The large bulk of flats offered 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 structure that consists of other residences. An individual occupant can not own the freehold because the land on which the structure is constructed is shown other occupiers. Consequently the designer of the structure 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 property owner and even if a flat is promoted 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 reasonably current kind of period 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 defense under proprietor and tenant legislation and a potential buyer should seek legal guidance before purchasing.

What is a lease?

A lease, which is a lawfully binding composed agreement, transfers ownership of a flat for a concurred set period of time referred to as the lease 'term'. It defines the occupier's responsibilities such as the payment of service charges and ground rent and the facilities available such as parking and the access to and satisfaction of common locations, such as gardens or locals' lounge.

There is no standard form of lease for existing or newly built residential or commercial properties regardless of the reality that the majority of leases will include numerous similar terms. Residential rents within the exact same residential or commercial property will usually be substantially the exact same but may vary in some respects such as the proportion of the service fee payable.

The terms of the lease

For the most part it will be tough to alter the lease terms and for that reason potential buyers of leasehold residential or commercial property need to look for expert recommendations at an early stage in the purchasing process to ensure they fully understand the obligations and expenses involved.

The Leaseholder Association (LA) advises any prospective purchaser of leasehold residential or commercial property to get a copy of the lease at an early phase. Sometimes a Leaseholders' Handbook will be used by the seller but this will just consist of a summary of the primary lease terms. This is no alternative to the full lease, which will require completely examining by a solicitor 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 purchaser, including any future payments of ground lease and service fee. It will either be impossible or incredibly difficult to alter the regards to the lease and for that reason the prospective buyer should be conscious they would be lawfully bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease ought to set out in some information the legal rights and commitments of the leaseholder and the freeholder. In some cases there may be a 3rd party 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 legal responsibility for the management and upkeep 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 carry out the above in addition to other tasks such as setting and gathering service fee and producing accounts. The leaseholder should bear in mind that they will be liable for all of the costs of the services being provided.

The lease will generally set out some conditions, called covenants, relating to not only the use of the communal areas but also the usage and profession of the flat itself, which may need to be considered ahead of time. A buyer of a leasehold flat will typically be required to get in into a brand-new deed of covenant which offers the property manager the right to take enforcement action if the flat-owner stops working to follow the agreed conditions.

What are service fee?

Flat owners are generally needed to pay a contribution towards the upkeep of the entire structure and the common parts. This is called a service fee. The lease ought to specify the percentage of service charges payable, which may be equal with all other occupiers or individually computed to reflect the size of the flat and the services taken pleasure in. If the lease makes provision for a parking area this may incur a surcharge.

A prospective buyer needs to obtain details of the level of charges for the residential or commercial property they are believing of purchasing an early phase and demand copies of the represent the previous 2 to 3 years. They must also enquire whether there are most likely to be considerable increases. The quantity of service charges will vary from year to year in relation to the costs of the upkeep of the building, which will inevitably increase. The prospective buyer should be aware that these increases might often be greater than the rate of inflation. (Please see the LA Information Sheet 103 Service Charges).

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

The freeholder is also referred to as the property manager because he owns the land or ground on which the building is constructed. This entitles the freeholder to charge an annual ground rent to all occupiers of the structure and the lease need to specify the proportion of lease payable, which my differ according to the size of the flat. The property owner is responsible for the maintenance of the grounds and all the shared parts of the structure such entrances, passages, stairs and any shared centers such as a lounge, laundry space or guest room. These are collectively called the 'typical parts'.

When leasehold flats are promoted for sale the identity of the proprietor is not constantly made clear. The proprietor might be an individual, a personal business, the local authority, a housing association or a Local Freehold Company (RFC). A potential buyer must think about the implications of each kind of proprietor and would be encouraged to discuss this with the lawyer or conveyancer. Where there is an RFC the purchaser might be entitled to buy a share of the business that owns the freehold, which may bring additional obligations in addition to benefits. (Please see the LA info sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a purchaser will never ever in fact own a flat or home since one can not separately own the physicals of the building or the land the structure rests on. What is obtained is the right to special possession and occupation of the residential or commercial property for the period or term of the lease, normally 99 years or more. A lease is just a contract with the freeholder of the structure that gives the right of possession. The longer the regard to the lease the greater is its market price. Unlike a rent-paying tenant, a leasehold owner retains the right to sell the leasehold ownership and gain from boosts in residential or commercial property rates.

