The Lease Hold Advice

Leasehold Property - FAQ

      The lease is an interest in land granted by a freehold owner or by a landlord who has a lease and wishes to grant a sublease of shorter duration that his own lease     

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What is a lease?

What’s in a lease?

What is ‘ground rent’?

What are ‘Common Parts’?

 

What about the other tenancies in the same building?   

Who else might have a right of entry to the property?

Will I be allowed to alter the property? 

Will I be able to Sell, Sublet or Mortgage the flat?

What other restrictions and obligations should I expect?

What are the Landlord’s obligations?

Extending your lease

 

There is a quite a bit of jargon used in leases-especially older ones and the words ‘lessor’ and ‘landlord’ are interchangeable as are ‘tenant’ and ‘lessee’. Equally, the word Landlord may also be used to describe the Freeholder, as it does within the guidance notes below.

 

What is a lease?

A contract that grants the rights to occupation and use of property for a period – the “term”of the lease, in return for a fixed or variable rent. Typically the owner or landlord might grant a lease to another person who develops the property and then lets it for occupation in units that may be for residential or commercial use.

A residential lease will usually be for 99, 125 years or longer and the property, a flat, duplex or maisonette, may be bought and sold during that time so long as the lease permits this.  The term is fixed and so decreases year by year until it expires (unless extended).  The length of the unexpired term of the lease is important to both buyer and any lender.  Most lenders will require in excess of 60 years left to run on a lease – but some lenders permit shorter periods.  The length of the lease has less of an impact on value in certain Central London estate locations. 

Both the landlord’s interest (the reversion) and the tenant's term will have a value in the open market and may be transferred subject to the terms of the lease.  When a leasehold flat is sold, the seller transfers (assigns) all rights and responsibilities of the lease to the purchaser, including any future charges which have not yet been identified. 

Leases if more than 7 years are registrable at the Land Registry and there a specific requirements as to the format for leases and their plans in order to be registered.

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What’s in a lease?

The lease of the flat usually relates to everything within the boundaries of the dwelling and may include plaster to walls and ceiling, floorboards and windows - but does not usually include the external or structural walls.  The Landlord usually retains ownership of the structure of the building and the land it stands on and in the lease takes responsibility for maintenance and repair of the building.

The lease is a private contract between the Landlord and the Tenant and may include other parties such as a Management Company.  The original tenant retains contractual liability after the lease is passed on although where the asset has a capital value the landlord will initially pursue other remedies such as forfeiture against the current tenant rather than revert to the original tenant.

The lease contains promises by the parties. These will be in relation to insuring and maintaining the physical premises whilst other terms govern conduct and use of the property and prescribe situations in which consent may be needed such as making alterations or applications for planning consent.  The terms of a lease can only be changed by mutual consent, or a Court or the Residential Property Tribunal Serviceor Upper Tribunal(replacing the Lands Tribunal), so if any of the lease terms are unacceptable or onerous, the Landlord’s co-operation is required to make changes or variations.  Such co-operation may be given at a price or not at all where the landlord has the power to refuse agreement. 

Although the form of many leases will be acceptable to both buyer and to Lenders, there are many matters where specific requirements of lenders require clarification or change.   In particular, some leases have poor quality plans or unclear description of the extent of the property.  Where available, you should inspect the property with a copy of the lease plan and the Land Registry filed plan.  

Some leases contain general clauses about tenant rights to use common areas such as forecourts, communal gardens, communal/visitor parking, washing/airing areas and the like.  Your solicitor will need to know that the plans accurately reflect the physical extent of the property you intend to buy and any garden, garage or parking space and refuse bin area.  You should also check for internal and external access and further enquiries will be needed where you may need to gain access over parts of the building that are not within your lease.

The lease sets out the obligations of the parties, what the tenant has contracted to do and what the landlord and/or management company is bound to do.  The tenant’s obligations will include payment of ground rent and contribution towards the costs of insuring, maintaining and managing the building, and the lease will place certain conditions on the use and occupation of the flat.  The Landlord will usually be obliged to insure and maintain the property and to manage and collect contributions from all tenants and keep the accounts.

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What is ‘ground rent’?

Any leasehold tenancy is subject to payment of a rent to the Landlord.  It may be nominal such as a peppercorn or a rent of the 'ground' that is more substantial - payable once, twice a year, or four times a year on the usual quarter days which in England and Wales are 25th March, 24th June, 29th September and 25th December.  Ground rent is a specific requirement of the lease and must be paid on the due date whether or not invoiced.

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What are ‘Common Parts’?

‘Common parts’ are those areas of the building of which a flat forms part that are used in common by more than one of the tenants.  Pathways, entrance hall and stairs, communal garage forecourt, communal standpipes and washing/airing facilities, rainwater goods, lifts, corridors, access ways and parking areas are all typical examples.

