Introduction - At Assetsure, we are often consulted on the
telephone over the various aspects of Flat ownership, although we can only
provide advice on flats insurance uk, we do encounter similar problems every day of the week
from " confused" leaseholders who are trying to insure their building
or are asking for an opinion on the price of
flats insurance as being charged by
the freeholder. One thing we can advise is that most people that live in
flats, encounter similar problems. What follows is our guide to:-
Leaseholder/ Freeholder- What's the
difference. - What are the key terms
Extending the term of a lease on a flat
Obtaining the Right to manage your Building.
Buying the Freehold of your Building
What does the term common hold mean.
Please remember that we offer this information
for general usage only, it is not tailor made to anyone's personal circumstances
and is not a substitute for legal advice which should always be sought before any
decision is made.
Leasehold/Freehold- What's the difference? - If you are buying a flat for the first time and
are perhaps a little confused as to your rights and obligations, we hope this
guide will help you better understand the legal nature of your ownership. Before
reading on it is pertinent to point out that if you want to
buy a flat in a
block in England or Wales, you are pretty much stuck with a lease, you may
be lucky and be able to buy one that also includes a share of the freehold or
your flat may even be offered to you on a common hold basis , an arrangement
which is becoming more popular and is seen as the eventual replacement system to
leasehold.
You can obtain the leasehold of flat in pretty
much any type of building, it can be a flat a purpose built block, in a
converted house or even in former commercial premises such as factories or
office blocks. What you will be obtaining is a portion of the building and the
right to occupy that portion of the building for a set period of time. This
period of time is called the lease and new leases are usually issued for 99 or
125 years, occasionally you will be offered a 999 lease or one that is " in
perpetuity" When you are buying a flat freehold, the term of the lease will
be specified and unless the property is brand new or in a newly converted
building, the lease will usually have run down a little. You could think of a
lease as a long tenancy agreement, except that during the period, you are free
to sell the lease to someone else, as property prices generally increase, so
will the value of your lease, although its value can decrease the closer to the
end of the lease you get. if a lease is not renewed or extended , then at the
end of the term. it returns to the freeholder
Your ownership of the flat relates everything
within the walls that encompass your portion of the building, this includes the
flooring and the plaster work and any fixtures & fittings. Ownership does
not include the bricks & mortar or the foundations or the land on which the
property stands, this will all be owned by the freeholder. The freeholder is
responsible for the upkeep of the building but beware, you will be part
responsible for paying for the up keep.
So in simple terms, all you are purchasing will be the right to occupy a
certain space within the building as defined in the lease. Your Flat will
normally be allocated a number or a letter to distinguish it from other flats in
the block. As well as " your space", you will also be entitled to use
the common parts of the property, this would include any communal areas such as
the doors and corridors, if there is a garden, you should also have use of this
although it has been known under some leases to restrict use of the garden to
certain flats. This is most common in converted houses where the garden is
usually allocated to the downstairs flat.
Your
landlord can be either a private
individual; or a limited company, it could even be one of the other leaseholders
in the building. On occasions leases are sold by local authorities or housing
associations. Many people have now secured the purchase of their council flat
where the authority sells them a lease like any other landlord. It is quite
common nowadays for the residents themselves to own the freehold of the
building, in which case when you purchase your lease, you will also be
purchasing a share of the freehold as well. If the freehold is not owned
by the residents, they may still have acquired the right to manage the building
and more is written on that later.
The freeholder of a block of flats owns the
structure of the building itself and the land on which it stands, he has
granted leases to individual portions of the building and if the leases
are allowed to expire, then the freeholder will then on that space again. The freeholder
of the property will.
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Own the structure of the building and the
land on which it stands
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Grant leases to people enabling them to
occupy portions of the building
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Look after the upkeep and maintenance of the
building
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Arrange flats insurance uk on the building a and
divide the cost up between the Freeholders
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Charge ground rent
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Charge maintenance fees which go towards the
upkeep of the building.
Although the freeholder owns the building and
the land on which the block stands, unless he owns a flat within the block he
will not be able to use the building or its facilities. Sometimes, you may find
that the freeholder does own a flat within the block and has simply purchased
the freehold of the building
Lets now have a look at a lease in
general, this can be defined as contract between two parties, in granting the
lease the landlord gives conditional ownership to the lessee for a certain
period of time as mentioned above.. The lease is an important document and it
is vital that you are fully aware of your responsibilities in particular with
relation to ground rent and service charges. many people have purchased flats
without fully understanding the implications of the lease and found that they
have been hit with high maintenances charges with very little option but to pay
them. Leases are written in legal speak, so it is best to obtain the help from a
solicitor. Once you have purchased your lease, you will find it difficult to vary
the terms so if there is something you are not happy about, talk about it before
you sign
The lease sets out the contractual duties of
both parties and you must remember , it is a legal document and must be treated as such, even though you have
the right to occupy a certain space within
the block you still may not be free to do what you like within your own four
walls. Leases are often written to protect the majority of people in the
building and you will often find restrictions on what you can and cannot do. In
obtaining a lease, you will acquire the right of peaceful occupation for
the term of the lease. You will have privacy within your portion of the
building and you can expect the landlord to keep the common parts in good
condition. Leases work both ways, if you think the landlord is not looking
after the building ( which could lead to a fall in the value of your lease) it
is probably best to broach the matter sooner rather than later. For your part,
you will have to keep the flat in good condition.
