Associate solicitor Manisha Bhula, in our Residential Property team, explains what it means to own a Leasehold Property.
easehold properties are usually flats, either in a purpose built block or converted from large houses, retail or commercial premises. There are also leasehold houses, but these are rare with the exception of certain parts of the country, ie Bristol.
A Lease is essentially a long tenancy. You have the right to occupy the property for a period of time, referred to as the term. A Lease can have any length of term, but 99 years, 125 years and 999 years are common. As leasehold is a tenancy it will be subject to ground rent. The level of ground rent varies widely depending on the development.
The length of the term is set when the Lease is created and therefore reduces as time passes. It becomes less valuable over time as the remaining term decreases. When the term of the Lease expires the property reverts to the ownership of the Landlord. Mortgage lenders will not lend on a leasehold property which only has a short term remaining. The length of Lease a lender will accept varies between lenders, but the majority require a term at least the length of the mortgage plus 30 years. Extending the term of the Lease will involve paying the Landlord a premium which is calculated based on the value of the property and the term remaining on the existing Lease. The shorter the remaining term the higher the premium payable will be. A leaseholder should certainly arrange to extend the Lease before the term falls below 80 years as the premium will increase significantly for Leases shorter than this.
The Landlord owns the freehold of the property, ie the land on which the property stands and all the “common areas” in the block of flats. The freehold can often also be referred to as the Reversion.
The Lease will state exactly which parts of the property it relates to and will confer various obligations on the owner of the property (the leaseholder, sometimes referred to as the tenant) in respect of those parts. It is usual for a leaseholder to be responsible for the repair and maintenance of everything within the four walls of the flat, ie the floorboards, the non-structural walls, the ceilings and the fixtures within the property. The Landlord will usually be responsible for the any part of the building which does not, by the Lease, form a part of a flat. This would normally include the common areas, structural walls, roof, beams and joists and possibly the windows. The Lease should require the Landlord to be responsible for the repair and maintenance of these parts of the building. The Landlord will recover its costs in this respect from the leaseholders through the service charge.
It is also common for there to be a Management Company which takes on the responsibilities referred to above rather than the Landlord. It is fairly common for a Management Company to be owned by the various leasehold owners in a development. This gives the owners of the flats some degree of control over the management of the development.
The Landlord or Management Company should also be responsible for insuring the entire building. This is the only way to ensure that the entirety of the building is insured.
You may see flats advertised by Estate Agents as “Share of Freehold”. In these cases the freehold is owned by a Management Company which is in turn owned by the leaseholders in the block or as individuals. The property is still leasehold, but the leaseholders are essentially their own Landlord. In this case, when the terms of the Leases run short the leaseholders can extend their Leases charging themselves only a nominal premium. This arrangement also gives the leaseholder a greater say in the management of the block. Another advantage is that the leaseholders do not usually charge themselves ground rent.
The costs of maintenance and repair of the common parts of the building which the Landlord or Management Company are responsible for will be collected from the tenants via service charges. The level of service charges can vary from year to year depending on the condition of the building and the works which are likely to be required. The Landlord or Management Company may also collect additional service charges from the leaseholders each year in order to build up a reserve fund towards any major works which may be required in the future, ie replacement of the roof. However, if works are required which will cost more than £250 per leaseholder the Landlord is required to consult the leaseholders before incurring such expenses.
When considering buying a leasehold property you should consider how well the block is managed and the length of the Lease. We can then advise you on the contents of the Lease. A leasehold property with a well drafted Lease in a properly managed development can make a very good investment and a lovely home.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
