Very careful thought should be given to buying leasehold property. Despite all the information available about the tenure, many prospective leaseholders still have no idea what they are purchasing because of the sheer size of the information that surrounds it. This is despite the efforts made such information easier to get and more transparent.  Since the introduction of prescribed lease clauses there have been two forms: 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. So what does this mean in practice? Leasehold conveyancing is a specialist area but as many conveyancers are not specialists then the principle of ‘Caveat Emptor’ (buyer beware) remains as relevant as ever!!

When you become a leaseholder you will NEVER own the property outright, regardless of whether you pay off a mortgage or buy outright with cash. This is because you only own an ‘interest’ in the property, cut from the dominant estate of freehold in the form of a long lease. This is a contract between yourself and the freeholder. This document will allow you to live in the property as an owner-occupier for a pre-determined amount of years (where historically the tenancy falls between being a freeholder and a renting tenant), or to sublet it.

A lease of a new build property usually starts with a term of 99 or 125 years and each time the lease is sold, the unexpired term (the number of years remaining) reduces. Others can be very short, depending on how many unexpired years remain with some having so few left that they are difficult to market due to the criteria demanded by lenders. Others are of a duration of 999 years, and other leases fall somewhere between the two.

Some lenders might not lend on a very short lease although it is possible to assign the ‘right’ to an extension during the conveyancing process.

DOCUMENTS

There are a number of documents that the buyer will need to get from the seller which are as follows:

  1. The lease which should contain the following:
    a) Adequate rights of support and shelter from the other parts of the building;
    b) Rights of access;
    c) Right of entry to other parts of the building (including other flats) for the repair and upkeep of the property;
    d): Rights to use the services (water, electricity, gas etc) which cross other parts of the building;
    e): Adequate covenants and arrangements in place in respect of insurance and maintenance of the structure and the common parts;
  2. Office copies of the leasehold title;
  3. The plan of the property filed with the Land Registry;
  4. A copy of the buildings insurance and the current year’s schedule;
  5. The last 3 years service charge demands for the particular flat being purchased;
  6. Copies of the recent town planning decisions showing the conditions upon which the planning decision permitting the development have been made;
  7. A copy receipt (or a written confirmation) showing that the seller has paid the service charge for the current period;
  8. 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.

COVENANTS

Understanding the relationship between the seller, 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 through the covenants (promises) in the lease it won’t tell you if either party are currently complying with them and 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.

This is why there are so many pre-contract enquiry 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 the managing agent.

All leases throughout a block should be substantially the same and in particular contain the same covenants. The main positive covenants leaseholders enter into are to pay service charges, (so that the freeholder can meet its repairing obligations), ground rent (which is not exactly what it says on the tin but is a financial asset for the freeholder) and buildings insurance but Indemnity insurance is not essential where the responsibility of insurance and maintenance of the structure and common parts falls on the freeholder. Another positive covenant would be to keep the interior of the flat well maintained.

You will also have a number of restrictive covenants such as not to play loud music, keep pets or install laminate flooring.

Covenants are either going to expressly written into the lease or implied and its important to be aware that the latter have just as much force in law as the former.

Deed of Direct Covenant

Many older leases (written before 1996) have a need for the new leaseholder to give their details to the freeholder/managing agent in the form of a Deed of Direct Covenant meaning that they agree to abide by all the original lease terms before completion and through the duration of ownership. It will be provided by the solicitor acting for the selling leaseholder in a draft form to the buyers conveyancing solicitor, and the latter will then produce the final deed for the buyer to confirm that they will comply with the existing lease terms.