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 just a part of a structure that contains other dwellings. A specific occupant can not own the freehold since the land on which the building is constructed is shown other occupiers. Consequently the designer of the structure typically keeps the freehold and sells long-lasting leases to specific flat owners or 'leaseholders'.

In leasehold blocks there will always be a freeholder or proprietor and even if a flat is promoted as freehold it just means its owner has a share of a freehold, which would be held by a resident freehold company. There are really couple of flats that are commonhold, which is a fairly recent type of period 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 security under property owner and tenant legislation and a potential purchaser should seek legal advice before purchasing.

What is a lease?

A lease, which is a legally binding composed contract, transfers ownership of a flat for an agreed fixed period of time understood as the lease 'term'. It specifies the occupier's responsibilities such as the payment of service charges and ground lease and the facilities readily available such as parking and the access to and enjoyment of communal areas, such as gardens or residents' lounge.

There is no standard kind of lease for existing or freshly constructed residential or commercial properties despite the truth that most leases will consist of many comparable terms. Residential leases within the very same residential or commercial property will normally be substantially the same but might differ in some respects such as the percentage of the service charge payable.

The regards to the lease

Most of the times it will be tough to change the lease terms and for that reason potential purchasers of leasehold residential or commercial property need to look for specialist recommendations at an early stage in the buying process to ensure they fully understand the responsibilities and expenses included.

The Leaseholder Association (LA) advises any prospective purchaser of leasehold residential or commercial property to obtain a copy of the lease at an early phase. Sometimes a Leaseholders' Handbook will be provided by the seller however this will just include a summary of the main lease terms. This is no alternative to the full lease, which will require thoroughly examining by a solicitor or professional adviser to see if all of its terms will be appropriate to the prospective buyer.

When a leasehold residential or commercial property is offered or moved, all of the rights and responsibilities of the lease will pass to the purchaser, including any future payments of ground rent and service charges. It will either be difficult or very difficult to change the terms of the lease and therefore the potential purchaser need to be mindful they would be legally bound by its terms. (Please see the LA Information Sheet 110 Lease Variations)

The lease must set out in some information the legal rights and responsibilities 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 should also offer a summary of their responsibilities. Typically the freeholder will have the legal responsibility for the management and upkeep of the structure, outside and typical parts of the residential or commercial property, which might consist of any gardens or premises. Many freeholders will appoint managers to perform the above together with other responsibilities such as setting and gathering service fee and producing accounts. The leaseholder should keep in mind that they will be accountable for all of the costs of the services being supplied.

The lease will generally set out some conditions, called covenants, connecting to not just the usage of the common areas however also the use and occupation of the flat itself, which may need to be considered in advance. A purchaser of a leasehold flat will frequently be needed to participate in a new deed of covenant which gives the proprietor the right to take enforcement action if the flat-owner stops working to comply with 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 typical parts. This is called a service charge. The lease needs to stipulate 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 enjoyed. If the lease makes provision for a parking space this might sustain an added fee.

A potential buyer must acquire information of the level of charges for the residential or commercial property they are considering buying at an early phase and demand copies of the accounts for the previous 2 to 3 years. They need to likewise ask whether there are most likely to be significant boosts. The quantity of service charges will vary from year to year in relation to the costs of the upkeep of the building, which will undoubtedly rise. The potential purchaser ought to understand that these boosts might frequently 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 property owner?

The freeholder is likewise referred to as the landlord since he owns the land or ground on which the building is built. This entitles the freeholder to charge an annual ground rent to all occupiers of the structure and the lease must specify the percentage of lease 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 building such entryways, corridors, staircases and any shared centers such as a lounge, utility room or guest space. These are collectively called the 'common parts'.

When leasehold flats are marketed for sale the identity of the landlord is not constantly explained. The property owner might be a specific, a private business, the regional authority, a housing association or a Resident Freehold Company (RFC). A potential purchaser needs to consider the implications of each type of property owner and would be encouraged to discuss this with the solicitor or conveyancer. Where there is an RFC the purchaser might be entitled to purchase a share of the company that owns the freehold, which may bring additional responsibilities as well as advantages. (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 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 special belongings and profession of the residential or commercial property for the duration or regard to the lease, usually 99 years or more. A lease is simply an agreement with the freeholder of the structure that gives the right of ownership. The longer the term of the lease the greater is its market value. Unlike a rent-paying occupant, a leasehold owner retains the right to sell the leasehold ownership and advantage from increases in residential or commercial property rates.

