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 just a part of a building that consists of other houses. A specific resident can not own the freehold since the arrive on which the structure is constructed is shared with other occupiers. Consequently the designer of the structure usually retains the freehold and offers long-lasting leases to private flat owners or 'leaseholders'.

In leasehold obstructs there will constantly be a freeholder or property owner and even if a flat is advertised 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 recent form of period where the flat-owners also own the communal 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 prospective purchaser need to seek legal recommendations before buying.

What is a lease?

A lease, which is a lawfully binding composed contract, transfers ownership of a flat for an agreed set duration of time known as the lease 'term'. It specifies the occupier's commitments such as the payment of service charges and ground rent and the centers available such as parking and the access to and pleasure of common locations, such as gardens or locals' lounge.

There is no standard type of lease for existing or freshly developed residential or commercial properties despite the reality that most leases will consist of numerous comparable terms. Residential leases within the very same residential or commercial property will typically be considerably the same however may vary in some respects such as the proportion of the service fee payable.

The terms of the lease

Most of the times it will be difficult to alter the lease terms and for that reason potential purchasers of leasehold residential or commercial property should seek specialist suggestions at an early phase in the purchasing procedure to guarantee they completely understand the responsibilities and costs included.

The Leaseholder Association (LA) recommends any prospective buyer of leasehold residential or commercial property to get a copy of the lease at an early phase. Sometimes a Leaseholders' Handbook will be offered by the seller however this will only include a summary of the primary lease terms. This is no replacement for the complete lease, which will require thoroughly examining by a lawyer or expert consultant to see if all of its terms will be appropriate to the prospective 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 fee. It will either be impossible or extremely hard to change the regards to the lease and therefore the prospective buyer must understand 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 may be a third celebration to the lease such as a management company and if so the lease need to likewise supply a summary of their responsibilities. Typically the freeholder will have the contractual duty for the management and maintenance of the structure, outside and common parts of the residential or commercial property, which may consist of any gardens or premises. Many freeholders will designate supervisors to carry out the above in addition to other duties such as setting and collecting service charges and producing accounts. The leaseholder should keep in mind that they will be liable for all of the costs of the services being provided.

The lease will normally set out some conditions, called covenants, associating with not just the usage of the common areas however also the usage and profession of the flat itself, which might need to be thought about ahead of time. A purchaser of a leasehold flat will frequently be needed to participate in a new deed of covenant which offers the proprietor the right to take enforcement action if the flat-owner fails to comply with the agreed conditions.

What are service charges?

Flat owners are typically needed to pay a contribution towards the maintenance of the whole structure and the typical parts. This is called a service charge. The lease must state the percentage of service charges payable, which may be equal with all other occupiers or separately calculated to reflect the size of the flat and the services delighted in. If the lease makes provision for a parking space this might sustain an additional charge.

A prospective buyer needs to obtain details of the level of charges for the residential or commercial property they are believing of purchasing at an early phase and demand copies of the accounts for the previous 2 to 3 years. They need to also enquire whether there are likely to be substantial increases. The amount 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 buyer ought to be conscious that these boosts might often be higher than the rate of inflation. (Please see the LA Information Sheet 103 Service Fee).

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

The freeholder is likewise called the landlord because he owns the land or ground on which the structure is developed. This entitles the freeholder to charge a yearly ground rent to all occupiers of the building and the lease must specify the percentage of lease payable, which my differ according to the size of the flat. The property manager is accountable for the upkeep of the grounds and all the shared parts of the structure such entrances, corridors, stairways and any shared centers such as a lounge, utility room or visitor room. These are jointly referred to as the 'common parts'.

When leasehold flats are marketed for sale the identity of the property manager is not constantly explained. The property manager might be a private, a personal business, the local authority, a housing association or a Citizen Freehold Company (RFC). A prospective purchaser must think about the implications of each kind of landlord and would be advised to discuss this with the lawyer or conveyancer. Where there is an RFC the buyer may be entitled to buy a share of the company that owns the freehold, which may bring additional responsibilities in addition to advantages. (Please see the LA details sheet 113 Enfranchisement).

What does the purchaser own?