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What about the other tenancies in the same building?

It shouldn't be assumed that all flats in a building are let on the same form of lease and this should be verified.  Tenants are not generally entirely free to do whatever they want in or with the flat, but every tenant has the right to “quiet enjoyment” meaning peaceable occupation of their flat for the term of the lease,

A tenant has no direct contractual relationship with other tenants in the building; whereas the Landlord does.  So if one tenant wishes another tenant to do or stop doing something, then provided the other tenant has lease with a relevant covenant or prohibition then the Tenant will have to rely on the Landlord to enforce that lease against the offending tenant.

Unless there is a clause in the lease in which the Landlord covenants to do this, the Landlord is under no obligation to take any action and cannot be made to do so by the complaining tenant.  This is commonly called ‘mutual enforceability’ and where such a provision is missing from older leases it is unlikely that lenders will accept the lease as good security.  It may then be necessary to obtain a deed from the Landlord to add the clause to the existing lease.  However, a Landlord cannot be compelled to agree to this, or may only agree on onerous terms, such as the payment of a lump sum, plus costs and expenses.

If the Landlord does not agree, then insurance may be an alternative acceptable to lenders.  There are policies available that require payment of a single premium and such policies may be transferable from one buyer to the next.  The average premium is between £300 -£500, and the lack of the clause and details of the proposed policy must be reported to the Lender for prior approval.  In these cases, the payment of the Landlord’s costs or the insurance premium is a matter for negotiation between the seller and buyer.  We can assist with this if it arises.

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Who else might have a right of entry to the property?

Every lease contains a right of entry (and forfeiture) for the Landlord and his agents to inspect the flat to ensure that the tenant has complied with his repairing and other obligations.  Most leases also give the Landlord the right to enter the flat in order to carry out its repairing and maintenance obligations, usually by appointment, except in emergency.  Other tenants may also have this right on the same basis.  In a well-drawn lease, you should have the same right in relation to other flats and the common parts of the building.

Most leases will also grant and reserve rights known as ‘easements’ to enable the freeholder to manage the building and facilitate repairs for other occupiers and to adjoining premises and to enable the tenant to gain access to facilities and amenities. We would also expect to see cross rights of support and shelter, between flats or maisonettes.

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Will I be allowed to alter the property?

Some leases forbid structural alterations altogether or changes to external features, windows and colour schemes.  Others allow alterations after plans have been approved by the Landlord and/or his surveyor.  The application is always at the Tenant’s expense, and if the plans are rejected, or approved subject to onerous conditions, there will be no refund of fees/expenses paid to the Landlord/agents/surveyor.  If the seller has made unapproved alterations to the flat, this will need to be investigated.  

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Will I be able to Sell, Sublet or Mortgage the flat

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Most leases contain some regulations relating to disposal and require notice of change of ownership and/or mortgage to be served on the Landlord - there is usually a registration fee payable with the notice that can range up to £100, or a percentage of the sale price.

Many leases prohibit subletting for a term longer than 3 years, or for a term shorter than

1 year.   If the Landlord’s consent to a sub-letting is required, this may involve the Landlord’s solicitors, references, a formal written licence to sublet and payment of costs.  

Selling the leasehold interest may require the Landlord’s licence.  The landlord may have the right to approve the incoming tenant and be entitled to be satisfied that the person is financially able to make all payments reserved by the lease.

Non UK nationals and foreign registered companies may also have to provide a UK address for service of documents or a deposit for the service charge.  

Where the Landlord’s consent is not necessary, the lease will usually require the buyer to enter into a deed with the Landlord to perform all the tenant’s covenantsin the lease.  This is called a ‘deed of covenant’.

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What other restrictions and obligations should I expect?

You should read the copy lease very carefully in the light of your intended use of the property and raise any queries or concerns.  Most leases have a list of Do’s and Don’ts, which covers everything from not making noise between specified hours and prohibiting pets/animals to requiring carpeting in main rooms, inhibiting electrical equipment and not storing bikes or push chairs in common areas or on landings/hallways.  The Landlord usually reserves the right to change or add to this list in order to preserve ‘good estate management’.

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What are the Landlord’s obligations?

These usually include:

  • repair and maintenance
  • insurance
  • preparation of service charge accounts
  • employment of agents and contractors
  • enforcement of one tenant’s obligations to benefit another
  • cleaning, lighting etc
     

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Extending your lease

The Leasehold Reform Housing and Urban Development Act 1993 (LRHA) – an individual tenant who satisfies conditions (such as owning the property for 2 years as a principal or main residence) can demand a lease term extension of 90 years in addition to the term already granted.  There are statutory provisions for calculating the purchase price and each case depends on its facts.  If the price cannot be agreed, it will be set by application to the LVT.

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