FAQ Flats, Leases, Freeholds Share of, don't let it do your head in! part 1

[leaseholdanswers]

A Please forget what you think you know, and abandon your rationalisations preconceptions and expectations; “Leasehold Law” has it’s own set. The lease is a contract and it is it’s terms that are relevant, not what you want them to be, nor insisting that they should be like your phone contract or electricity bill.

B I will explain, using words and diagrams,

1 What freeholds and leaseholds are and why we have them, what is included, excluded, and typical block set ups.

2 A glossary of terms and common points of confusion and myths.

3 Estate Agents and how useless they are on leaseholds and why you need to find out yourself as early as possible. Suggestions on the ill treatment of Estate Agents should not be followed as the lawyers say no, no matter how much they might deserve it.

4 How to break down the lease for yourself and find out what you are in for.

Cup Tea - Settle In, We Might Be a While.
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1 Don’t Panic! I will explain

In simple terms, the freeholder owns the land and the block, the bricks and mortar, (or these days the factory manufactured modular units)

Freehold was formatted as ownership from the top of the sky to the centre of the earth (yes, planes cranes some mineral rights and the communal plumbing are sort of exceptions, so no charging for them, please). Most flats cannot meet that definition as other flats are in the way.

So, back in the day when knights were bold, they often had others look after their fields and castles where the peasants were particularly smelly or men in tights lurked in woods to rob from the rich, and well you know the rest, and tenancies were created.

They were of varying length and rent was paid in groats, sheep or young ladies of certain virtue. A quick trip in a Tardis and tenancies were being applied to houses and, in due course, flats, to get round the “top of the sky” bit*. Rather than pay rent, perhaps due to a shortage of ladies of certain virtue, these tenancies became longer and a premium was paid, a lump sum, along with a low annual rent. This is what we refer to as the purchase price and ground rent.
* Ok, this is not what the Law of Property Act 1925 said, but it comes out the same and this is far less boring an explanation.

In the late 70’s and early 80’s, as peasants were generally less smelly having jobs and indoor plumbing, and certain virtue, well, there was the summer of love and , well, ask your Granny, lenders became willing to lend mortgages on long leases generally, and from that, the concept of owning a leasehold property became “mainstream”.

These tenancies, being more than 21 years are referred to as leases, and are long fixed term contracts with rights and obligations to
• own, borrow on, sell, use and occupy the flat
• obligations to and from the freeholder, and, by extension, the neighbours, on looking after the flats, the block, and paying for that
• not to keep chickens or behave immorally ( lawyers still believe in virtue)

While early attempts do have flats looking after the exterior nearest their flat, it became a bit silly if the top floor flat didn't look after the roof, or the ground floor didn't mind the subsidence or wet rot, and therefore freeholders, generally, had to look after the exterior and structure, lest it all fall apart.

That’s why you need do to have leases-its contract that says who does what in return for what, something to borrow against, and roll and beat stupid estate agents with, as they wouldn't recognise a lease before or after you bet them with it, for preferring to make up an answer, than find out.

1.1 What Do I Own?

In most cases
a: a lease of the flat and in some cases, other areas e.g. parking
and, sometimes,
b: an interest in the freehold with other flat owners, or the company that owns it or
c: a company that is responsible for looking after the building
n.b. do not confuse b & c with a managing agent.
n.b. If you think “oh, share of freehold” at this point, I will throw furniture at you.

1.2 Whats included?

In most cases your flat is an eggshell, ending at the plaster and you pay toward the exterior common parts and structure in service charges. Do check on
- if you want to alter external doors, windows, walls and layouts, they may not be yours to alter or need consent, its not “ just structural stuff” - every lease varies
- just because there is a patio or loft space or roof outside your bedroom window doesn’t mean that you can use it or convert it
- terms that limit subletting or taking in a lodger
- don’t assume that because there is space, that you can park your second car

Some leases, often in “one up, one down” blocks do make you responsible for a portion of the exterior and these need to be carefully examined by your solicitor.

Section 4 will go into more detail later.

1.3. So What about the rest of the Building?

While there is always a freeholder, things can be a little more complex.

Typical Flat and Block Ownership Set Ups

Simples

1 Freeholder(Block) -----------Leaseholder(flat etc)

2 Freeholder(Block)------------Headlease(Block)-----------Leaseholder(flat etc)

Blocks With A Party to the Lease Manager or Residents Management Company

3 Freeholder(Block) ----- PTTLM/RMC ------Leaseholder(flat)

4 Freeholder(Block)-------Headlease(Block)----PTTLM/RMC-------Leaseholder(flat etc)

Blocks With A Right To Manage Company

5 Freeholder(Block) ----- RTM ------Leaseholder(flat)

6 Freeholder(Block)-------Headlease(Block)----RTM-------Leaseholder(flat etc)

n.b.the freeholder, headlessor, PTTLM, RMC or RTM, can employ a managing agent, not to be confused with management company
n.b. you will see there is no share of freehold as there is no such thing. No, sshh, there isn’t.



