Liz Hodgkinson is an experienced property developer, landlord and journalist. Over the past decade she has bought, renovated and rented out or lived in many flats of all kinds, from new-build to Victorian, from purpose-built 60s and 70s blocks, to conversions and mansion blocks. She contributes a regular landlord and tenant column to the Evening Standard and also writes for the Mail on Sunday, The Lady, Saga, The Independent and Daily Mail.
The lease is by far the most important aspect of any flat purchase, as it governs the behaviour both of residents and the freeholder, if there is an outside freeholder. Even if there is not, and the lease is sold with a share of the freehold, there will still be a ‘leaseholder’ and a ‘freeholder’ or ‘landlord’, even if the leaseholders and landlords are one and the same.
In situations where the residents have enfranchised, the landlord will have become a limited company, so that if the building is called Fairview Court, the landlord will be Fairview Court Ltd, where each resident is a shareholder and there is a Board of Directors and a Secretary.
There has to be some kind of separation into freeholder and leaseholder for the thing to work, to ensure that service charges are met, common parts are looked after and repairs are carried out. Even when the ‘lunatics run the asylum’, there has to be some legally-binding document in place that ensures the smooth running of the building.
There may or may not be managing agents, as this is not a legal requirement. But, in any case, the limited company acting as the landlord has the same powers as an outside landlord, and can forfeit leases or put a charge on a property.
Now you can see how it becomes complicated to buy a flat! The lease is a legally binding document on both sides, and there could be serious penalties for breaches. When you sign a lease, you enter into the terms of that lease, so it is as well to know what you are signing.
QUESTIONS TO ASK
If you are interested in a lovely flat in a wonderful location you need to ask – and have satisfactory answers to – the following questions before ever making an offer:
- 1.How long is the lease? Very often, on estate agents’ particulars, it says ‘to be advised’. They want to get you through the door before they tell you the bad news, by which time, they hope, you will have fallen irrevocably in love with the flat. Be very careful of properties where the lease is 80 years or less, as it will then be difficult to obtain a mortgage. And even more difficult to sell!
- 2.Is the flat being sold with a share of the freehold? Nowadays, estate agents often put this on the particulars, but not always. Always buy with a share of the freehold where possible, as this means there is no outsider in overall charge.
- 3.If the flat is not sold with a share of the freehold, who is the landlord or freeholder? Is anything known about this person or company? Do they generally have a good reputation? It is important to remember that estate agents do not always know themselves who is the landlord, so it is up to you to find out, especially if they look blank when you ask them.
- 4.Is there more than one leaseholder? In other words, is there a complicated layer of ownership where there is a landlord, a head leaseholder and ordinary leaseholders, such as you, the buyer? This often happens with mansion blocks in London.
- 5.Are there any plans to enfranchise? If so, how advanced are these plans? And how much is it likely to cost everybody?
- 6.What are the service charges?
- 7.Are there any plans for major works?
- 8.Is there a sinking fund in place? If so, how much is it?
- 9.If the lease is shorter than 80 years, can it be extended, and how much would a lease extension cost?
- 10.Are there any serious debtors in the building?
- 11.Are there managing agents?
- 12.Is there a Residents’ Association?
- 13.Is subletting allowed? Under what terms? (This is particularly important to know if you are buying your property as an investment.)
- 14.Is there a lift?
- 15.Is there a communal heating and hot water system? Wherever possible, avoid these blocks.
- 16.Is there a resident porter? Remember, that the more services there are, the more expensive the building is to run, and the higher the service charges.
- 17.Are all the leases the same? In older buildings, some leases may be different from others. In new buildings, all leases are usually identical. Before buying into an older block, ask if all leases are identical, as having differing leases can cause enfranchisement problems.
Although some of these questions may appear pernickety, it is worth remembering that once you are in, it may be difficult, if not impossible, to change anything. And very often, solicitors do not ask all of these questions. Many conveyancing solicitors, themselves living in secluded mansions in the suburbs, may not understand leasehold law all that well. It is a specialised area, rapidly becoming ever more specialised as laws change and ever more tribunals, regulations and associations start up.
THE LEASE ITSELF
This is usually couched in antiquated legalese and as such, is often not readily comprehensible to the layperson. Because of this, few people buying into leasehold properties ever read the lease or ask to have any clauses they do not understand explained to them.
Then, whenever disputes arise, complainants are first asked to ‘refer to the lease’ when they may never have even glanced at it before buying into the building.
It is tempting, when documents are written in archaic and unfamiliar language, to imagine they contain some mystic elements beyond the powers of ordinary people to understand. But also, because they seem very stern and legal, there is also the temptation to believe that therefore they must necessarily be fair and above board.
This is by no means always the case. Don’t forget that leases are deliberately couched in arcane language to befuddle you, the buyer, and make you think you need a solicitor who charges £200 an hour or more to explain everything. Before buying, always ask to see a copy of the lease; nay, insist on it as once you have signed, it will be too late to undo any clauses you may not like.
If your vendor or solicitor demurs, you can obtain a copy of the lease in any case from the Official Copy Deeds Section of the Land Registry. In recent years, the formerly impenetrable Land Registry has become much more user-friendly and a lot of useful information is obtainable from their website.
