It is no substitute for reading the Lease and any report on Lease which has been supplied to you. By their very nature, every Lease is different and will contain specific rights and obligations for your particular property.

Laurie Moran Arthur are always happy to deal with individual enquiries and will be happy to answer any specific enquiries which you have relating to your property and your Lease

Why a Lease?

Leases are utilised for flats in purpose built blocks, converted houses and also for commercial and retail premises.

A Lease simply grants the Tenant a long tenancy and the right to occupation and use of the premises over an extended period of time. This is known as the term of the Lease. In shops and offices these periods are often fairly short, perhaps no more than 10 or 20 years, whereas in flats they are usually for 99 or 125 years. This allows the premises to be brought and sold by the owner during that term by a process known as assignment of the Lease. In some cases the right to assign is restricted and the wording of the Lease needs to be checked to ensure that there are no restrictions on any assignment. The length of the term is fixed at the beginning of the Lease and reduces year by year until eventually at the end of the term the Lease expires and the premises revert to the Freeholder. In residential properties there are certain protections granted to the occupier to allow them to remain in occupation at the end of the Lease as a monthly or weekly Tenant but they would lose the right to further assign as tenancies generally cannot be assigned or transferred.

Ownership of the property usually refers to everything within the external boundaries or structural walls and generally includes the floorboards and plaster to walls and ceilings. The exact definition of what is included within the property should be specifically set out within the Lease.

The structure of the building itself is owned by the Freeholder who is frequently responsible for the maintenance and repair of the building although the Lease in all cases will specify who is responsible for the main structure and how the costs are to be recovered. In converted houses the Tenants or Leaseholders may find themselves responsible for both internal and external structural works with the possibility of recovering from adjoining owners. In other cases the landlord is responsible for the structural works, recovering the cost from the flat owners through a service charge.

In commercial premises the landlord may seek to recover the costs of structural work from the Leaseholders or may take full responsibility in return for a higher than normal rent.

The landlord or Freeholder can be an individual person or a company and, in many cases, with residential properties the Tenant is a shareholder in the company which owns the Freehold or may with the other Leasehold owners own the Freehold themselves, although the Lease itself will spell out how the costs of maintaining the structure will be discharged.

The Lease is a Contract between the Leaseholder or Tenant and the landlord or Freeholder.

When Leasehold owners sell their property they assign or transfer all the rights and responsibilities of the Lease to the purchaser including future obligations to pay service charges.

The Lease is a very important document and as a Leaseholder you must see a copy and make sure you have read it before you proceed to an exchange of Contracts.

We will supply you with a summary of the main terms of the Lease and advise you of any particular obligations or deficiencies in the Lease which we feel you need to be aware of. The Lease details the contractual obligations of the landlord and Tenant setting out the landlord’s obligations and the Tenant’s obligations. As a Leaseholder you will be obliged to pay the rent on the dates set out in the Lease and usually contribute to the cost of maintaining and managing the building as a whole. The Lease frequently contains restrictions on what you can and cannot do within the property and usually prevents you carrying out alterations to the property without the Freeholder’s consent.

The landlord frequently is obliged to maintain the structure of the property and collect a contribution known as service charge to cover the costs of such maintenance. Generally all Leases within a particular building are in the same form to protect everyone’s interests.

These are generally referred to as Tenant’s covenants and usually require the Tenants to keep the property in good order and if there is a service charge arrangement to pay the appropriate proportion. There are also generally included a set of regulations to ensure Tenants behave in a neighbourly manner.

Generally a Tenant cannot carry out alterations without the landlord’s consent and frequently the Tenant cannot sublet the property without the landlord’s consent.

Failure to comply with the Tenant’s obligations may give rise to the Freeholder serving Notice of Breach and requiring any breach to be remedied within a reasonable period of time. If the breach is not remedied Court proceedings could be issued leading to the landlord forfeiting the Lease. This stage is rarely reached but a breach of any of the tenants obligations including the obligation to pay rent and service charge could lead to these consequences and if the landlord has to take action any costs incurred by the landlord generally have to be met by the tenant.

Because Leases are a form of tenancy they require the payment of rent, generally this is a nominal figure but it must be paid on the date required by the Lease. In commercial Leases the Lease is generally a market rent and in default the landlord can send the bailiffs in to recover the rent and change the locks on the premises. Whilst the tenant can usually recover possession of the premises any costs incurred by the landlord will almost certainly have to be met by the tenant as a result of the breach.

Service charges are a payment by the tenant to the freeholder to cover the costs of any services and expenses to which the landlord is put in maintaining and running the building in accordance with the terms of the Lease. Those expenses generally include maintenance and repairs, insurance, maintaining lighting and cleaning common areas and in some cases the provision of heating and hot water, lifts, porterage and other services. They can include the costs of maintaining communal garden areas, boundaries and fences. If the landlord employs Managing Agents then service charges will also include the Managing Agents costs. Service charges will vary from year to year, they can either go up or down and are usually not limited although they are subject to a test of reasonableness. The details of what the landlord can charge for are included within the terms of the Lease. The landlord will arrange for these services to be provided but the tenant must bear the costs unless the Lease provides otherwise.