The trick is working out what is what & who is who; walk this way.

[leaseholdanswers]

2 Who is Who, Whats What?

It’s unlikely the Estate Agent can or will answer your question on this, nor is willing to find out, as I explain later, even if you mock their fake tan and impossibly white teeth.

The simple chart above uses terms that need explaining. Lets get the biggest myth out of the way first.

Share of freehold- No such thing! It is a “shorthand” description that has mutated, in popular thinking, to a form of ownership. It is an EA’s lie and will mislead you.
The freehold is usually owned by
a: a person or group of people, often some or all of the flat owners, owning it jointly as a distinct legal entity ( & in trust if more than 1 person), or the little old lady in the basement, and her cat, and the funky smell.
b: a company or organisation, from the “big freeholder investor plc” to “one man and his dog”, or a housing association ”RSL” or the council boo!
c: a company where some or all of the flat owners have a shares in, or membership of, it ( no, not share of/in the freehold, the company owns it)
d: If it all went horribly wrong, the Crown, to whom ownerless property reverts
n.b. not all resident owned freeholds or head leases are owned by all flat owners, and membership is therefore not always open, free or automatic.

Landlord- is the lord of the land and normally the person in control, and that can be several things, not just the block owner.

Freeholder(FH)- owns the ultimate title of the property and on expiry of a lease, gets the keys back (if you don’t extend it or become a renter, or squat).

Leaseholder(LH)- this is you, owner of a flat, or other property, for a fixed number of years (see 4) and, with few exceptions, can be extended (see4).

Leases- (see 4) in most cases a freeholder grants a lease of each flat, and is therefore landlord and the leaseholder, the tenant (easy, see 4)

Lessor/Lessee Respectively, whoever grants the lease and whoever bought it
Often called the grantor and grantee, just to keep it interesting

Reversion- At the end of the lease, the property reverts to the person who granted the lease, often called the reversionary interest.

Head Lease(HL)- A FH grants a head lease, a lease of all or most of the building and who ever owns that, then grants the individual leases, called a sublease or under lease, for each flat etc. The head lessor is therefore the landlord.
n.b they can be, like a freeholder, any one of the various possible owners.

Superior Landlord- If we start with your lease of a flat, the head lessor is your landlord. The freeholder is then the superior landlord. In this context “landlord” means who/what has the reversionary interest.

Tripartite Lease- the simple lease between a FH/LH or HL/LH can be expanded to add a third party who undertakes some or most of the responsibilities and obligations of the FH or HL.

Party To The Lease Manager- the third party, above, and can be
-most commonly, a residents’ owned residents management company “RMC”
-a company that specialises in block ownership/management, such as an agent
-or a trust or similar organisation
n.b. as they may in turn use a managing agent, be careful of confusion, and stick to manager/landlord and agent as terminology to keep track

Buying The Lease- A horrible expression which relates to car leases. Stop it.
A leaseholder owns the lease, and is therefore referring to buying the freehold.

I Want A Freehold Flat- Well no you don’t. As explained earlier without a lease these rights/obligations become complicated to create or are often missing. As a result you can never be sure of who is supposed to do what and therefore if you aren’t sure, your lender won’t be either and won’t be granting a mortgage.

But They Are Selling The Flat Freehold!?-A freeholder might own the freehold and occupies or rents out a flat(s), while the other flats have long leases. Their flat is regarded as reserved or retained (by the freeholder) property. These are very hard to get a mortgage on and in most cases a buyer has to separate their ownership of the flat and freehold by granting a lease on the flat.

Right To Manage Company ”RTM”- the law gives the right to owners to take over management of the building with minimal involvement of the head lessor or freeholder. In rare cases, a party to the lease manager in a tripartite lease, above, can be supplanted by the RTM. The RTM is then referred to as the Landlord.
n.b. Social Housing has a similar set up and Tenants Management Organisations “TMO”, though in the main, they share varying responsibility with the RSL or Council.

Tribunal Appointed Manager- the law gives the First Tier Tribunal - Property Chamber( everyone salute) the power to appoint a manager, similar to, and often as, a receiver, to take over running a block where the landlord has failed to do so and the owners do not wish to take it on. The manager may be, or use, an agent.

Residents Association- contrary to popular belief these are most commonly an un representative bunch of nitpickers, whingers and busy bodies, a representative group of people who lobby and/or work with landlords and agents. In some cases they co exist with an RMC where there is a division of opinion or responsibility, or in complex sites where some flats are rented, RSL tenants or shared ownership, and their views are to be heard. I am told its something to do with “community”. It is rare that they have full control of affairs or management and it is a generic label applied to resident’s companies.

