The vast majority 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 dwellings. A private resident can not own the freehold since the land on which the structure is built is shown other occupiers. Consequently the designer of the building typically keeps the freehold and offers long-lasting leases to specific flat owners or 'leaseholders'.

In leasehold blocks there will always be a freeholder or landlord and even if a flat is promoted as freehold it just implies its owner has a share of a freehold, which would be held by a resident freehold company. There are extremely couple of flats that are commonhold, which is a relatively current type of tenure where the flat-owners also own the common areas and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or protection under landlord and renter legislation and a potential purchaser must look for legal advice before purchasing.

What is a lease?

A lease, which is a lawfully binding composed agreement, transfers possession of a flat for a concurred fixed time period called the lease 'term'. It defines the occupier's obligations such as the payment of service charges and ground rent and the centers readily available such as parking and the access to and pleasure of common locations, such as gardens or locals' lounge.

There is no standard kind of lease for existing or recently constructed residential or commercial properties regardless of the fact that the majority of leases will include numerous similar terms. Residential rents within the same residential or commercial property will generally be substantially the exact same but might differ in some aspects such as the percentage of the service fee payable.

The regards to the lease

In many cases it will be challenging to alter the lease terms and therefore prospective purchasers of leasehold residential or commercial property must seek expert advice at an early phase in the buying process to ensure they totally understand the commitments and expenses included.

The Leaseholder Association (LA) encourages any potential 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 offered by the seller however this will only consist of a summary of the primary lease terms. This is no replacement for the complete lease, which will require completely analyzing by a lawyer or professional adviser to see if all of its terms will be appropriate to the prospective purchaser.

When a leasehold residential or commercial property is offered or transferred, all of the rights and obligations of the lease will pass to the purchaser, including any future payments of ground lease and service fee. It will either be difficult or incredibly tough to alter the regards to the lease and for that reason the prospective purchaser need to know they would be legally bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease must set out in some detail the legal rights and obligations of the leaseholder and the freeholder. Sometimes there might be a 3rd party to the lease such as a management business and if so the lease need to likewise provide a summary of their obligations. Typically the freeholder will have the contractual duty for the management and maintenance of the structure, exterior and typical parts of the residential or commercial property, which might include any gardens or premises. Many freeholders will appoint managers to carry out the above together with other responsibilities such as setting and gathering service charges and producing accounts. The leaseholder must bear in mind that they will be liable for all of the expenses of the services being provided.

The lease will typically set out some conditions, called covenants, relating to not just using the communal areas but likewise the use and profession of the flat itself, which might require to be thought about beforehand. A buyer of a leasehold flat will typically be required to get in into a new deed of covenant which offers the property owner the right to take enforcement action if the flat-owner fails to comply with the agreed conditions.

What are service charges?

Flat owners are normally needed to pay a contribution towards the maintenance of the entire building and the typical parts. This is referred to as a service fee. The lease should state the proportion of service charges payable, which may be equivalent with all other occupiers or individually determined to reflect the size of the flat and the services delighted in. If the lease makes arrangement for a parking space this may incur an additional charge.

A prospective purchaser needs to acquire information of the level of charges for the residential or commercial property they are considering purchasing at an early stage and demand copies of the represent the previous 2 to 3 years. They must likewise ask whether there are most likely to be significant increases. The amount of service charges will vary from year to year in relation to the expenses of the upkeep of the structure, which will undoubtedly increase. The potential buyer needs to be conscious that these increases may typically be greater than the rate of inflation. (Please see the LA Information Sheet 103 Service Fee).

If I am buying my flat why do I have a property owner?

The freeholder is likewise called the property manager because he owns the land or ground on which the structure is built. This entitles the freeholder to charge an annual ground rent to all occupiers of the building and the lease need to define the proportion of rent payable, which my vary according to the size of the flat. The proprietor is accountable for the upkeep of the grounds and all the shared parts of the structure such entryways, corridors, stairways and any shared centers such as a lounge, utility room or visitor room. These are collectively referred to as the 'common parts'.

When leasehold flats are advertised for sale the identity of the landlord is not constantly made clear. The proprietor might be a private, a personal company, the local authority, a housing association or a Homeowner Freehold Company (RFC). A prospective buyer should think about the implications of each kind of landlord and would be recommended to discuss this with the lawyer or conveyancer. Where there is an RFC the purchaser might be entitled to acquire a share of the business that owns the freehold, which might bring extra duties in addition to benefits. (Please see the LA information sheet 113 Enfranchisement).
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What does the purchaser own?

