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Sinclair Property – Managing Agents

Leasehold explained

What is a leasehold?

A residential leasehold property can be in purpose-built block, in a converted house or above commercial premises. Leasehold ownership of a flat is simply a long tenancy with the right to occupation and use of the flat for a long period which is known as “the term of the lease”.

The term will usually be for a fixed period of 99 years or 125 years and the flat can be bought and sold during this period.

The ownership of the 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. The structure and common parts of the building and the land it stands on are owned by the landlord, who is normally responsible for the repairs and maintenance of the building.

The landlord can be a private individual or a company, including a local authority or a housing association.

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 wording of the lease is usually in legal language and can vary from property to property. Leaseholders who cannot understand their lease should get professional advice.

It is difficult to change the conditions of the lease after you buy, so make sure that the services provided in the lease are those that you want or can accept.

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 and contribution to the costs of maintaining and managing the building. The lease may also place certain conditions on the use and occupation of the flat.

The landlord will usually be required to manage and maintain the structure, exterior and common areas of the property, to collect contributions from all the leaseholders and keep the accounting records of the property

When a flat changes hands, the seller assigns all the rights and responsibilities of the lease to the purchaser, including any future service charges that have not yet been identified.

Read the lease and understand your rights and responsibilities.

What are your contractual rights?

First and foremost, the right of peaceable occupation of the flat for the term of the lease, usually referred to as ‘quiet enjoyment’. 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 your responsibilities?

Principally, these will be the requirement 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 sub-let. The landlord has an obligation to ensure that the leaseholder complies with such responsibilities for the good of all the other leaseholders. These rights and responsibilities will be set out in the lease.

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,  lifts, porterage, lighting and cleaning of common areas. Usually the charges will also include the costs of management, either by the landlord or by a professional managing agent.

Service charges can vary from year to year; they can go up or down without any limit other than that they are reasonable.

Details of what can 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.

The landlord arranges provision of the services. The leaseholder pays for them.

All costs must be met by the leaseholder; the landlord will generally make no financial contribution. Most modern leases allow for the landlord to collect service charges in advance, repaying any surplus or collecting any shortfall at the end of the year.

When considering the purchase of a leasehold flat, it is important to find out, for personal budgetary purposes, what the current and future service charges are likely to be. Also check if there is a reserve fund, and what plans there are for major works that could affect the service charge in the next few years after your purchase.

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 scheduled major works, such as external decorations or lift replacement. The lease will set out the sums involved and when regular, cyclical, maintenance works are due.

Contributions to the reserve fund are not repayable when the flat is sold.

How is the building insured?

The lease will normally require the landlord to take out out adequate insurance for the building and the common parts, and will give him or her the right to recover the cost of the premium through the service charges. The 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 and the landlord is able to show that the charges are reasonable, then he can begin forfeiture proceedings. If approved by a court, this can lead to the landlord repossessing the flat. However under the Commonhold and Leasehold Reform Act 2002, the right of the landlord will be restricted.

What is a managing agent?

Sometimes the landlord carries out the management of the property himself. Alternatively, a managing agent may be appointed to manage and maintain the building on behalf of the landlord, in accordance with the terms of the lease. The agent takes instruction from the landlord, or the leaseholder owned management company and should constantly be aware of the leaseholder’s wishes and requirements. The agent will receive a fee from the leaseholders as part of the service charges. This may be based on a specified percentage of the day-to-day service charges, but good and common practice is for it to be a fixed fee per annum. Where major works are involved, the agent may charge an additional fee, which will normally be a percentage of the total cost of such works.