Guide to Leasehold Conveyancing
Leasehold conveyancing tends to be more complicated then freehold. If you are buying or selling a Leasehold property, it is likely that the property is a flat, maisonette or a house under the Shared Ownership Scheme.
The sections below deal with the most frequent concerns when dealing with a Leasehold property. If you have any queries that are not dealt with on this site, please do not hesitate to contact us on free phone 0800 1071 207 or email us at firstname.lastname@example.org
What is Leasehold Property?
Where the Landlords are Tenants. How this normally works is that each tenant owns a share in a company, which owns the Freehold. The Tenants therefore have control of the building.
There is a separate Landlord who owns the building and manages (although they will often use Managing Agents). Sometimes a Landlord will actually own and live in the building.
About Managing Agents
- They will deal with the buildings insurance
- They will maintain the structure of the premises and any common parts (hallways etc), including external grounds
- They will pay for lighting of the common parts and heating, if appropriate
- If there are lifts in the building, they should be maintained by the Management Company
- They will pay staff if need be.
- They will maintain accounts of all the payments and they will also deal with any requirements of Companies House
Responsibility for repairs & costs
- Service Charge
This is a charge that is usually made in advance. This is an amount set by the Management Company or Landlord in advance, normally at the beginning of the financial year.
- By payment as required
In this case, the Landlords would ask for payment as and when payments are to be made. This is relatively unusual and would only apply to small developments.
Ground Rent, Service Charge & Reserve Charge
- That the Tenant has not paid the Ground Rent or Service Charges. In this case we will ask for a Binding Undertaking from the Sellers Solicitors to pay that money on completion. An Undertaking is a written, signed promise to do something.
- That the Tenant has paid the Ground Rent and Service Charge in advance. In that case they will require reimbursement by the purchaser. If this is the case the money will be needed before completion.
- That the Tenant has paid up to the date of completion. In those cases no money needs to be paid to the tenant and they do not need to pay anything to the purchaser.
Buying the freehold title
In certain circumstances, the tenants of an Apartment block can buy the Freehold Title, owned by the Landlord. This is known as “Collective Enfranchisement”. This section deals with this process.
- Owners of Business Leases
- Owners of three or more flats in the same building
- Leaseholders who live in a building owned by a charity
At least two thirds of the tenants must be qualifying tenants (see above);
No more than 25% of the internal area should be in non-residential use.
A “nominee purchaser” should then be appointed. The nominee purchaser will be named on the Initial Notice and who will become the new Landlord. The nominee purchaser is usually a company formed by the Leaseholders.
- Market Value (i.e. what the value of the property would be as a freehold on the property market)
- Half the Marriage Value (i.e: the value of the combination of the Leasehold and the Freehold Title)
- Compensation (i.e. a payment made for any loss or damage caused to the Landlord by the collective enfranchisement).
Gather the information required in the notice
The tenants will need to obtain the following information:
- Details about the freeholder, i.e. whether it is a person or a company and their name and address
- Details of any head leases or intervening leases granted by the Freeholder, i.e. to a person that has a Lease who then sub-leases to the tenants;
- The full names and addresses of the other Leaseholders and details contained in their Leases.
- Details of any flats let by the Landlord on periodic tenancies
- The Tenants will already know most of this information. If not the Tenants are entitled to this information from the Land Registry provided they can prove their Tenancy and by making the right application.
Ensure that the right landlord is being served
The block may be sub-let to another Leaseholder and in this case it is the overall landlord who has to be served.
It is important to remember that Tenants are responsible for the Landlord’s costs once the Notice has been served and therefore it is essential that the Notice is correct as further amendments will incur extra expense.
We would recommend that you seek advice from a solicitor about the notice and that they prepare it. If you wish to discuss this with us then please contact us.
- The Landlord is entitled to request evidence of the Tenants’ ownership of the flats and has 21 days to make this request.
- If this is not provided then the Notice would be considered to be withdrawn with the Landlords costs still payable. It is therefore important that documents relating to the ownership of the Lease are provided as soon as possible.
- The Landlord must then serve a Counter-Notice within a time limit stated on the Notice. This would agree with the notice, disagree or argue that an application should be made to the court on the basis that the block is due to be demolished or refurbished.
- If the Landlord does not serve the Counter-Notice within the correct time the Tenants can then apply to the County Court for an Order that the matter is decided without the Landlords input. This is called a Vesting Order.
