Buying Flats: Long Leases
When buying leasehold property, it is important to realist that it is not the bricks and mortar that is being purchased: rather it is a lease that will allow you to remain in the property for a pre-determined number of years. For new-builds it can be 99, 125 or 999 years and for older properties it will be the number of unexpired years remaining.
This lease is actually a contract entered into with the freeholder and in which you promise to perform (and not to perform) certain functions. These promises are known as covenants and the freeholder will have some too, although not as many as leaseholders will. Such covenants will be ‘express’ in that they are clearly written and others will be ‘implied’ under legislation.
The fundamental function of long leases is to allow the freeholder to collect payment from the leaseholders for the maintenance and repair of common areas – areas that they do not directly own. Because there is no legal definition of the common areas, what they actually cover depends on the wording of the lease. Both parties (freeholder and leaseholder) agree to enter into a series of covenants (promises) to do and not to do certain things, with leaseholders entering into a series of express covenant that are specifically written. There will also be few such covenants which oblige freeholders to carry out certain functions. There are also implied covenants which are not specifically written into the lease but implied by common law.
Leases Are Not Uniform
Although leases may be the same (or similiar) throughout a block of flats, another block will have entirely different leases. It’s also possible that some leases will differ where they have been extended. Lease lengths can also vary with some having as many as 50 pages! It is however up to the developer/freeholder in the first instance as to how they are written. There have been attempts to make them more uniform by the introduction of prescribed lease clauses, and the Leasehold Properties Enquiries Form LPE1 was introduced to capture information about a property held by the following parties: a freeholder landlord, a Resident Management Company, a managing agent, a Residents Association or a representative acting on behalf of any of them. The second edition of this form was released in October 2015 (LPE2) and how to download both editions can be found here.
QUESTIONS TO BE ASKED
There are a lot of questions that need to be asked about leasehold flats but here are the most important (in no particular order);
- How many years unexpired are there left on the lease?
- How much is the service charge? (more on service charges can be read here);
- How much is the ground rent? (more on ground rent can be read here);
- Who is the freeholder? (more on freeholders can be read here);
- Is the freeholder absent (my personal experience of the problems caused by an absent freeholder can be read here);
- Who is the managing agent? (more on managing agents can be read here);
- How much is the buildings insurance and is it paid up to date and in full? (more on buildings insurance can be read here).
- Is there a current Health and Safety/Fire Risk Assessment?;
- Are there any problems with the Title (more on property titles can be read here).
DISADVANTAGES OF LONG LEASES
In short, leaseholders are actually ‘owner occupiers’ because they fall between being a freeholder and a renting tenant. Unlike renting however, and despite the large premium paid up front, they will have promised to pay for the upkeep of the common areas, their leases will need to be extended at some point, they can’t place buildings insurance and their freehold may even be sold on without their knowledge, with extortionate ground rents being charged as a result. The Council of Mortgage Lenders has 3 specific categories which make a lease defective which don’t just apply to badly written new leases but namely older leases that are often written in legalese. There are also no specific general procedures for resolving disputes.
My advice based on my experience of leasehold tenure? Buy freehold!