The large bulk of flats offered 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 occupant can not own the freehold due to the fact that the arrive on which the structure is constructed is shared with other occupiers. Consequently the developer of the structure normally maintains the freehold and sells long-lasting leases to private 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 very couple of flats that are commonhold, which is a reasonably recent 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 prospective purchaser must seek legal guidance before buying.

What is a lease?

A lease, which is a lawfully binding composed contract, transfers possession of a flat for a concurred set time period referred to as the lease 'term'. It specifies the occupier's obligations such as the payment of service charges and ground lease and the centers readily available such as parking and the access to and pleasure of communal areas, such as gardens or locals' lounge.

There is no standard form of lease for existing or recently developed residential or commercial properties in spite of the fact that a lot of leases will consist of numerous comparable terms. Residential rents within the same residential or commercial property will normally be substantially the same however may differ in some respects such as the percentage of the service charge payable.

The terms of the lease

Most of the times it will be tough to alter the lease terms and for that reason prospective purchasers of leasehold residential or commercial property should look for professional suggestions at an early stage in the purchasing procedure to guarantee they totally understand the commitments and costs involved.

The Leaseholder Association (LA) encourages any potential purchaser of leasehold residential or commercial property to obtain a copy of the lease at an early phase. In some cases a Leaseholders' Handbook will be used by the seller but this will only consist of a summary of the main lease terms. This is no alternative to the full lease, which will need thoroughly taking a look at by a solicitor or expert consultant to see if all of its terms will be acceptable to the prospective purchaser.

When a leasehold residential or commercial property is sold or moved, all of the rights and obligations of the lease will pass to the purchaser, including any future payments of ground lease and service charges. It will either be impossible or very challenging to alter the regards to the lease and for that reason the potential buyer ought to understand they would be legally 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 responsibilities of the leaseholder and the freeholder. Sometimes there might be a 3rd party to the lease such as a management company and if so the lease ought to likewise offer a summary of their responsibilities. Typically the freeholder will have the contractual duty for the management and upkeep of the structure, exterior and typical parts of the residential or commercial property, which may include any gardens or grounds. Many freeholders will select managers to perform the above in addition to other tasks such as setting and collecting service fee and producing accounts. The leaseholder needs to remember that they will be accountable for all of the expenses of the services being provided.

The lease will generally set out some conditions, called covenants, connecting to not only making use of the communal locations however also the usage and profession of the flat itself, which might require to be thought about beforehand. A buyer of a leasehold flat will typically be needed to participate in a new deed of covenant which provides the property manager the right to take enforcement action if the flat-owner fails to follow the agreed conditions.

What are service fee?

Flat owners are typically needed to pay a contribution towards the upkeep of the entire building and the common parts. This is called a service fee. The lease ought to stipulate the percentage of service charges payable, which may be equivalent with all other occupiers or separately determined to show the size of the flat and the services taken pleasure in. If the lease makes provision for a parking space this may sustain a surcharge.

A prospective buyer ought to obtain information of the level of charges for the residential or commercial property they are considering an early phase and request copies of the represent the previous 2 to 3 years. They need to likewise enquire whether there are likely to be considerable boosts. The amount of service charges will differ from year to year in relation to the costs of the maintenance of the building, which will undoubtedly increase. The prospective purchaser needs to know that these boosts might often be higher 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 also understood as the property owner because he owns the land or ground on which the structure is constructed. This entitles the freeholder to charge a yearly ground lease to all occupiers of the building and the lease ought to specify the proportion of lease payable, which my differ according to the size of the flat. The landlord is accountable for the maintenance of the grounds and all the shared parts of the structure such entryways, passages, stairways and any shared centers such as a lounge, laundry space or guest room. These are jointly understood as the 'typical parts'.

When leasehold flats are marketed for sale the identity of the landlord is not always explained. The proprietor might be a private, a private company, the local authority, a housing association or a Local Freehold Company (RFC). A potential purchaser must think about the ramifications of each kind of property owner and would be advised to discuss this with the solicitor 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 additional duties in addition to benefits. (Please see the LA info sheet 113 Enfranchisement).