If some of the flats in a building are vacant the landlord generally bears their proportion of those costs otherwise all the leaseholders must bear the costs jointly and if the leaseholders do not pay their share of the service charges, very often the work for which the service charge is demanded would not be carried out. This is particularly important if major works are being considered in relation to a large building or block. Modern Leases tend to allow the landlord to collect a service charge contribution in advance with any surplus or underpayment being collected once audited accounts are delivered. In residential properties the landlord can only recover reasonable costs and leaseholders do have rights to challenge service charges which they feel are unreasonable through the Leasehold Valuation Tribunal. It is important that you understand the likely level of service charges. We would always recommend that you carry out a full survey on the property and your surveyor should give you an indication of disrepair or structural problems which will require service charge expense in the future and you may need to budget accordingly. The cost of insurance is generally included within the service charge budget.

Many Leases provide for the landlord to collect sums in advance to create a reserve or sinking fund to ensure that there are sufficient monies available for future scheduled major works such as external decorations, roof repairs or lift replacement. The Lease will need to provide for this. Generally any contributions which have been made to a reserve fund are not repayable when the flat is sold. If there is a substantial amount in the reserve fund when the purchase take place the transfer of the benefit of this is usually reflected in the purchase price.

Insurance

In most cases the landlord will insure the building and common parts and a premium is recovered through service charges. This is for buildings insurance only and you will need to take out your own individual insurance for your furniture and personal belongings.

Failure to pay Service Charges

It is the leaseholders obligation to pay service charges and if the landlord can show the charges are reasonable he may be entitled to take forfeiture proceedings leading ultimately to repossession of the flat. Repossession can generally be avoided by payment of the amount claimed by a landlord together with his costs of pursuing any action of recovery.

Managing Agents are generally appointed by the landlord to manage and maintain the building on behalf of the landlord in accordance with the terms of the Lease. There are Codes of Practice which relate to how a Managing Agent should behave. You should note however that the Managing Agents take instructions from the landlord not the leaseholders but generally have to bear in mind the leaseholders requirements. In relation to major works carried out in residential property there are provisions requiring the leaseholders to be kept informed and to be invited to comment on the major works contract.

Managing Agents generally charge a fee as a percentage of the total cost of the service charges or on the basis of a fixed annual fee uplifted for major works.

Leaseholders have a substantial number of rights and legislation is continuing to be enacted to enhance and improve their rights in the event of a dispute or where you think the landlord is in breach of the terms of the Lease you should seek legal advice. Generally however you have the right to

(a) Information – the landlord should provide his name and address within the UK and this should be detailed on all service charge demands. You are entitled to service charge summaries details of the insurance cover and have the right to inspect account information.

(b) Consultation on major works – the landlord cannot carry out major works to the building without first consulting the leaseholders and taking note of any observations which they may make. If he fails to do this he may not be able to recover his costs

(c) Challenging service charges – leaseholders can apply to the Leasehold Valuation Tribunal to seek a determination of the reasonableness of service charges and the landlord cannot take action to recover service charges whilst this process is ongoing.

(d) Appointment of a Manager – tenants have the right to apply for a Manager to be appointed and can apply to the Leasehold Valuation Tribunal for this purpose.

(e) Lease extension – providing a leaseholder satisfies certain pre-conditions they can require an extension of their Lease from the landlord although there is a price to be paid, which is either agreed between the parties and their surveyors or set by the Leasehold Valuation Tribunal

(f) Purchasing the freehold – providing certain pre-conditions are met leaseholders can get together and acquire the freehold is sold to them, again a price is agreed between the parties or set by the Leasehold Valuation Tribunal.

(g) Rights of first refusal – if the landlord wishes to sell his interest he must offer it to the leaseholders first and formal notice must be served, if you receive such a notice we would suggest that you obtain legal advice.

The above rights apply to residential properties rather than commercial properties.

Leaseholds are the only way of properly setting up a series of rights and obligations to allow a building to be divided. Freehold property gives the owner all the rights over the land both above and below the surface. Apart from very few unusual situations it is impossible to purchase a freehold flat and generally where freehold flats do exist they are un-mortgageable.

As long as the necessary rights and obligations are properly set out in the lease and understood by both the landlord and tenant purchasing a leasehold property should not be a major concern and leasehold provides a perfectly good and proper arrangement for regulating the purchase of a property and the rights between adjoining owners and the tenant and landlord. Where leasehold property is occupied on a commercial basis the tenant generally has the right to renew the Lease at the end of the term.

If the landlord fails to serve a termination notice the tenant is entitled to remain in occupation of the property paying the rent until such time as the landlord does serve the appropriate notice the tenant can then serve a counter notice and renew the Lease for a maximum of 14 years on a market rent unless the landlord is able to justify specific grounds of opposition to a renewal within the terms of the Landlord and Tenant Act 1954. In some instances the right to renew the Lease is excluded by Court Order prior to the grant of the Lease and commercial tenants will be specifically advised about such matters before any contract is entered into.

It must be borne in mind that as the term of a residential lease diminishes so does its value until it becomes un-mortgageable. On an average the lending institutions like to see 30 or more years left on the lease after the expiry of the repayment period. This, of course, is most relevant when you come to sell. However, this becomes academic if the lessees own the Landlord Company.

This will not necessarily apply to commercial leases the value of which usually fluctuates in accordance with prevailing economic conditions.

If as a leasehold owner you receive any official notices relating to Lease renewal, right to purchase or indicating the landlord’s intention to sell there are specific time limits within the relevant legislation both for residential and commercial occupiers and it is important you seek proper legal advice as quickly as possible after receiving the notice. Generally your rights are set out within notices served by the landlord and you should read very carefully and thoroughly the detail of any notice served.

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