Most long leases (whether seen or unseen) will likely be considered defective. Leases written before the 1980’s tend to fall into this category because they are written in legalese, with no punctuation and with all their pages (of which there can be many) needing to be read in order to find the relevant parts. Such leases also can’t reflect the number of legislative changes that have been introduced since they were written.
Even newer leases, with their prescribed lease clauses can be defective as a result of being badly written.
The Council of Mortgage Lenders has three categories that make a lease defective:
- The defect is not so serious but the lender will usually lend;
- The defect is serious but the use of indemnity insurance will cover it;
- The defect is so serious that indemnity insurance will not cover it, such as where years of neglect have caused serious maintenance and repair issues.
The most common lease defects are:
- No penalties for late payment of service charges/round rent such as the ability to charge interest on late payers;
- The charging of leaseholders for services they don’t reasonably use;
- No mutually enforcing covenants;
- The allowing of individual buildings insurance;
- A problem with the title;
- It is not clear on who provides or maintains/repairs;
- The apportionment of the service charges is equivalent to more than 100%;
- Not all leases allow the service charges to cover the managing agent fees;
- There are no provisions for reserve/sinking funds which are built up to be used in addition to normal day to day expenditure.
The impact of these defects will only be felt once the property has changed hands.