It must be remembered that as a leaseholder you
will have to comply with all the terms and conditions of the lease, if you fail
to pay requested amounts for ground rent & services charges, you may find
that your landlord takes you to court to obtain repossession of the flat.
Ground Rent - Many people ask, why if they are buying a flat
must they still pay ground rent, the answer is quite simple, your lease is
really a tenancy agreement and tenants pay rent. The good news is that ground
rents are usually very low and are never normally more than a few hundred pounds
a year. If yours is higher than this ask the landlord for clarification.
Service charges - Services charges on leasehold flats
are a contentious issue, these are payments made by the leaseholder
to the freeholder for the upkeep of the building. This will include maintenance
and repair and also to pay for the
building insurance. If you live in a large
purpose built block, you can expect to pay towards heating & lighting of the
common parts, lift maintenance, window cleaning & up keep of the grounds and
anything else that the
landlord feels is chargeable. Often people are hit with
large unexpected bills for replacement of the heating system for example or painting
the exterior of the building and one of the reasons people seek to control there
own block is to help keep these costs under control. The charges are levied by
the landlord or in some cases a professional managing agent will be appointed.
The managing agent will normally run quite a few blocks and is the representative
of the landlord or freeholder and not the leaseholders. The managing agent must
make the landlord aware of leaseholders wishes and will communicate any grievances
to him or her.
The Sinking Fund - Sinking funds or reserve funds are amounts of
money built up by landlords to ensure that there is sufficient in the
kitty to deal with any major repair or renovation works. The lease will
set out details of the sinking fund and should also alert you to the major
repairs and their expected date. If you make contributions to the sinking fund,
please remember, these are not refundable if you sell your flat before the
works are carried out.
Building Insurance The freeholder will arrange the
flats insurance uk and
will charge a proportion to each flat in the block. Some people try to insure
their own property or are incorrectly sold flats insurance uk by
mortgage providers who
do not realise that the building is also insured under a block policy. Sometimes
this scenario can go undetected for many years. As the insurance costs are often
sent out under the guise of a service charge, it may not always be apparent that
you are paying for a building insurance policy. When you purchase your flat ask your
solicitor to enquire about the building insurance policy, your
mortgage lender
will not normally mind you being insured elsewhere, providing of course , their
interest is noted under the policy. They may also want a copy of the policy documents
for their records. Large highrise flats often have an insurance policy which
automatically notes lenders interests and this helps to keep the cost of administration
down
Leaseholder Rights - Up until now it has looked as if the
landlord has the bulk of the rights when it comes to leasehold flats, however
you do have rights and these include the following;
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The landlord must provide you with
information that will enable you to contact him, his address must be clearly
stated on any financial demand which is made upon you, You will have a right
to examine accounts for service charges etc
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The freeholder will not be allowed to carry
our major works to the building without first obtaining your permission. He
can however carry out works which will result in a cost of not more than
£250.00 to every leaseholder in the block
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The freeholder is not allowed to enter in to
any long term agreements for services etc without obtaining the permission
of leaseholders where the charge involved is in excess of £100.00 to each
leaseholder
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You have a right to challenge any charge made
even if it has already been paid
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You have a right to challenge any administration
charges even if they have already been paid.
You have other rights as a leaseholder and these
are now dealt with in greater depth
Extending the term of your lease -
if you own a lease of a flat in a block , you
now have a legal right to extend the lease.. The leasehold reform act and urban
development act 1993 gave leaseholders the right to obtain a lease extension by
having an additional period of 90 years added on to their current lease at a
fair price and at a peppercorn rent. The imposition of a peppercorn rent was to
stop unscrupulous landlords trying to make extra money from the leaseholder. By
peppercorn , a zero rent is usually applied. The rules are simple and
straightforward;-
If the above mentioned conditions are met and
your landlord is not except from the law then you can extend the lease without
have to obtain your landlords permission. Obtaining an extension is normally
carried out people wanting to sell their flats and wanting to sell them with as
long a lease as possible. There will be a cost involved to extend the lease and
you will also incur legal costs and valuation costs. You solicitor will be able
to help you prepare the documents and should be able to give you an indication
of the costs. Generally speaking you will be unable to extend the lease of
property owned by the Crown or National Trust.
