Understanding the relationship between the seller and freeholder and/or managing agents is key to understanding leasehold because whilst the lease states the responsibilities and obligations of the buyer and the freeholder, it a) won’t tell you if either party are currently complying with them and b) nor will the tell you what the state of the relationship is between the freeholder and/or managing agent with the rest of the development.
So firstly there are a number of documents that the buyer will need to get from the seller which are as follows:
- The lease;
- Office copies of the leasehold title;
- The plan of the property filed with the Land Registry;
- A copy of the buildings insurance and the current year’s schedule;
- The last 3 years service charge demands for the particular flat being purchased;
- Copies of the recent town planning decisions showing the conditions upon which the planning decision permitting the development have been made;
- A copy receipt (or a written confirmation) showing that the seller has paid the service charge for the current period;
- A copy receipt from the landlord showing that the seller has paid the ground rent if the ground rent is paid to the landlord separately to service charges paid to managing agents.
There are also a considerable number of questions that must be asked of the managing parties who will usually ask a fee for providing this information. There is however no statutory guidance on what a managing agent can charge the seller and no statutory deadlines by which the information has to be provided by the managing agent.
The following list shows just how many questions surround the tenure but it is not an exhaustive one:
About the Lease
- Are the leases in a similar form throughout the development (which ideally they should be);
- How many flats are there?
- Are all the flats sold on long leases:
- How many unexpired years are there remaining on the lease?
- Can the lease be extended?
- Have there been any breaches of the lease by the freeholder?
- Have any lease breaches been remedied or are they still ongoing?
- Does the lease allow the keeping of pets?
- Does the lease allow you to use a car park or space and allow access to the gardens?
- Are there any other conditions or restrictions in the lease which impacts on how the property is used?
- Is a direct Deed of Covenant required? See above
- Are there any defects in the lease relating to insuring the building?
- Are the buildings insurance payments up to date?
- Are the interests of lessees and their mortgages automatically noted on the buildings insurance Policy?
Freeholders, Managing Agents and Resident Management Companies
- What is the name and address of the freeholder?
- Who are the freeholder’s solicitors?
- Is the freehold owner deemed a ‘absentee landlord’ i.e. are his whereabouts known?
- Has the Landlord ever served a Notice on the seller (or to their knowledge their predecessors in Title) in matters relating to the Lease or the use of the flat?
- Have there been any consents granted for alterations? If so, they should show as part of the Title Document as a Deed of Variation. If there have been structural alterations made without permission then this renders the lease defective and it must be remedied;
- Is there a head lessee?
- What is the name of the resident management company (or a Right to Manage Company)?
- Is the management company registered at Companies House and still in existence?
- Where can the RMC (RTM) Memorandum and Articles be found?
- Is the RMC limited by shares?
- Has confirmation been obtained that the sellers share certificate will be handed over on completion along with a (signed) stock transfer form? Some lenders will need the new share certificate given to them after completion together with a blank stock transfer form signed by the purchaser and a copy of the company’s memorandum and articles of association so the conveyancer will need to check part 2 of the CML Handbook.
- Is the flat ‘share of the freehold’?
- Is the company limited by guarantee?
- Is the purchaser required to become a member of the company?
- What is the name and address of the managing agent?
Health and Safety
- Is there an up to date health and safety risk assessment?
- Is here an up to date fire risk assessment?
- Is there a copy of the asbestos survey for the common parts?
- Has any Notice under Section 5 of the Landlord and Tenant Act 1987 been served? (the right of first refusal)
- Will there be a surplus or deficit in the service charge accounts after the financial year-end?
- Can the previous 3 years service charege accounts be provided?
- Have any problems with the service charges been reported to the lender?
- Is there a sinking fund to cover large items of expenditure that come as the building ages and are payments up to date?
- Is there a reserve fund to cover day-to-day maintenance and are payments up to date?
- If a sinking/reserve fund is held, how much is being held for this particular property?
- Are there or will there be any major works either ongoing or scheduled for a later date?;
- Does the lease prevent subletting?
- Is the consent of the freeholder required?
- Does the lease allow the subletting of the property tenants on housing benefi
- If the flat is already sublet then was a buy to let mortgage obtained and is there a sitting tenant?
If the flat is going to be purchased with a view to sublet then the mortgage offer will usually set out the lender’s requirements in terms of a tenancy agreement. Each lender is different, but most will require as a minimum that:
- Any tenancy is an Assured Shorthold Tenancy for a term of no more than 6/12 months;
- There is no provision allowing the tenant to stay on beyond the expiry of the term or to perpetually renew it;
- The tenant is not a relative of the borrower.
Note: Some lenders require not only a counter part or certified copy tenancy agreement to be sent to them but also receipt(s) for rent and service charges following completion. If confirmation of ground receipts and service charges cannot be obtained then lenders may consent to the transaction providing:
- Absent landlords are common in the area i.e. landlords that can’t be traced. It is however also likely that they may not lend (although some may accept Absent Freehold Indemnity Insurance) because the freeholder covenants can’t be enforced and this makes properties less marketable Additionally if they need to repossess a mortgaged property, the size of the market they can then sell to will be limited and may result in the property having to be sold at auction and at a loss to the lender. It will also not be possible to exercise the right to buy the freehold because a premium needs to be agreed with the freeholder.
- The seller confirms no other breaches of the lease (although the conveyancer should make further checks as the seller is under no legal obligation to divulge anything that could harm the sale);
- A clear title (also known as a “clean title,” “just title,” “good title” and “free and clear title”) is a title without any kind of levy from creditors or other parties and poses no question as to legal ownership.