The huge majority of flats sold in England and Wales are leasehold. Unlike a freehold home that rests on its own plot of land a flat is just a part of a structure which contains other houses. A specific resident can not own the freehold because the land on which the building is built is shared with other occupiers. Consequently the developer of the structure usually maintains the freehold and offers long-term leases to individual flat owners or 'leaseholders'.

In leasehold blocks there will constantly be a freeholder or proprietor and even if a flat is advertised as freehold it simply implies 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 tenure where the flat-owners also own the common locations and there is no landlord/flat-owner relationship. Owners of commonhold flats have no rights or defense under proprietor and occupant legislation and a potential purchaser must look for legal guidance before purchasing.

What is a lease?

A lease, which is a legally binding composed agreement, transfers belongings of a flat for a concurred set period of time known as the lease 'term'. It defines the occupier's commitments such as the payment of service charges and ground lease and the facilities offered such as parking and the access to and enjoyment of common locations, such as gardens or locals' lounge.

There is no basic type of lease for existing or recently constructed residential or commercial properties regardless of the fact that most leases will consist of many similar terms. Residential leases within the exact same residential or commercial property will typically be significantly the very same however might differ in some respects such as the proportion of the service fee payable.

The terms of the lease

In many cases it will be hard to alter the lease terms and therefore prospective buyers of leasehold residential or commercial property must look for specialist advice at an early phase in the buying procedure to guarantee they totally comprehend the responsibilities and expenses involved.

The Leaseholder Association (LA) advises any potential purchaser 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 need thoroughly examining by a solicitor or expert advisor to see if all of its terms will be appropriate to the potential buyer.

When a leasehold residential or commercial property is sold or moved, all of the rights and duties of the lease will pass to the purchaser, including any future payments of ground lease and service fee. It will either be difficult or extremely hard to change the regards to the lease and therefore the potential purchaser should 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 detail the contractual rights and commitments of the leaseholder and the freeholder. In many cases there might be a 3rd party to the lease such as a management business and if so the lease should likewise provide a summary of their duties. Typically the freeholder will have the contractual obligation for the management and maintenance of the structure, outside and common parts of the residential or commercial property, which might consist of any gardens or grounds. Many freeholders will designate managers to bring out the above in addition to other responsibilities such as setting and collecting service charges and producing accounts. The leaseholder must keep in mind that they will be accountable for all of the costs of the services being provided.

The lease will generally set out some conditions, called covenants, connecting to not just the use of the communal locations however also the use and profession of the flat itself, which might require to be thought about ahead of time. A buyer of a leasehold flat will frequently be required to participate in a new deed of covenant 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 typically required to pay a contribution towards the maintenance of the whole building and the typical parts. This is referred to as a service fee. The lease needs to state the percentage of service charges payable, which might 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 area this might sustain an added fee.

A prospective buyer needs to acquire details of the level of charges for the residential or commercial property they are thinking of buying at an early stage and demand copies of the accounts for the previous 2 to 3 years. They ought to likewise enquire whether there are most likely to be significant increases. The amount of service charges will differ from year to year in relation to the costs of the upkeep of the structure, which will inevitably rise. The prospective purchaser ought to understand that these increases may frequently 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 also known as the landlord due to the fact that he owns the land or ground on which the structure is constructed. This entitles the freeholder to charge an annual ground lease to all occupiers of the structure and the lease should define the proportion of rent payable, which my vary according to the size of the flat. The proprietor is accountable for the maintenance of the premises and all the shared parts of the structure such entryways, corridors, stairs and any shared facilities such as a lounge, laundry room or visitor space. These are collectively called the 'typical parts'.

When leasehold flats are marketed for sale the identity of the proprietor is not constantly made clear. The proprietor could be an individual, a private business, the local authority, a housing association or a Resident Freehold Company (RFC). A prospective purchaser should consider the implications of each type of proprietor and would be encouraged to discuss this with the lawyer or conveyancer. Where there is an RFC the buyer might be entitled to buy a share of the company that owns the freehold, which may bring extra responsibilities as well as benefits. (Please see the LA information sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a buyer will never actually own a flat or house because one can not separately own the physicals of the building or the land the building rests 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 merely an agreement with the freeholder of the building that grants the right of ownership. The longer the regard to the lease the greater is its market worth. Unlike a rent-paying tenant, a leasehold owner keeps the right to offer the leasehold ownership and take advantage of boosts in residential or commercial property prices.