Ownership will generally apply to whatever within the borders of the flat but it would not normally include the external walls or windows. Typically the structure, the common parts of the structure and the land the entire premises are located on would be owned by the freeholder. The freeholder would be accountable for the repair and upkeep of the parts of the building they keep. This obligation is typically handed over to a professional business called a handling representative, which might be an independent business or a subsidiary of the freeholder. The freeholder has no obligations to fund the maintenance of the structure or premises. All these costs should usually be met collectively by the leaseholders. The prospective buyer is recommended to ask their lawyer to inspect the lease to clarify the parts of the constructing the flat-owner will be accountable for and the most likely expenses included.

What information is vital before buying?

The length of the unexpired regard to the lease is one of the very first factors to consider to a potential purchaser as this will be one of the primary aspects affecting the cost spent 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 include extra costs. For the most part purchasers would be recommended to make sure there is over 80 years staying on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the huge majority of cases the lending institution will only approve a mortgage if there is a suitable period left to operate on the lease, normally at least 60 years.

A leaseholder's monetary responsibilities are set out in the lease, which will make flat-owners accountable for service fee and in many cases ground lease. If charges are not set out clearly and unambiguously in the lease they are not likely to be payable.

A buyer must be satisfied the building has actually been correctly kept. It is very important to see three years service fee accounts and observe the pattern in the quantity owners have actually been required to contribute. The accounts will reveal if there is a high level of service charge financial obligations, which might result in other leaseholders paying additional sums to fulfill the cash shortfall.

Potential buyers must 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 meet future significant expense. This is an essential factor to consider when purchasing a flat as the lack of a reserve fund or insufficient balance in the fund might imply that the buyer will require to pay a considerable lump amount when any significant works are needed. Diligent property owners and managing representatives will carry out a building survey and prepare a cyclical maintenance plan demonstrating how much money will be needed 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 should state whether a reserve fund is funded from leaseholders' annual service fee contributions, a swelling 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 enter into a neighborhood of owners and the lease will set out standard guidelines that are necessary for everybody's well being. These commitments, which are sometimes referred to as covenants, are enforceable in law and if they are constantly overlooked in breach of the lease it could eventually result in the surrender of the lease and foreclosure of the flat. Before buying a flat purchasers must check out the lease thoroughly and fully comprehend these commitments.

Oftentimes the prospective buyer will require to get a mortgage and therefore will need to take into consideration the level of service charges and lease that will be payable when thinking about the amount of mortgage payments that might be workable. A mortgage lending institution will usually need an appraisal of the residential or commercial property to be performed however the prospective purchaser needs to be conscious that this is no replacement for an expert survey and satisfying queries about future scheduled maintenance.

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

A copy of this questionnaire is readily available on the LA site or from the Law Society at www.lawsociety.org.uk. Buyers are encouraged to study this info thoroughly before completion.

What rights does the leaseholder have?

One of the most crucial is the right of quiet satisfaction of the flat for the term of the lease, which implies the right to profession with no undue interference from the property manager or manager. This right should extend to the property owner or manager dealing with any neighbour or problem problems that might occur. The leaseholder has the right to anticipate the property owner to perform all of the responsibilities that are needed by legislation and the terms of the lease such as the upkeep, taking care of the financial resources of the block and guaranteeing no occupant triggers sound or problem that impacts their neighbours. The leaseholder has a variety of legal rights in relation to difficult service fee, obtaining monetary information and taking control of duty for the management, which are covered in detail in other LA information sheets.

What are the leaseholders' commitments?

As leases are differently worded leaseholders in one block might have different responsibilities to another block close by. However, there will be some basic provisions that would be found in almost all leases and these are some of the most typically found obligations:

- To keep the inside of the flat in a reasonable state of repair work.
- To pay the service fee and ground rent in full without delay.
- To act in such a way which will not produce nuisance for neighbours.
- To request property owner's permission, typically for structural modifications or subletting.