- There is then a period of two months where both parties negotiate the price and other aspects of the application. If matters are not agreed then either party can apply to the Leasehold Valuation Tribunal (LVT)for an independent review.
However, Leases drawn before the 1990’s frequently do not conform to guidelines and therefore are regarded as defective. With most defective Leases however it is possible to take out an Indemnity Policy that would be acceptable to the mortgage lender. There are therefore 3 categories that Leases fall into:
- Leases which conform to the Guidelines
- Leases which do not conform to the Guidelines but where a policy will normally be acceptable to a mortgage lender
- Leases which do not conform to the guidelines and where the defect is so serious that indemnity policies will not solve the problem
- In some circumstances if there is a defective Lease an indemnity policy may not always correct the problems for the following reasons:
- There can be practical difficulties caused by the defect which may put buyers off
- There can be a genuine debate between solicitors as to the interpretation to the guidelines
- If there is a range of difficulties it may affect saleability
- If there is a weak property market it is more likely that a potential purchaser might be put off by defects in the Lease.
- Type of Title (ownership)
Most title is called Absolute Leasehold Title which guarantees that the Lessor has ownership to grant the Lease. In some cases you can only acquire Good Leasehold Title which means that the Lessor’s right to grant the Lease is not guaranteed, usually in cases where some of the documentation has not been registered at the Land Registry.
If the Lease is held as Good Leasehold Title then an Indemnity Policy will probably have to be obtained.
- No right of access or right for services
A flat requires rights of way over two different areas:
- Within the building
- Outside the building to the nearest public highway
If either is missing then an indemnity policy will be required.
Very occasionally there are no rights for services to cross other parts of the building and if this is the case an indemnity is required.
- Maisonette Indemnity
Defects that can occur in a maisonette could include:
- Where the landlord does not promise to enforce any breaches against other Tenants should the other Tenants default in carrying out some requirement under the Lease.
- No adequate provisions for repair or maintenance.
- Defects in Buildings Insurance Arrangements
If the building insurance arrangements are not adequate then this insurance will be required. However, normally, the reason why the Insurance arrangements are not adequate is because the landlords do not enforce requirements against other Tenants.
Blocks of flats will have one of the following arrangements with regard to buildings insurance:
- The freehold owner or Management Company insures the whole block and each Tenant pays towards insurance. This is the arrangement with almost all modern Leases and is the best arrangement.
- Each flat owner has to ensure his or her own flat. There is a covenant or requirement by the Freehold owner to enforce compliance with the Lease. This is not as good as the first option but no indemnity is required.
- Each flat owner has to insure his or her own flat and there is no covenant or requirement by the freehold owner to enforce compliance with the Lease. In this situation an Indemnity Policy is required.
- Absentee Landlord
There is a special policy that can be taken out if the Landlord doesn’t exist. Some mortgage lenders regard this as being so serious that it has to be reported to them. Almost invariably, the reason why the landlords do not exist is because the companies have gone out of existence.
Most sellers do pay but not always and in some cases there can be a debate between solicitors as to whether an Indemnity Policy is actually required as there can be different interpretations of the CML Guidelines.
Legal Requirements of a Lease
Legal requirements in respect of a Lease are set out under the Council for Lenders’ Guidelines. These guidelines are sometimes interpreted differently by Solicitors although not as much as they used to be. This section deals with these guidelines and what is required of a Lease.
Leases which are of an extremely high standard and conform to every requirement of the guidelines. Most modern Leases in big city centre developments are of this standard.
Leases which in some respect do not conform to the Guidelines but will be acceptable if an Indemnity Policy is obtained (a special type of Insurance Policy)
Leases which are drawn so badly that there would be difficulties in obtaining a mortgage and the property is therefore unsellable. This is extremely rare.
Just because the Lease does not have Absolute Leasehold Title, it does not mean it is entirely defective although you should only purchase this type of lease if:
- Your Solicitor confirms that the Title is acceptable;
- You have obtained an Indemnity Policy (a type of Insurance), to protect against any future problems that may arise.
View our guide to Leasehold Expenses here.
Should your sale or purchase fall through without having taken the No Move/No Fee option we will charge a fee as is reasonable for the amount of work done by that stage.
- First Time Buyer
- Cash Buyer
- Buy to let Landlord
- Previous client (where we acted for over the last 3 years)
If you qualify for this discount, simply deduct this amount from your total online quote and advise us of your circumstances on instruction.
Terms and Conditions
Only one deduction per transaction (e.g if both cash buyer and buy to let landlord we deduct £24.00).