Strictly speaking a purchaser will never really own a flat or apartment or condo because one can not separately own the bricks and mortar of the building or the land the structure rests on. What is acquired is the right to special ownership and occupation of the residential or commercial property for the period or regard to the lease, typically 99 years or more. A lease is just 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 worth. Unlike a rent-paying renter, a leasehold owner keeps the right to sell the leasehold ownership and take advantage of increases in residential or commercial property costs.

Ownership will typically use to whatever within the borders of the flat however it would not generally consist of the external walls or windows. Typically the structure, the typical parts of the structure and the land the entire properties are positioned on would be owned by the freeholder. The freeholder would be accountable for the repair work and maintenance of the parts of the structure they retain. This obligation is generally handed over to a professional business referred to as a managing agent, which might be an independent business or a subsidiary of the freeholder. The freeholder has no commitments to fund the upkeep of the building or grounds. All these expenses need to usually be fulfilled jointly by the leaseholders. The potential buyer is encouraged to ask their solicitor to check the lease to clarify the parts of the building the flat-owner will be responsible for and the likely expenses involved.

What info is essential before purchasing?

The length of the unexpired term of the lease is among the first considerations to a potential buyer as this will be among the main elements impacting the price spent for the residential or commercial property and the re-sale value. Although the huge bulk of leaseholders will have a legal right to a lease extension at a later date this will include extra expenses. For the most part buyers 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 lending institution will just approve a mortgage if there is a proper duration left to work on the lease, generally at least 60 years.

A leaseholder's monetary obligations are set out in the lease, which will make flat-owners accountable for service fee and in many cases 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 pleased the building has been correctly maintained. It is important to see 3 years service fee accounts and observe the pattern in the quantity 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 extra sums to fulfill the cash shortfall.

Potential purchasers ought to understand 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 need to be represented in cash to fulfill future major expenditure. This is an essential factor to consider when buying a flat as the lack of a reserve fund or inadequate balance in the fund could indicate that the purchaser will need to pay a considerable lump amount when any major works are needed. Diligent proprietors and handling agents will carry out a structure study and prepare a cyclical upkeep plan showing how much cash will be required to money the future upkeep of the building. Buyers should ask to see this plan and compare it with funds in the reserve fund.

The lease should mention whether a reserve fund is funded from leaseholders' annual 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 community of owners and the lease will set out standard rules that are essential for everyone's well being. These commitments, which are sometimes referred to as covenants, are enforceable in law and if they are constantly disregarded in breach of the lease it could eventually lead to the forfeit of the lease and foreclosure of the flat. Before purchasing a flat purchasers ought to read the lease thoroughly and completely understand these responsibilities.

Oftentimes the prospective purchaser will need to obtain a mortgage and for that reason will require to take into consideration the level of service charges and rent that will be payable when thinking about the quantity of mortgage payments that may be workable. A mortgage lender will normally require a valuation of the residential or commercial property to be brought out however the prospective purchaser requires to be mindful that this is no replacement for an expert study and satisfactory enquiries about future organized upkeep.

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

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

What rights does the leaseholder have?

Among the most crucial is the right of peaceful enjoyment of the flat for the term of the lease, which means the right to occupation with no unnecessary disturbance from the property owner or supervisor. This right should reach the property owner or supervisor attending to any neighbour or nuisance problems that might arise. The leaseholder has the right to anticipate the property manager to perform all of the duties that are required by legislation and the regards to the lease such as the upkeep, caring for the financial resources of the block and guaranteeing no occupant triggers noise or nuisance that affects their neighbours. The leaseholder has a number of legal rights in relation to difficult service charges, obtaining financial information and taking control of obligation for the management, which are covered in information in other LA details sheets.

What are the leaseholders' obligations?

As leases are differently worded leaseholders in one block might have different obligations to another block nearby. However, there will be some basic stipulations that would be discovered in almost all leases and these are a few of the most frequently discovered commitments:

- To keep the within of the flat in a reasonable state of repair.
- To pay the service charge and ground lease in full without delay.
- To behave in a manner which will not produce annoyance for neighbours.
- To ask for property owner's approval, normally for structural alterations or subletting.