It’s surprising how much confusion still surrounds leasehold ownership – the key is to remember that it is all in the lease!
Read it carefully and be sure you understand it, particularly as it is likely to contain a lot of archaic terms. If in doubt when buying a flat, ask your conveyancing solicitor to explain anything you don’t understand. In one case a landlord put in a clause increased ground rents from around £150 to £1000s! It serves as a cautionary tale about checking the lease.
If you discover that the leaseholders jointly own the freehold or have the right to manage their block, is can lead to more confusion with regards to just exactly what this means.
Where the leaseholders between them own the freehold, or where they have exercised their right to manage their block, in practice this means the management of the block will be conducted through a company, complete with directors and company secretary. And with thousands of leaseholders exercising their right to manage, this is not as scary as it may first seem.
Individually, occupants are all still leaseholders as well, and still bound by the terms of that all-important lease document. If you are in any doubt about your tenure, there’s a wealth of free information provided by the government’s Leasehold Advisory Service.
Core rights and responsibilities
As a leaseholder you have a right to:
- get information about service charges or insurance
- know the landlord’s (freeholder’s) name and address or, in the case of a Residential Management Company, the name and address of the directors and company secretary
- be consulted about certain maintenance and running costs
- challenge certain charges under some circumstances
Your responsibilities are detailed in your lease, for example:
- you may need permission to make alterations (and to pay landlord’s costs in granting permission)
- you will almost certainly pay a defined share of the costs of maintaining the property (and the lease will say what items can be charged).
- you may need to contribute to a reserve fund to ’save up’ for major works like roof repairs.
- There may be restrictions on things like noise, pets, bike storage, etc
It’s also worth knowing …..
- Buying the freehold: You can ask the landlord to sell you the freehold at any time. You’ll need the support of at least 50% of the leaseholders in the block and ultimately, every leaseholder will own a share of the freehold. If it’s the other way round and the landlord wants to sell the freehold of a building containing flats, leaseholders have a right of first refusal.
- Right to Manage: If you don’t want to buy the freehold, or cannot get half the leaseholders to agree to the costs of doing so, then there is another option which will allow you to take control of the management of your block – whether that’s a block of 2 or 200 flats. As with buying the freehold, this involves setting up a company, and again leaseholders for at least half the total number of flats in the building must agree. For those leaseholders who have already gone through the process, they have the freedom and control to then either manage the block themselves or appoint a managing agent or property manager to do it on their behalf. There are plenty of lawyers and specialist companies to help you do this, and a good starting point is to check out the information freely available on the Leasehold Advisory Service web site.
- Service charges: If you pay a service charge, you have the right to ask for a summary showing how the charge is worked out and to see any paperwork supporting the summary, such as receipts. You also have the right to be consulted before specific works are commissioned where you will contribute more than £250, or for on-going services for which your annual share will exceed £100. Buildings insurance (not contents) will usually be part of the service charge
- Ground rent: You don’t have to pay ground rent unless your landlord has sent you a formal, written demand for it. Bear in mind your landlord can recover unpaid ground rent going back 6 years and can ask for it to be paid in full.
- Extension of your lease: You can ask the landlord to extend your individual lease at any time, up to 90 years on a flat, but there is of course a cost and acting collectively may make sense. The Leasehold Advisory Service’s lease extension calculator gives you a guide. As a rule of thumb, don’t let the lease get below 80 years or the cost of extending it will go up and/or the values of your flat may go down.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Deacon accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.