What should you know before buying a leasehold flat
What is a lease, what does the lease entitle you to do, what are you restricted from doing?
We moved to new offices exactly a year ago and we have been kept very busy dealing with lease extensions and enfranchisements of flats and houses. It might be helpful to members of the public to know the ‘basics’; if these are stating the obvious, we apologise, but if there are ‘snippets’ here you did not know we will be very pleased.
Leasehold, as a form of property ownership, has been part of English property law since before the Doomsday book was published in 1086. Originally all land in England was owned by the Crown. Those who occupied the land paid a “Feu” or a fee duty to so as to be allowed the right to live and maintain and livelihood from the land. Nearly 1,000 years later leasehold, as a form of property title, is still with us; leasehold flats are common, particularly in London.
Principally leasehold is used to transfer title of flats. A building containing two or more flats might be owned freehold but the two flat owners would hold leasehold title, in the majority of cases in addition. This does not stop two or more leaseholders jointly holding freehold title together with their leasehold titles.
There are positives and negatives to owning a leasehold flat.
1. There are approximately 3.5 million flat owners in England, according to unofficial estimates. We believe that about half of this number is located in London or about 1.75 million flats in Greater London.
2. The freeholder is usually responsible for arranging building insurance and they recover the cost of doing this from all the flat owners in the building.
3. The freeholder usually arranges for all major works to the structure of the building to be carried out but he cannot do this without a detailed consultation process with all flat owners. Once the costs are agreed, these are recovered from all flat owners in the building in proportions set out and agreed usually in the lease terms.
4. If the freeholder does not manage, or refuses to manage, the building properly the First Tier Tribunal (FTT) has the power to appoint a new manager. Alternatively flat owners may co-operate and form a Right to Manage Company (RTM) and assume responsibility for managing the building.
5. Provided you have owned the flat for two years you can extend the terms of your lease, by 90 years in addition to the term of years currently remaining. At the same time you can have all ground rents reduced to nil, or zero.
6. The First Tier Tribunal (FTT) is part of a Court system to resolve disputes involving leasehold flats. Alternatively, and more cost effective, is mediation. There are several organisations offering mediation services for disputes involving leasehold flats but perhaps the best starting point would be: http://www.nationalmediationhelpline.com
AND THE NEGATIVES:
1. You do not actually own your flat. When you buy a leasehold flat you have acquired a special type of property contract called a lease. The lease entitles you to own your flat for a definite period of time and, in theory, when this time period expires your lease will revert back to the ownership of the freeholder.
2. There are over 80 pieces of legislation, which affect leasehold flat owners, and therefore this area of law can become complicated. One of these pieces of legislation (actually there is more than one) gives the right to flat owners to remain in possession of their flats after the expiry of the original lease term, subject to them paying a market rent. There are rights of ‘enfranchisement’ created by statute even after leases have expired.
3. Managing agents, if one is appointed by the freeholder, are not regulated. Anyone can perform the duties of a managing agent and consequently standards of management vary. As the English routinely discuss the weather, so flat owners routinely discuss their managing agent’s lack of efficiency!
4. If you contravene the terms of your lease, you could have your lease forfeited. Although this process is rare it can still happen.
5. Noise, airborne and via impact (one floor above another), is the most common complaint among flat owners. A reduction of noise transmission is very difficult to achieve and can be expensive to resolve via litigation.
6. Before buying a leasehold flat, make sure you fully understand the exact extent of the flat you are buying. Does the flat include the roof space? Are there restrictive covenants to prevent you from making any alterations?
Freehold title is always to be preferred above leasehold title. However, flats are cheaper than houses to purchase.
Many property owners started on the property ladder by first owning a flat and this author is one of them. Leasehold title is generally understood in England but not often abroad – particularly in USA. ‘How can you own a flat but not own it?’ they ask?
Provided care is taken prior to the purchase of a leasehold flat, together with the knowledgeable assistance of a surveyor and a solicitor, pitfalls in leasehold flat ownership can be avoided.
While a leasehold flat owner has the right to extend their lease, provided the flat owner has owned the flat for more than two years, please be wary and seek professional assistance (from a qualified surveyor and solicitor) if you are considering purchasing a leasehold flat, which has an unexpired term of less than 90 years.