Ownership will usually use to everything within the limits of the flat however it would not normally consist of the external walls or windows. Typically the structure, the common parts of the building and the land the entire facilities are positioned on would be owned by the freeholder. The freeholder would be accountable for the repair and maintenance of the parts of the building they maintain. This obligation is normally entrusted to an expert company called a managing representative, which may be an independent company or a subsidiary of the freeholder. The freeholder has no responsibilities to finance the upkeep of the structure or grounds. All these expenses should normally be met jointly by the leaseholders. The potential purchaser is advised to ask their solicitor to inspect the lease to clarify the parts of the building the flat-owner will be accountable for and the likely costs involved.

What information is vital before buying?

The length of the unexpired regard to the lease is among the very first factors to consider to a prospective buyer as this will be one of the primary factors affecting the price paid for the residential or commercial property and the re-sale worth. Although the huge majority of leaseholders will have a legal right to a lease extension at a later date this will involve additional expenses. In many cases buyers would be recommended to make sure there is over 80 years remaining on the lease. (Please see the LA Information Sheet 112 Lease Extensions). In the vast majority of cases the loan provider will only give a mortgage if there is a suitable period delegated work on the lease, normally 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 for the most part ground lease. If charges are not set out plainly and unambiguously in the lease they are not likely to be payable.

A buyer needs to be satisfied the structure has actually been properly preserved. It is essential to see three years service charge accounts and observe the trend in the quantity owners have actually been required to contribute. The accounts will show if there is a high level of service charge defaults, which could result in other leaseholders paying additional amounts to meet the cash shortage.

Potential purchasers 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 need to be represented in money to meet future major expenditure. This is an essential factor to consider when purchasing a flat as the lack of a reserve fund or inadequate balance in the fund might imply that the purchaser will need to pay a considerable lump sum when any major works are needed. Diligent property owners and handling agents will undertake a structure survey and prepare a cyclical upkeep plan showing how much cash will be needed to fund the future upkeep of the building. Buyers need to ask to see this plan and compare it with funds in the reserve fund.

The lease ought to state whether a reserve fund is funded from leaseholders' yearly service charge contributions, a lump amount 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 community of owners and the lease will set out standard guidelines that are required for everyone's well being. These responsibilities, which are often referred to as covenants, are enforceable in law and if they are constantly disregarded in breach of the lease it might ultimately lead to the forfeit of the lease and foreclosure of the flat. Before acquiring a flat buyers should read the lease thoroughly and fully understand these obligations.

In lots of cases the prospective purchaser will require to acquire a mortgage and therefore will need to take into consideration the level of service charges and lease that will be payable when considering the amount of mortgage payments that may be manageable. A mortgage loan provider will normally need an appraisal of the residential or commercial property to be brought out however the potential purchaser requires to be conscious that this is no replacement for a professional survey and satisfactory queries about future scheduled maintenance.

Additional information will be acquired by the buyer's solicitor sending out to the seller's lawyer a standard survey released by the Law Society, referred to as LPE1.

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

What rights does the leaseholder have?

Among the most crucial is the right of peaceful satisfaction of the flat for the regard to the lease, which suggests the right to profession without any undue interference from the proprietor or supervisor. This right ought to encompass the property owner or supervisor addressing any neighbour or problem concerns that might develop. The leaseholder has the right to anticipate the proprietor to perform all of the duties that are required by legislation and the regards to the lease such as the upkeep, looking after the finances of the block and guaranteeing no occupant causes sound or annoyance that affects their neighbours. The leaseholder has a number of legal rights in relation to tough service fee, getting financial details and taking over duty for the management, which are covered in information in other LA details sheets.

What are the leaseholders' obligations?

As leases are in a different way worded leaseholders in one block might have different commitments to another block close by. However, there will be some basic stipulations that would be found in almost all leases and these are some of the most commonly found obligations:

- To keep the inside of the flat in an affordable state of repair work.
- To pay the service charge and ground rent completely without hold-up.
- To act in such a way which will not produce nuisance for neighbours.
- To ask for property owner's authorization, generally for structural alterations or subletting.