What is leasehold?
Leasehold ownership of a flat is simply a long tenancy, the right to occupation and use of the flat for a long period – the ‘term’ of the lease. This will usually be for 99 or 125 years and the flat can be bought and sold during that term.
The leasehold ownership of a flat usually relates to everything within the four walls of the flat, including floorboards and plaster to walls and ceiling, but does not usually include the external or structural walls. A garden can be included, unless it is a communal garden for the building.
The structure and common parts of the building and the land it stands on are owned by the freeholder, also known as the landlord, who is normally responsible for the maintenance and repair of the building. If so, any costs incurred are recoverable from the leaseholders through service charges.
The landlord can be a person or a company. Leaseholders can also own the freehold of a building through a residents’ management company, effectively becoming their own landlord. Furthermore, under right to manage, the lessees may not own the freehold but are able to manage the building as if they were the landlord.
What is a lease?
A lease is a contract between the leaseholder and the landlord giving conditional ownership for a fixed period of time. It is an important document and leaseholders must ensure that they have a copy and that they understand it.
The lease sets out the contractual obligations of the two parties: what the leaseholder has contracted to do and what the landlord is bound to do. The leaseholder’s obligations will include payment of the ground rent (if any) and contribution to the costs of maintaining, insuring and managing the building. The landlord will usually be required to manage and maintain the structure, exterior and common areas of the property, to collect service charges from all the leaseholders, insure the building and keep the accounts.
What are the leaseholders rights?
First and foremost, the right of “quiet enjoyment” of the flat for the term of the lease. In addition, the leaseholder has the right to expect the landlord to maintain and repair the building and manage the common parts – that is, the parts of the building or grounds not specifically granted to the leaseholder in the lease but to which there are rights of access, for example, the entrance hall and staircases.
What are the leaseholders responsibilities?
Principally, these will be the requirements to keep the inside of the flat in good order, to pay (on time) a share of the costs of maintaining and running the building, to behave in a neighbourly manner and not to do certain things without the landlord’s consent, for example, make alterations or sublet.
What is ground rent?
Because leasehold is a tenancy, it is subject to the payment of a rent (which may be nominal) to the landlord. Ground rent is a specific requirement of the lease and must be paid on the due date, subject to the issue of a formal and specific demand by the landlord.
What are service charges?
Service charges are payments by the leaseholder to the landlord for all the services the landlord provides. These will include maintenance and repairs, insurance of the building and in some cases provision of lifts, lighting and cleaning of common areas etc. Usually the charges will also include the costs of management, either by the landlord or by a professional managing agent.
Service charges will vary from year to year; they can go up or down without any limit other than that they are reasonable. Details of what can (and cannot be charged) by the landlord and the proportion of the charge to be paid by the individual leaseholder will all be set out in the lease.
What are reserve funds?
Many leases provide for the landlord to collect sums in advance to create a reserve or ‘sinking’ fund to ensure that sufficient money is available for future major works, such as external decorations or lift replacement. Contributions to the reserve fund are not repayable when the flat is sold. If there is insufficient money in the reserve fund to deal with major works the cost will be shared between owners in the proportions set out in the individual leases.
How is the building insured?
The lease will normally require the landlord to take out adequate insurance for the building and the common parts, and will give him the right to recover the cost of the premium through the service charges. This policy will not normally cover the possessions of individual leaseholders.
What happens if the leaseholder doesn’t pay?
It is the leaseholder’s obligation to pay the service charges and ground rent promptly under the terms of the lease.
If they are not paid when properly due and reasonable then the Landlord may seek a county court judgment for payment, which can affect a leaseholder’s ability to obtain credit. If payment is still not made that Landlord can begin forfeiture proceedings by serving a formal notice of breach on the leaseholder. If forfeiture is approved by a court, this can lead to the landlord repossessing the flat.
What is a managing agent?
It is possible for the landlord or the residents’ management company to carry out the management of the property direct; alternatively, a managing agent will be appointed to manage and maintain the building on behalf of the landlord, in accordance with the terms of the lease, current relevant legislation and codes of practice.
The agent takes instruction from the landlord, not the leaseholders, but should constantly be aware of the leaseholders’ wishes and requirements. The agent will receive a fee for day to day management which will usually be paid by leaseholders as part of the service charges. It is good and common practice is for it to be a fixed fee per annum. Where major works, or other works that were not anticipated, are involved, the agent will charge an additional fee, based on the time taken or a percentage of the total cost of such works.
Where can I get further advice?
Further advice and information is available from a number of sources including:
LEASE – The Leasehold Advisory Service
www.lease-advice.org
ARMA – The Association of Residential Managing Agents.
www.arma.org.uk
The Property Ombudsman
www.tpos.co.uk
Landlord and Tenant Act 1987
www.legislation.gov.uk/ukpga/1987/31
Landlord and Tenant Act 1985
www.legislation.gov.uk/ukpga/1985/70