to contribute. The accounts will show if there is a high level of service charge defaults, which might lead to other leaseholders paying additional sums to satisfy the money shortfall.

Potential buyers should 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 maintenance fund and should be represented in cash to satisfy future significant expense. This is a crucial factor to consider when purchasing a flat as the lack of a reserve fund or inadequate balance in the fund could mean that the purchaser will require to pay a considerable lump amount when any significant works are required. Diligent landlords and handling representatives will carry out a building survey and prepare a cyclical maintenance strategy demonstrating how much cash will be needed to fund the future maintenance of the building. Buyers need to ask to see this plan and compare it with funds in the reserve fund.

The lease must mention whether a reserve fund is financed from leaseholders' annual service fee contributions, a lump sum 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 neighborhood of owners and the lease will set out standard guidelines that are needed for everyone's well being. These responsibilities, which are in some cases described as covenants, are enforceable in law and if they are persistently ignored in breach of the lease it might ultimately lead to the forfeit of the lease and foreclosure of the flat. Before buying a flat purchasers need to read the lease carefully and completely understand these responsibilities.

In numerous cases the potential purchaser will require to get a mortgage and for that reason will need to take into consideration the level of service charges and lease that will be payable when thinking about the quantity of mortgage repayments that might be workable. A mortgage lender will normally require an assessment of the residential or commercial property to be performed but the potential purchaser needs to be conscious that this is no replacement for a professional survey and acceptable queries about future scheduled maintenance.

Additional info will be gotten by the purchaser's lawyer sending out to the seller's lawyer a basic survey published by the Law Society, known as LPE1.

A copy of this survey is offered on the LA site or from the Law Society at www.lawsociety.org.uk. Buyers are encouraged to study this info carefully before completion.

What rights does the leaseholder have?

Among the most essential is the right of peaceful enjoyment of the flat for the term of the lease, which implies the right to profession without any unnecessary disturbance from the property owner or supervisor. This right should extend to the proprietor or supervisor dealing with any neighbour or annoyance problems that may arise. The leaseholder has the right to anticipate the landlord to perform 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 guaranteeing no occupant causes sound or annoyance that impacts their neighbours. The leaseholder has a variety of legal rights in relation to tough service fee, getting monetary info and taking control of duty for the management, which are covered in information in other LA info sheets.

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

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

• To pay the service fee and ground lease completely without delay.
• To behave in a method which will not create nuisance for neighbours.
• To request property manager's permission, generally for structural alterations or subletting.