Strictly speaking a purchaser will never ever in fact own a flat or apartment or condo because one can not separately own the traditionals of the structure or the land the building rests on. What is gotten is the right to exclusive belongings and occupation of the residential or commercial property for the period or regard to the lease, typically 99 years or more. A lease is merely a contract with the freeholder of the structure that grants the right of possession. The longer the regard to the lease the higher is its market value. Unlike a rent-paying tenant, a leasehold owner maintains the right to sell the leasehold ownership and gain from boosts in residential or commercial property prices.

Ownership will typically apply to whatever within the boundaries of the flat but it would not usually include the external walls or windows. Typically the structure, the typical parts of the building and the land the whole properties are located on would be owned by the freeholder. The freeholder would be accountable for the repair work and upkeep of the parts of the building they retain. This responsibility is generally entrusted to an expert business referred to as a managing representative, which might be an independent company or a subsidiary of the freeholder. The freeholder has no commitments to finance the maintenance of the building or grounds. All these expenses must generally be satisfied collectively by the leaseholders. The potential buyer is encouraged to ask their solicitor to inspect the lease to clarify the parts of the constructing the flat-owner will be responsible for and the most likely costs involved.

What details is important before buying?

The length of the unexpired regard to the lease is among the very first considerations to a prospective purchaser as this will be among the primary aspects affecting the price spent for the residential or commercial property and the re-sale value. Although the vast majority of leaseholders will have a legal right to a lease extension at a later date this will involve additional costs. Most of the times buyers would be advised to guarantee there is over 80 years staying on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the large bulk of cases the lender will just approve a mortgage if there is a proper period delegated work on the lease, generally a minimum of 60 years.

A leaseholder's financial obligations 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 clearly and unambiguously in the lease they are unlikely to be payable.

A purchaser ought to be pleased the structure has been properly maintained. It is necessary to see three years service fee accounts and observe the pattern in the amount owners have been required to contribute. The accounts will reveal if there is a high level of service charge defaults, which could result in other leaseholders paying additional amounts to satisfy the cash deficiency.

Potential buyers need to understand whether there is a reserve fund and how much there remains in the fund. It will typically be called a sinking fund, contingency fund or future maintenance fund and ought to be represented in cash to fulfill future major expenditure. This is an important factor to consider when buying a flat as the absence of a reserve fund or insufficient balance in the fund might imply that the purchaser will require to pay a considerable swelling sum when any significant works are required. Diligent property managers and handling agents will undertake a building study and prepare a cyclical maintenance strategy showing how much money will be required to fund the future upkeep of the structure. Buyers need to ask to see this plan and compare it with funds in the reserve fund.

The lease must specify whether a reserve fund is funded from leaseholders' annual service charge contributions, a lump sum at the time of re-sale or a mix of both. (Please see the LA Information Sheet 105 Reserve Funds).

A flat owner will become part of a community of owners and the lease will set out fundamental rules that are essential for everybody's well being. These commitments, 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 purchasers must check out the lease thoroughly and completely understand these obligations.

In a lot of cases the will need to acquire a mortgage and therefore will require to consider the level of service charges and rent that will be payable when thinking about the amount of mortgage repayments that might be workable. A mortgage lender will generally require an assessment of the residential or commercial property to be carried out but the prospective purchaser requires to be conscious that this is no alternative to a professional study and satisfactory enquiries about future organized maintenance.

Additional details will be obtained by the purchaser's lawyer sending out to the seller's lawyer a standard questionnaire released by the Law Society, understood as LPE1.
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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 conclusion.

What rights does the leaseholder have?

One of the most important is the right of quiet enjoyment of the flat for the regard to the lease, which implies the right to occupation without any unnecessary disturbance from the property manager or manager. This right must encompass the property owner or supervisor addressing any neighbour or annoyance problems that might emerge. The leaseholder deserves to expect the landlord to perform all of the responsibilities that are required by legislation and the terms of the lease such as the maintenance, looking after the finances of the block and guaranteeing no occupant triggers noise or annoyance that affects their neighbours. The leaseholder has a variety of legal rights in relation to challenging service charges, obtaining monetary information and taking over duty for the management, which are covered in detail in other LA information sheets.

What are the leaseholders' responsibilities?

As leases are differently worded leaseholders in one block may have various obligations to another block close by. However, there will be some basic provisions that would be discovered in nearly all leases and these are a few of the most frequently found commitments:

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

• To pay the service charge and ground rent in complete without delay.
• To behave in a method which will not develop annoyance for neighbours.
• To request proprietor's consent, normally for structural modifications or subletting.