Documents and Questions
Since the introduction of prescribed lease clauses there have been two leasehold forms created: LPE1 for use from 1st October 2015, which has questions asked on behalf of the buyer, and LPE2, the buyers leasehold information summary which was introduced in response to the Competitions and Market’s Authority Market Study on Residential Property Management Services. This study looked to make clearer the ongoing financial obligations leasehold purchasers were committing to making. By that they meant service charges, buildings insurance, ground rent, administration charges and the freeholder granting consents such as subletting and altering the property.
There are a number of documents that the buyer needs to get from the seller:
- 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 agent who will normally ask a fee before providing the information. There is however no statutory guidance on what they can charge the seller and no statutory deadlines by which the information has to be provided by them.
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
- Who insures the building?
- 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 Poli
- 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?
- Is the freeholder deemed ‘absent’ i.e. his whereabouts are unknown?
- 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?
- 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?
Note: If the propety has an absent freeholder it is less attractive to mortgage lenders. If they agree to lend but then have to reposses a mortgaged property the size of the market they can then sell to will be limited. This 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 during the conveyancing process because a premium needs to. be agreed with the freeholder.
On the other hand if a clear title can be provided (also known as a “clean title,” “just title,” “good title” and “free and clear title”) which is a title without any kind of levy from creditors or other parties, they may lend as there is no question as to legal ownership.
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)
Resident Management Companies
- 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?
- Does the lender need a copy of the company’s Memorandum and Articles of Association?
- What do service charge cover?
- Are the service charges calculated on a percentage or a square footing?
- Are there any interest charges and penalties for late payments?
- Will there be a surplus or deficit in the service charge accounts after the financial year-end and how are they dealt with?
- Can the previous 3 years service charge 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?
- Are sinking fund payments up to date?
- Is there a reserve fund to cover day-to-day maintenance
- Are reserve fund 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?;
- Is a receipt for rent and service charges required by the lender following completion?
- What happens if confirmation of ground rent and service charge receipts cannot be obtained, such as when the freeholder is absent?
- Does the lease allow subletting?
- Is the consent of the freeholder required?
- Does the lease allow the subletting of the property to tenants on housing benefit?
- If the flat is already sublet then was a buy to let mortgage obtained?
- Is there a sitting tenant?
- Does the lender need a counter part or a certified copy of the tenancy agreement?
Whilst some elements of leasehold purchasing is the same as that of freehold, such as checking the property title, and carrying out local authority searches many prospective leaseholders still have no idea what they are purchasing because of the sheer size of the information that surrounds leasehold tenure. There is a school of thought that believes that estate agents should be able to divulge more information on the tenure and it’s fair to say that in recent years buyers of flats on our block have come better prepared, at least on the basics. There does however remain the fact that buyers of new build properties are being kept in the dark on key issues such having to pay for road maintenance and estate services in addition to paying their Council Tax. Many more leaseholders of new builds are seeing their ground rents sold to other freeholders without their knowledge. There is no suggestion that leasehold is going to be abolished any time soon (if at all) but a small light on the horizon is that Commonhold is being revisited. It is not a panacea for all the probems leasehold has but it will at least remove greedy freeholders from the equation!