Leases can be old, difficult to understand and full of legal jargon, making them very difficult to interpret for newly fledged flat owners. Despite this, leases are often given little consideration during the conveyancing process. In this article, Clear Building Management shares how we can help end the leasehold lottery and highlights the key aspects individuals should know before signing on the dotted line.
The long residential lease is at the heart of good block management. The lease sets out – among other things – how the property should be managed, how (and when) service charges and ground rents should be collected, and the rights and obligations of all parties.
For seasoned property managers like our team at Clear, interpreting a lease is relatively straightforward – even the more arcane ones, and yes – we have properties with leases dating back several score years and ten! Interpreting a lease is not so easy however if you are a newly fledged flat owner.
As well as confusing legal jargon, some leases also include terms that are unfair to leaseholders, such as the much commented on escalating ground rent clauses that led to individuals paying more and more each year, until their flats become almost unsaleable. And of course, leases also vary widely from development to development.
Despite all of this, leases are often given scant consideration during the conveyancing process and so it’s no huge surprise that people often end up owning a flat, with very little understanding of what they have entered into and their rights and obligations.
Hence why it can all feel like somewhat of a leasehold lottery. At Clear, we have three ideas to help mitigate this.
- The introduction of a standard residential lease, with standard clauses and universally agreed rights, obligations and covenants.
- To require that leases on new developments be reviewed as part of the planning process before consent is granted.
- To create a fast track or ‘easy update’ option for outdated or unsuitable leases.
We appreciate that a standard residential lease is most probably a pipe dream, but we would love to see the current leasehold reform measures go further to create a fairer situation for leaseholders.
However, whilst we wait for the law around leases to enter the 21st century, there is much you can do as an individual to avoid buying a flat with a ‘difficult’ lease.
Here are six key aspects you need to understand before signing on the dotted line:
- What’s included in the property? Otherwise known as ‘the demised premises’, this crucial part of the lease sets out exactly what you own, and it’s important to understand this should you want to make any alterations to the property in the future.
- How many years are left on the lease? This is known as the ‘term of the lease’, and the property will fall in value the shorter the term remaining. If the term is approaching 80 years, ask the seller to start the lease extension process before you exchange contracts to save you having to wait for the statutory two years.
- Service charge information. How much is it, when is it payable, and will you be required to contribute to a sinking fund or a reserve fund? This will all be set out in the lease.
- How much is the ground rent and will this change / increase? Be wary of any lease clauses that allow the landlord to apply arbitrary or multiplier-type increases.
- Are there any restrictions on how you live in and use your flat? The lease will include covenants that set out what you can and can’t do, for example keeping pets, parking commercial vehicles, playing music after a certain time.
- Finally, a non-lease point but an important one: are there any major works scheduled for the building – and what will you be expected to contribute? This is a timely and important question to ask, with many blocks facing substantial costs for fire safety remedial works.
Options for leaseholders
There’s a lot to consider as a leaseholder, whether you are embarking on your first property purchase or have owned your flat for many years. In the absence of a revolution in lease law, you have a number of options: first and foremost is to make sure you understand what you are investing in when you buy a flat: do not scrimp on the conveyancing costs as this false economy may come back to bite you on the bottom.
Secondly, make sure you work with a managing agent that will do the hard work, ensuring your property is well managed and your best interests are protected. At Clear, we only work with leaseholder-led developments, ensuring we can always act with our customers best interests at heart.