8:01 AM, 29th November 2022, About 6 months ago 9
If you’re a long-leaseholder, it is important to understand what your lease terms mean. This article highlights the top 7 things you need to find when you read your lease – and why those things are important to understand. By understanding your lease, you can help to make sure that your leaseholder experience is a positive one.
A long lease is one where the original term was for a period of 21 years or more. In England and Wales the most common lengths are 99, 125 or 999 years.
It’s important to find not only the number of years originally granted – but also how many years are therefore unexpired. For example, a lease granted for an original term of 125 years from 25th December 1978 … would have an unexpired term of 81 years (at the time of writing in autumn 2022).
Anything approaching 80 years is time to consider a lease extension, as it’s “cheaper” to extend before you reach the 80 year mark because “marriage value” is removed from the lease premium valuation. Once you cross the 80 year mark, the cost of the extension jumps up.
All leases with a term commencing before 30th June 2022, will have a ground rent. You can often find it by looking for the words “YIELDING AND PAYING the sum of…” or something similar.
The original amount of ground rent payable will be relatively small – a couple of hundred pounds per year, perhaps. But at some point throughout the term, that amount will change. Some rent reviews are for a fixed pre-stated amount … whilst others are related to the Retail Price Index or some other inflation related methodology. Work out what the ground rent is now.
The lease will also state when that ground rent is to be paid. It might be yearly on a specific date … half yearly in advance on two dates … or whatever. Clarify and diarise.
Normally, the lease says the ground rent is due “whether formally demanded or not” … which in theory means you have to pay whether the landlord asks for the money or not.
However, nowadays that is not so. Section 166 of the Commonhold and Leasehold Reform Act 2002 requires the landlord to serve a Notice, which includes ‘prescribed’ information about the amount payable, the period to which it applies, when it is due (60 to 30 from the notice date), and a few other formalities. So, think twice about paying your ground rent until you receive that Section 166 Notice, in the correct form.
Under the leasehold system, the landlord is responsible for maintaining the structure of the Building, providing various services; e.g. gardening, and generally ensuring the ‘common parts’ are kept in a satisfactory condition. The expenditure incurred is recovered from the leaseholders by way of ‘service charges’. There are three things to clarify in this respect when you read your lease.
Firstly, what is included within the services and service charge. You need to understand what the landlord is permitted/required to do and thus be aware of what should not be within service charge expenditure. Most leases cover ‘repairs and maintenance’ but not necessarily ‘improvements’. If in doubt – check.
Secondly, you need to know how much you’re required to pay. The “tenant’s proportion” may be a fixed amount; e.g. 25% … or 1/10th … or whatever. Alternatively, it may be “a reasonable proportion” … which is open to interpretation in the light of the circumstances at the building. If in doubt – check.
Thirdly, clarify when you should be charged and hence when you should pay. This might be annually in advance on a specific date … or half yearly, quarterly or monthly. And the method of payment might be stated too; e.g. by standing order or direct debit. If in doubt – check.
Note too that a service charge demand must contain specific information and must have specific documents attached. Make sure you know “What Is A Legal Service Charge Demand?”
A leaseholder is generally responsible for maintaining and repairing the “demised premises”. That’s the legal gobbledegook phrase for the flat … and it is important you understand where your flat stops and the rest of the building begins.
It may seem obvious when you stand in your flat and look at the four walls – but the flat may not stop with what you can see. It may include half the thickness of the wall between your flat and the next door flat. It may contain half the thickness of the floor joists between your flat and the one below. Or it may not include any of the structure except for the wallplaster. Every lease is slightly different – and every leaseholder’s responsibilities are slightly different – so read your lease and clarify. If in doubt – check.
When the lease was originally drafted by the freeholder’s lawyer, it would have been done on the basis that every tenant will wreck the property. That’s an unfair assumption but leads to the lawyer including a very long list of things the leaseholder must do. Paying the ground rent is always near the start of that list.
There will be clauses about redecorating the interior of the flat every few years … seven yearly is quite common.
There will be clauses about having carpet on the floors, using the flat as a residential premises “for one family” or whatever. Most of the things are sensible and what a good leaseholder would expect to do anyway. But sometimes there’s something “odd” in there, so read and understand. If in doubt – check.
Again, this list is usually quite extensive. Again it assumes the tenant will wreck the property.
There are things you’d expect like not to play loud music within the hours of **pm and **am. Not to have wild parties without inviting Bernie Wales. Not to use the flat for running a business, running a brothel, or using it as a cannabis factory. All logic stuff that a good leaseholder will have no problem not doing.
There will also be something about not making “any alterations or additions” to the flat. Now, the wording will often be slightly different from landlord to landlord, and lawyer to lawyer, but there’s always a clause which means you can’t go knocking holes in walls, taking out walls, or moving walls. Sometimes it says that works can be done IF the landlord provides “written consent … such consent not to be unreasonably withheld”. But some lease don’t have the possibility of consent – works are not permitted, full stop. If in doubt – check. Then doublecheck!
The most simple of leases has two parties; Freeholder and Leaseholder.
Some leases are tri-partite; Freeholder and Management Company and Leaseholder.
Read your lease to understand the legal set-up.
