If you’re a long-leaseholder, it is important to understand what your lease terms mean.
This article highlights the top 7 Things 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.
1) – Lease Term
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.
2) – Ground Rent
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.
3) – Service Charge
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?” [https://berniewales.co.uk/legal-service-charge-demand/]
4) – Demised Premises
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.
5) – Things You Must Do
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.
6) – Things You Must Not Do
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!
7) – Who’s Who
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, here > https://youtu.be/jONmDMDxvrc
In Conclusion
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.
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