What does the buyer own?

Strictly speaking a buyer will never really own a flat or home because one can not separately own the bricks and mortar of the structure or the land the structure rests 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, normally 99 years or more. A lease is merely a contract with the freeholder of the building that grants the right of possession. The longer the regard to the lease the greater is its market value. Unlike a rent-paying renter, a leasehold owner retains the right to sell the leasehold ownership and take advantage of boosts in residential or commercial property prices.

Ownership will normally apply to everything within the borders of the flat but it would not typically consist of the external walls or windows. Typically the structure, the typical parts of the building and the land the whole premises 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 maintain. This duty is usually delegated to a professional business known as a handling representative, which might be an independent business or a subsidiary of the freeholder. The freeholder has no commitments to finance the upkeep of the structure or grounds. All these expenses must normally be fulfilled collectively by the leaseholders. The prospective purchaser is recommended to ask their solicitor to inspect the lease to clarify the parts of the constructing the flat-owner will be accountable for and the likely expenses included.

What info is necessary before buying?

The length of the unexpired regard to the lease is one of the very first factors to consider to a prospective buyer as this will be among the main elements affecting the price paid for the residential or commercial property and the re-sale value. Although the large 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 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 huge bulk of cases the lender will just grant a mortgage if there is a suitable duration delegated run on the lease, normally at least 60 years.

A leaseholder's financial commitments are set out in the lease, which will make flat-owners responsible for service fee and in many cases ground rent. If charges are not set out plainly and unambiguously in the lease they are unlikely to be payable.

A purchaser ought to be pleased the structure has actually been correctly preserved. It is necessary to see three years service fee accounts and observe the pattern in the amount owners have been needed to contribute. The accounts will show if there is a high level of service charge arrears, which might lead to other leaseholders paying extra amounts to meet the cash shortfall.

Potential purchasers should understand whether there is a reserve fund and how much there is in the fund. It will typically be called a sinking fund, contingency fund or future maintenance fund and ought to be represented in money to meet future significant expense. This is an important factor to consider when buying a flat as the lack of a reserve fund or insufficient balance in the fund could imply that the buyer will require to pay a substantial swelling sum when any significant works are required. Diligent landlords and handling agents will undertake a structure survey and prepare a cyclical upkeep strategy showing how much money will be required to fund the future upkeep of the structure. Buyers must 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' yearly service fee contributions, a swelling 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 end up being part of a community of owners and the lease will set out fundamental guidelines that are needed for everyone's well being. These obligations, which are in some cases referred to as covenants, are enforceable in law and if they are constantly disregarded in breach of the lease it could ultimately lead to the forfeit of the lease and foreclosure of the flat. Before purchasing a flat buyers must read the lease thoroughly and fully understand these obligations.

In most cases the potential purchaser will require to acquire a mortgage and therefore will need to consider the level of service charges and rent that will be payable when thinking about the amount of mortgage repayments that may be workable. A mortgage lending institution will typically require an evaluation of the residential or commercial property to be performed however the prospective buyer requires to be aware that this is no replacement for a professional study and satisfactory queries about future planned maintenance.

Additional information will be obtained by the purchaser's solicitor sending out to the seller's solicitor a basic questionnaire released by the Law Society, referred to as LPE1.

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

What rights does the leaseholder have?

One of the most important is the right of peaceful enjoyment of the flat for the regard to the lease, which means the right to profession without any undue disturbance from the property owner or manager. This right needs to encompass the property owner or supervisor resolving any neighbour or nuisance concerns that might emerge. The leaseholder deserves to expect the property owner to bring out all of the tasks that are needed by legislation and the regards to the lease such as the upkeep, looking after the finances of the block and guaranteeing no occupant triggers noise or annoyance that affects their neighbours. The leaseholder has a number of legal rights in relation to tough service charges, getting financial information and taking over duty for the management, which are covered in information in other LA info sheets.

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

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

• To pay the service fee and ground rent completely without hold-up.
• To act in a manner which will not produce problem for neighbours.
• To ask for property owner's consent, typically for structural changes or subletting.