Obtaining the right to manage your Block of
Flats - The right to mange your own block was seen as a
major break through for leaseholders and at last many were able to take over
their own affairs for the first time. The Right to manage provisions of the common hold
and leasehold reform act was passed in 2002 and came in to effect in 2003.
This well received and popular act provides legislation so as flat owners can
take care of their own communal affairs regardless or not if the freeholder has
been acting incorrectly. . For some, the fact they can control their own affairs
dispenses with the need to buy the freehold of the building, once you gain
control of your block, you are free to shop around for the best deals on
services and in particular
blocks of flats insurance, If your flat meets
the following listed criteria, you have a statutory right to gain control of your
own affairs.
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The property must be a self contained
building or part of a building.
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Your building must include at least two flats
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At least two thirds of the flat owners must
qualify
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To qualify the original lease must be for in
excess of 21 years
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There is no limit on the number of flats any
one person can own
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Any commercial/non residential content of the
building must not be in excess of 25 % of the floor area
Once you set up a right to manage company, it
will assume the following responsibilities to all leaseholders
Buying the freehold of your Block - Many leaseholders now believe that with the
introduction of the right to manage, the need to purchase freeholds is less
great, certainly freeholders do not have the power they once had. However, long
leaseholders have the right to buy the free hold of their building, they must do
this collectively as it is not possible to obtain the freehold to individual portions,
you have to purchase the lot. No person can act alone in this venture,
purchasing normally happens after much consultation amongst residents. The usual
course is to set up a limited company and the leaseholders are awarded shares in
the company.
The limited company controls the freehold and it
can award lease extensions and take care of all the usual issues that the right
to manage company deals with. To qualify for freehold purchase you must originally
have been awarded a lease of in excess of 21 years, you must have also
been resident in your building for the last twelve months or for periods
amounting to at least three years in the last ten years.
The building that you wish to acquire the
freehold of must have at least two flats and the qualifying tenants must own at
least two thirds of the leases in the block. Some buildings are not eligible for
freehold purchase but these are in the minority and not worth mentioning. At
least 90 % of the building must be given over to residential use.
Provided the above conditions are met, you will
be able to apply to the landlord to purchase the freehold. Regrettably the
process is quite drawn out and involved. Initially, you must serve notice on to
the landlord of your intention to purchase the freehold and you must also offer
a price. The landlord must reply with a counter notice, normally landlords will
be willing to sell but they almost always reject the price on offer. This is
where things start to get a little complicated and to save time it is worthwhile
obtain professional valuation at the outset. If you present the landlord
with an independent valuation to compensate for the loss of the freehold
you are more likely to conclude the sale in the shortest time possible.
This is an area where good quality legal advice
is essential, remember, you have the law on your side and provided you carry out
procedures exactly as required, there is very little a hostile landlord can do
to prevent you acquiring the freehold to your block of flats.
Commonhold - Recently new laws have been enacted which offer
the biggest change to property ownership law in England and Wales in over 80 years.
The new right to common hold has been heralded as the way forward for flat
ownership and it is envisaged that this system will eventually replace the leasehold
laws which are universally unpopular. Previously, the only two ways you could
own property were, freehold and leasehold. Common hold in effect allows the
owner of a flat in a block or converted building to have a freehold and thus
ownership is not restricted to a set period of time. Common hold has been
popular in Australia and the United States for in excess of 50 years and the system
introduced in England Wales is based on the results obtained in these two
countries.
In essence, common hold has been introduced to make things easier for people
living in buildings that are in multi occupation and it is hoped by doing this
many of the problems with rogue landlords will be over come. Developers of new
properties can now choose to make a building leasehold or common hold. Under the
common hold system, there is no landlord or freeholder and every resident or
owner, owns a unit in the property and has equal rights, not only do they own
their own portion of the building freehold, they also own a share in the structure
itself and the land on which it stands.
All unit holders have a joint responsibility to
sort out the maintenance and insurance issues and must take responsibility for
the general up keep of the building. The common parts of the building are owned
by and managed by a limited company known as a common hold association. There
are some distinct advantages with common hold over the old system.
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Each flat in a block will be freehold, it
will not lose value as the term of the lease runs down
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Ownership documentation is standardised and transparent,
there is a unique common hold community statement for the whole building,
this will; help avoid inconsistencies between leases
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Management of the building is on a joint basis,
by the owners for the owners, there is no third party involved and thus
costs can be kept to a minimum
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An end to landlords using freehold as a way
of generating an income our of leaseholders.
If you are leaseholders of an existing block
with leases in place, it is unlikely you will be able to persuade your
landlord to effect a change to Common hold ownership, for these scenarios, purchasing
the freehold would still remain the route to ownership.
Many of the matters discussed in this article
are fairly complex and Assetsure always recommend taking professional, legal
advice before you make any financial decisions.
