Leasehold Conveyancing Explained

In-Deed’s in-depth guide to the different types of property tenure will give you the lowdown on what each involves. Here we look at leasehold properties and conveyancing.

Land and property ownership in England and Wales is categorised in one of three legal ways: freehold, leasehold and commonhold. This ownership, or tenure, will dictate the type of conveyancing you require when you buy or sell.

In-Deed’s in-depth guide to the different types of property tenure will give you the lowdown on what each involves. Here we look at leasehold. You can read about freehold here and commonhold here.

What is leasehold?

A leasehold property is one where the buyer purchases the right to occupy the property for a set period, subject to the specific conditions in the “lease”. A lease can be granted for up to 999 years. The lease will generally relate to everything within the four walls of the property but not the external or structural walls. The structure, common parts of the building and the land it stands on are owned by the freeholder, also known as the landlord. The landlord can be a person or a company, such as a housing association or a local authority.

Many landlords appoint Managing Agents or a Managing Company to run the day-to-day affairs of their property, including upkeep, ongoing maintenance and common repairs.

What is a lease?

A lease is a contract between the leaseholder and the landlord that gives ownership of the property to the leaseholder for a fixed period, subject to specific conditions that will be written into the lease. As the leaseholder, you should ensure you have a copy of the lease, so you understand your rights and obligations from the start of your ownership of the lease. When you buy a leasehold property, ask your solicitor to provide a plain English translation of the essential clauses in the lease because you might otherwise find yourself baffled by the arcane legal language often used in leases.

The lease outlines your rights and responsibilities, but it also provides the legal framework to which the landlord must adhere.

Your responsibilities might include:

  • Paying annual ground rent
  • Contributing to maintenance and management costs
  • Contributing to communal insurance

Your landlord’s responsibilities might include:

  • Maintaining the structure, exterior and common areas
  • Insuring the structure

Common areas include the likes of lifts, stairwells, gardens and hallways.

What is “quiet enjoyment”?

Under English common law, as a leaseholder, you have the right of “quiet enjoyment” for the term of the lease. Quiet in this context doesn’t specifically relate to noise but means “without interference” – neither the landlord nor any agent acting for the landlord can interfere with your right to possession of the property so long as the lease is in operation. A lease will generally include a clause outlining what “quiet enjoyment” means for the specific property. For example, a landlord may make the clause conditional on the leaseholder fulfilling certain obligations, such as allowing access to the property when required or not blocking a right of way.

What is freehold reversion?

When the lease term expires on a property, the legal title or ownership of that property reverts to the owner of the freehold. In freehold reversion, the leaseholder buys the freehold interest in the property, merging that with the leasehold interest and giving the leaseholder the absolute freehold title.

Conveyancing on a leasehold property

The most important element of conveyancing for leasehold is in ascertaining the length of time remaining on the lease. Most lenders will not offer a mortgage when a lease has less than 60 years to run – in fact, many lenders will not lend on any property with less than 90 years remaining on the lease because the value of the property drops as the lease runs down. Therefore, it’s essential that your solicitor ascertains early on the lease’s length.

Your solicitor will check the conditions and obligations outlined in the lease, which could restrict the use and development of the property. Where any extensions or alterations have been carried out or are planned, the solicitor will have to ensure these don’t flout the terms or restrictions of the lease.

Buying leasehold can be a tricky venture and that’s why it’s vital you entrust your conveyancing work to property professionals experienced in dealing with this tenure. At In-Deed, all the solicitors we work with know the leasehold system inside out, and their experience will be invaluable when you intend to buy leasehold.

The costs of leasehold conveyancing

It’s a cold, hard fact that conveyancing on a leasehold property is often more expensive than when buying freehold because of the extra work involved. Your solicitor will have to liaise with the freeholder/landlord or the management company managing the property on the landlord’s behalf – the management pack that they will provide will detail all the costs involved in the lease and the consent to transfer the lease from the seller to you. You will have to pay for this information to be produced and sent to your solicitor. This is one third-party cost that is unavoidable in leasehold conveyancing.

Another unavoidable third-party cost is a Notice of Assignment, sent by your solicitor to the landlord informing them you are the new owner. The cost of this is around £100 plus VAT. When you buy with a mortgage, a Notice of Charge informs the landlord that a third party – i.e. the mortgage lender – holds an interest in the property. The cost of this ranges from £50 to £200.

Some freeholds may ask that you sign a Deed of Covenant with the landlord or managing agent. This deed is a contract that confirms you will pay all the service charges, including those for common repairs and maintenance. The deed is often part of the landlord’s pack that the seller’s solicitor will provide for your solicitor and can cost up to £350.

Costs involved in owning leasehold

There are several costs involved in owning a leasehold property. These can include:

  • Ground rent

Ground rent is a regular payment made to the freeholder. The lease will detail how much ground rent is due, how often it is paid and to whom. Ground rents were once known as “peppercorn rents” because the amount involved was very small. However, in recent years, new-build properties have been sold as leasehold with escalating ground rents attached, in some cases doubling every 10 years. Your solicitor will check the details of the lease thoroughly to find out if the property you intend to buy has any escalating ground rent clause attached. You must pay the ground rent due. The landlord may take you to court if you do not.

  • Service charges

Service charges are paid by the leaseholder to the landlord for services such as maintenance, repairs and buildings insurance. The service charges often include management costs, whether by the landlord or by a professional managing agent.

Service charges vary from year to year. All these costs must be paid by the leaseholder – the landlord generally will not contribute to them. Your solicitor will check the terms of the lease and where the service charges may seem to be unreasonable, they can negotiate on your behalf with the landlord. The solicitor should also find out from the landlord if any major works are planned that could affect the service charge in the longer term.

  • Insurance

The service charges are likely to include buildings insurance for the exterior of the property. You will still need contents insurance for your own possessions.

  • Reserve or sinking fund

A reserve or sinking fund is money collected in advance by the landlord in advance of any planned work to ensure sufficient money is available for the scheduled work.

 

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