THE MAIN ELEMENTS OF A STANDARD LEASE
A typical lease may be 20 or 30 pages long, and it is always written in unpunctuated English. There are no commas, semi colons or full stops. Here is a guide to the main elements of a standard lease:
The current law under which your property is registered to you is the H.M. Land Registry Land Registration Act 2002. This applies even if your lease was issued before this date.
The lease will contain a title number, which is the title number of your property registered with the Land Registry. The property address will then be given, together with the date of the lease, which is the first purchase of the lease and not necessarily your purchase.
The particulars will also include details of the lessor, who is your landlord and original lessee. Your property is referred to in the lease as the ‘demised property’.
The term ‘other demised property’ relates to other property included in your lease that you may also own, apart from your actual dwelling, such as a garage, garden shed, garden or outbuildings which are being sold along with the flat.
The term ‘premium’ refers to the original price paid for the flat. This will be shown in words and figures.
Next will be a series of ‘schedules’ which set out the terms and conditions under which the lease is granted, and covers obligations on both sides. There will be clauses to say that if you do not pay the ground rent or other money you should pay under the lease or break any of the covenants you have signed for, you may be subject to forfeiture of the lease.
There will also be a reference to service charges. The landlord provides these services, for which you will have to pay a share, usually a percentage set out in the lease. The percentage payable is most often based on the size of your flat, expressed in terms of square metres or square feet. Most often, in modern leases, percentages are expressed per square foot of the property.
The ‘Common Parts’ referred to in the lease means all those parts of the property not exclusively enjoyed by the lessee, such as stairs, lift, main door and communal gardens.
The lease will have a plan attached which shows the boundaries of your particular property. This is usually outlined in red. There will be a reference to the conduits, pipes and drains which only serve your flat but which may not be situated entirely in your home.
There will also be a paragraph referring to ‘internal plastered coverings and other materials on the walls bounding the Demised Premises’ (or some such phrase) and this tells you which is your exclusive property and which belongs to the landlord. For instance, windows and window frames are usually the landlord’s responsibility although the inside of the frames are your responsibility to maintain.
The whole of the internal walls will be your responsibility including the plaster and any tiles.
There will also be a schedule telling you what rights you have to use other parts of the property such as the entrance hall, lift and stairs. This includes not only yourself but any visitors or workmen coming to your flat.
The lease will contain covenants to ensure that you, the lessee, keep your flat in good condition and are not violating any of the clauses, such as putting in new windows or knocking down internal walls without written permission. In most cases, you cannot carry out major works without the express permission of the landlord, as this may adversely interfere with other parts of the building.
There will also be a clause allowing the landlord or freeholder access to your flat to carry out works or inspections under other clauses in the lease.
These will include the right of the lessee (that’s you!) to have sight of the accounts for the previous financial year – usually 1 April to 31 March – and the right of the landlord to charge you in advance for services provided.
There will also be a clause saying that the landlord cannot take automatic possession of your flat for non-payment of service charges but can take court action against you.
Under the terms of the lease, you the lessee agree to pay all utilities not included in the service charges, such as water rates, gas and electricity consumed by you.
On the subject of costs, the lease will also stipulate that you, the lessee, will also have to pay any costs incurred by the landlord for action taken for non-payment of charges. This is always assuming that the landlord is successful in the action.
You will also be required to carry out repairs to ensure your flat is safe, otherwise the landlord can do the work and charge you for it. You can be charged interest on late payments, although the landlord cannot charge interest if there is a dispute, or if more information is needed to determine whether the charges are in fact payable.
You will not be able to put up a television aerial or satellite dish without the landlord’s permission, nor will you be allowed to run a commercial business from your flat. You cannot advertise anything from the property either, other than that it is for sale.
There may also be clauses determining what kind of floor covering you are allowed to use, and whether pets are permitted. You will be required, under the terms of the lease, to keep the windows clean inside and out, and have to keep the flat decorated to a ‘reasonable’ standard. These clauses are very often flouted!
You will not be allowed to play loud music after a certain time, to vacuum carpets before a predetermined time at weekends, or to hang washing out at certain times or in certain places. Nor will building work be allowed after five or at weekends.
LOOK FOR SUBLETTING CLAUSES
Most leases will contain clauses concerning subletting, and in some cases there are restrictions on how you are allowed to sublet. Some landlords require a small deposit if you sublet, and will in any case need to have details of the subtenants, as they may have to be directly contacted on occasion, such as when there is a leak.
There will be many more clauses and obligations than these in most leases, some sounding very arcane, but this is the gist of the typical lease. Most leases follow a standard format, but if there is anything you do not understand, or that seems unclear, check either with your solicitor or, if you baulk at the hourly fees, contact Lease. They are the government’s non-profit making leasehold advisory service, who will read and interpret leases for you.
Where the building is listed, buying a flat becomes even more problematic, as in addition to satisfying the landlord or freeholder that you are not infringing any clauses of the lease, you must also abide by listed building regulations.
This can mean you are not allowed to make internal alterations, let alone external alterations, without listed building consent, in addition to any consents you may have to obtain from the landlord or freeholder.
With listed buildings, the local council is concerned to preserve the integrity of the building as much as possible and there will be restrictions on the kind of windows you can have, and the type of external decoration permitted. Very often, you will have to submit architect’s plans, which can take months to go through the process.