The purchase of a leasehold flat is a very specialist area and it is important that you have a property lawyer who is fully conversant with the peculiarities of a leasehold purchase.
We at APL have lawyers who have many years experience in flat purchases and are able to advise on all aspects of the transaction. We set out below some information that may help you to understand what a complex area this is.
What is leasehold?
Leasehold flats can either be purpose built or alternatively houses which have been converted into flats. When you purchase a leasehold flat you are buying the right to occupy and use the flat for a fixed term (usually between 99 and 125 years). The Landlord retains the ‘Freehold’ of the land on which the flat is built.
What do I own?
Normally you will own the four walls of the flat including the floor and the plaster on the walls and ceiling. It does not normally include external or structural walls. The structure and common parts of the building and the land it stands on are normally owned by the Landlord who is responsible for maintenance and repair of the building.
What is a Lease?
A lease is a contract between the Landlord and the purchaser (the ‘Tenant’). It sets out what the Landlord is bound to do. It also deals with the many obligations on the part of the purchaser which will include the payment of ground rent and contributions to the cost of maintaining and managing the building. The lease will probably 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 leaseholders and to keep accounts. It is important that you take expert legal advice on these conditions so as to ensure that you do not breach any of them which would potentially result in Court proceedings. We at APL will read the lease for you and explain it in plain English to ensure that you fully understand your obligations.
What are your contractual rights?
The purchaser has a right for peaceful occupation of the flat for the term of the lease. This is usually referred to as “quiet enjoyment”. In addition the purchaser 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 part of the purchase in the Lease, but to which there are rights of access, i.e. entrance hall and staircase. It is important that you are fully advised on your obligations in this regard as there could be severe financial consequences in the event of the Landlord levying charges in respect of these areas.
What are the purchaser’s responsibilities?
Primarily you will be obliged to keep the inside of the flat in good order and to pay on time the ground rent and service charge in relation to the maintenance and running of the building. You will also have to comply with all the various conditions in the Lease. These may include obligations to decorate the flat on a regular basis, not to alter it without the Landlord's consent, or even not to play loud music at night or disturb the neighbours.
What is Ground Rent?
As the property is leasehold it is normally subject to the payment of a rent (which may be nominal) to the Landlord. The ground rent is a specific requirement of the Lease and must be paid on the due date. It is important that you receive expert legal advice with regard to the ground rent and its implications as it is possible. Where there is a more than averagely high ground rent, it can result in Stamp Duty Land Tax being paid on the property even if the purchase price is less than £125,000.
What are service charges?
Service charges are payments by the purchaser to the Landlord for all services the Landlord provides. These will include maintenance, repairs to the common parts and insurance of the building. Usually the charges will also include the cost 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 (and cannot) be charged by the Landlord and the proportion of the charge to be paid by the individual purchaser will be set out in the Lease. The Landlord arranges for these services and the leaseholder will pay for them. All costs must be met by the occupant of the leasehold building, the Landlord will generally make no financial contribution. Most leases allow for the Landlord to collect the service charges in advance, repaying any surplus or collecting any shortfall at the end of the year. The Landlord can only cover the costs which are reasonable. Purchasers have powerful rights to challenge service charges they feel are unreasonable.
It is important that your lawyer carefully examines the various service charge accounts for previous years and also checks whether there is likely to be any significant increase in expenditure in the near future (for example if the building needs a new roof) which the purchaser would be responsible for.
What is a Reserve Fund?
Some Landlords or Managing Agents collect sums of money in advance to collect a reserve or sinking fund to ensure that sufficient money is available for future scheduled major works such as external decoration, roof repairs or replacement. It is important that your property lawyer checks whether such a fund exists and the amount of money in the fund so as to ensure that you have the benefit when you purchase the flat.
How is the Building insured?
The Lease will normally require the Landlord to take out adequate insurance for the building and common parts and the Lease will give the Landlord the right to recover the cost of the premium through the service charges. This policy will not normally cover the possessions of the Purchaser.
What is a Managing Agent?
Sometimes a Landlord carries out the management of the property himself or 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 cost of appointing the Managing Agent will normally be recovered from the leaseholders as part of the service charge.