Don’t be fooled by the names of those two or three parties. The names written in your lease will be the original people/companies at the time the lease was granted. But those parties may have moved on. You can find out by doing a title search at HM Land Registry (costing £3 at autumn 2022).
But those two or three parties may not be the only people involved now. The freeholder may have a managing agent. The management company may have a managing agent. The leaseholder may have a letting agent. Those agents won’t be stated in your lease – so ask your landlord/freeholder for clarification of the current people/companies.
Information should also be provided in service charge demands and ground rent notices – so keep an eye on them for any changes from time to time.
There’s a nice little video on YouTube about Who’s Who in leasehold:
There are of course many more things you can find when you read your lease. The above are just my “7 Things To Find When You Read Your Lease“. I think they’re the most important things. If you think differently, leave a comment explaining your thoughts.
Thanks for reading and enjoy your leaseholder experience.
Previous ArticleHolding Fee Refund?
13:04 PM, 29th November 2022, About 6 months ago
May I have your views on a Reserve Fund - either general or specific?
Long ago, I read a scholarly article arguing against a Reserve Fund on the grounds that when you sign a Lease you take on the obligation to pay for your contribution for a new roof or a new lift or whatever, as and when that arises.
You must always have that much in your bank account.
Why should someone contribute to a fund when he may no longer be a Lessee and benefit from that expenditure?
The article went on to say that should you sell or assign, ask for a refund of your contributions.
13:18 PM, 29th November 2022, About 6 months ago
Cite the article please?
Why should a new owner of a 40 year old property pay the whole cost for a new roof, for example? Hence the cost is spread according to the life of the works. The owner has the benefit of a roof or lift or whatever in good condition and contributes to its upkeep on a pro rata basis.
If what you suggest was implemented a flat over 30 years old would be unsaleable.
Hence a lease without provision for a reserve is considered defective.
13:47 PM, 29th November 2022, About 6 months ago
Reply to the comment left by Puzzler at 29/11/2022 - 13:18
I was asking for Bernie's views.
If I read a scholarly article in a law journal or similar 50 or so years ago, I cannot cite it now.
The aim of a scholarly article (inter alia) is to invite discussion and challenge the underlying assumptions.
Why is Leasehold interest considered a personal asset historically?
If it is personal, the argument runs that you are aware of your responsibilities. Instead of contributing to a reserve fund managed by somebody else, why not save it yourself, etc etc.
I just wondered if there are cases where a refund was demanded by a lessee upon a sale and considered by a court.
I have had one case where it was demanded, and as Director I refused him.
14:10 PM, 29th November 2022, About 6 months ago
I know you were asking for Bernie's views but since you asked the question on a forum not in a personal message I don't see why other people cannot comment.
Difficult to discuss or challenge an unreferenced article, I was interested to read it that's all, I was not challenging the question per se.
Whether it can be demanded for return on sale (I believe) depends upon the lease
16:59 PM, 29th November 2022, About 6 months ago
Of course, you may discuss.
You do not need the original article to do so.
Bernie wrote an article/blog on interesting points in a Lease.
He was not replying to a reader's question.
I wanted to include the Reserve Fund.
The law plays around with ideas or concepts such as "unfair terms" or "onerous terms" to override any written document.
In English law, a Leasehold is a chattel. Certain consequences do or should follow from this designation. It is also a chattel "real" ; lot more consequences follow as a result, which are of interest to us.
Lord Denning (in his younger days) was an innovative judge.
I do not know who today inherits his mantle of youth (not of old age, when he made out-of-step remarks, to put it mildly).
I think out of the 12 Supreme Court Judges, 11 are Oxbridge.
9:10 AM, 30th November 2022, About 6 months ago
Reply to the comment left by SCP at 29/11/2022 - 13:04
Well, SCP, my view is that reserve funds and/or sinking funds are always a good idea - provided the lease allows them.
And to your other point - the "benefit" of a sinking fund for lift renewal (for example) is that there is a pile of cash to pay the large bill when it arrives. However, that spot in time is not where the leaseholder benefits from the lift. The leaseholder benefits from the lift every day... in the long run-up to the renewal. So that is what the leaseholder is paying for, in effect.
Think about your car service. The money you pay for that work - is that paying for that day's activity only - or are you paying to repair the damage caused by your use of the car each day leading up to that service?
9:14 AM, 30th November 2022, About 6 months ago
Reply to the comment left by SCP at 29/11/2022 - 16:59
Play nicely children 🙂
16:44 PM, 2nd December 2022, About 6 months ago
Reply to the comment left by BernieW at 30/11/2022 - 09:10
Thank you, Bernie, for the homily, which I read with amusement.
Although I am a recent member, I think of you as the fount of knowledge.
My question to you was whether the basis or legality of a reserve fund has ever been considered by a UK (preferably, English) judicial institution: whether a tribunal or court of whatever standing.
11:48 AM, 5th December 2022, About 6 months ago
There have been many cases where the First-tier Tribunal has considered a reserve fund. Generally, these cases revolve around whether a reserve fund is permitted under the terms of the specific lease. However, sometimes they revolve around what is "reasonable".
Look through the cases here > https://decisions.lease-advice.org