Ownership will generally use to whatever within the borders of the flat but it would not usually consist of the external walls or windows. Typically the structure, the typical parts of the structure and the land the entire premises are situated on would be owned by the freeholder. The freeholder would be accountable for the repair and upkeep of the parts of the structure they maintain. This obligation is normally delegated to a professional business referred to as a managing agent, which may be an independent company or a subsidiary of the freeholder. The freeholder has no obligations to finance the upkeep of the structure or grounds. All these expenses need to normally be met collectively by the leaseholders. The prospective purchaser is recommended to ask their solicitor to inspect the lease to clarify the parts of the developing the flat-owner will be accountable for and the likely costs involved.

What details is essential before purchasing?

The length of the unexpired regard to the lease is among the first considerations to a potential purchaser 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 extra costs. In many cases purchasers would be advised to guarantee 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 loan provider will just give a mortgage if there is a suitable period delegated work on the lease, typically a minimum of 60 years.

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

A buyer should be satisfied the building has been properly preserved. It is necessary to see three years service charge accounts and observe the trend in the amount owners have actually been required to contribute. The accounts will reveal if there is a high level of service charge financial obligations, which could lead to other leaseholders paying additional amounts to fulfill the cash deficiency.

Potential purchasers should know whether there is a reserve fund and just how much there is in the fund. It will typically be called a sinking fund, contingency fund or future upkeep fund and ought to 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 insufficient balance in the fund could imply that the purchaser will require to pay a considerable swelling sum when any major works are needed. Diligent property owners and managing representatives will carry out a building study and prepare a cyclical upkeep plan revealing how much money will be needed to money the future upkeep of the building. Buyers must ask to see this strategy and compare it with funds in the reserve fund.

The lease must mention whether a reserve fund is funded from leaseholders' yearly service fee contributions, a swelling 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 enter into a neighborhood of owners and the lease will set out standard guidelines that are required for everyone's well being. These obligations, which are sometimes described as covenants, are enforceable in law and if they are constantly disregarded 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 read the lease carefully and fully understand these responsibilities.

In lots of cases the potential purchaser will require to obtain a mortgage and therefore will need to take into consideration the level of service charges and rent that will be payable when thinking about the amount of mortgage payments that might be manageable. A mortgage lending institution will generally need a valuation of the residential or commercial property to be carried out however the potential buyer requires to be aware that this is no alternative to an expert study and satisfactory enquiries about future organized maintenance.

Additional details will be obtained by the purchaser's solicitor sending to the seller's solicitor a basic questionnaire published by the Law Society, called LPE1.

A copy of this questionnaire is offered on the LA website or from the Law Society at www.lawsociety.org.uk. Buyers are advised to study this details carefully before completion.

What rights does the leaseholder have?

Among the most essential is the right of peaceful satisfaction of the flat for the regard to the lease, which means the right to occupation with no unnecessary disturbance from the proprietor or manager. This right ought to extend to the landlord or manager dealing with any neighbour or problem problems that might arise. The leaseholder has the right to anticipate the landlord to perform all of the responsibilities that are required by legislation and the terms of the lease such as the maintenance, caring for the finances of the block and ensuring no resident causes sound or problem that impacts their neighbours. The leaseholder has a variety of legal rights in relation to challenging service charges, obtaining monetary info and taking over obligation for the management, which are covered in information in other LA info sheets.

What are the leaseholders' commitments?

As leases are differently worded leaseholders in one block may have different responsibilities to another block close by. However, there will be some standard clauses that would be found in almost all leases and these are some of the most commonly discovered responsibilities:

- To keep the within the flat in an affordable state of repair work.
- To pay the service charge and ground lease completely without delay.
- To behave in a manner which will not produce nuisance for neighbours.
- To request property manager's approval, usually for structural modifications or subletting.