Managing Agents- Long suffering underpaid paragons of virtue that should be treated with kindness. And fed cake. Lots of Cake. The agent acts for the landlord and is very often the back bone of the day to running. For most issues, they are usually the first and only point of contact.
Despite legislation, professional bodies and a number of standards, the sector ranges from excellent to awful, some say evil, amateurs to experts, with many around the “C+/B- could do better” range. No matter what ARMA “Q” says.

Expectations- A common thread in frustration with landlords managers and agents is the imposition of your expectations garnered from “common sense”, other commercial organisation’s practices, or just plain made up. And, mostly, that agents are, in fact, magicians at your limitless beck and call and solicitors only have your file to worry about. While some are truly useless, in most cases, frustration comes from artificial expectations and deadlines. You wouldn't play football with Rugby Union rules, would you, so learn the rules of this game.

[leaseholdanswers]

3 Estate Agents & (Dis)Information & the 11th Hour

To quote Frank Zappa” they be lyin’ n lazy, they be drivin’ you crazy”.

EAs faced with a serious question will go glassy eyed, and say “but its close to schools” rather than answer the question. Because they can’t. You are all packed up, it is hard to back out now…..and that is to their advantage. Compromise and tears follow.

It’s the rare one that understands, explains, and actually contributes anything worthwhile when accurate information is needed. Their job is to sell the lifestyle, leaving “the details to the lawyers”, but with commitments made, you don’t need crucial information, especially deal breakers, at the 11th hour.

The entire process assumes that you know roughly what you are doing and that when the lease and related information has been scrutinised, you can adjust the deal if required. As owners know, that leads to considerable stress and worry and there is no guarantee that a seller will agree or compromise. And it usually happens at the 11th hour.

A few simple questions and thought at the outset can avoid that. There is a lot to ask before offer stage, or to make the offer conditional, as it affects everything to price future cost and your plans for your home. In short
• Get a copy of the lease & establish the lease length urgently - HMLR Online
• Find out service charges and rent -ask the vendor as they pay the bills
• Take a good look round the block and grounds to see what is, hasn’t, or needs to be done- you will be paying for it
• Put down the IKEA catalog and concentrate!

[leaseholdanswers]

4 Your Lease- We got here at last.

The lease is what you will own, borrow on and will sell, not a made up “share of freehold” or any other interest as above.

Be warned; leases should be read front to back as the answer is often in several places, not the 1st one you bump into. They vary from Shakespeare like prose to common language. Few have ever met a comma, so deep breaths before reading out loud. Never operate machinery while reading and remain seated at all times, you may lose consciousness.

Length- Also called “the term”. A lease is x years long (often 999, 125 or 99) and you need to know how many years are left as
- the landlord gets the property back at the end of the lease, the fewer the years left, the more valuable to him, the less to you
-they can be extended, at a price, which gradually increases as it goes toward 90, and at 80, falls off a cliff, and is harder to mortgage
-Sale prices rarely reflect lease length, so similar or identical flats with say 82 and 103 years have very different values. If you don’t know then don’t make an offer or make a conditional one.
And if the EA says” its Share of freehold” beat them with their stapler!
Lawyers say don’t do that. And they know best.

Ground Rent- It can be 2 shillings and 6d or £400, and is often due in one lump.

Service Charges- vendors lie; in most cases they do have recent service charge bills or can get them after a phone call, they are just scared of putting you off. These and planned works are questions your, or your lawyer, ask straight away, & tie that in with a good walk round to spot issues, so you can get out, or renegotiate, early.

Payment Dates - It doesn’t matter that you want a monthly DD, or think they should have them, the lease says what it says and monthly schemes are VERY rare.

Sinking Funds/Reserve Funds- Are for long term expenses and are sometimes a separate charge or included in the SC bill. While they are a good thing, not all leases have them and therefore they cannot be collected even if residents want to. Be wary then of one off bills or SC hikes to pay for the new carpets or painting.

I Pay When I am Happy- Well no you don’t. In most cases your SC is an estimate of what they think that they will spend, and unless you pay, the landlord or agent doesn’t have the funds on hand to do so. As long as the estimate is fair and reasonable, then you will be successfully sued. If there are concerns about the work make sure you are arguing about what they are not doing rather than what you think that they should do. Keep good records and challenge the ACTUAL cost at the year end.

Specifics - Lease have terms about occupation subletting working from home etc so you or your lawyer need to see the lease straight away( they can download it immediately).

Services And Repair- The lease sets out the sort of services and who is responsible. Key to that is how much you pay and this ranges from a % to several %s on different expenditure schedules e.g. x % for the flat, y % for parking.

Never Assume- You will be told “oh we do this” or “normally” or “its ok”s. The lease however is the only written contract that you have and will be used in any disputes. Do not rely on the vendor’s word, no matter how pretty she is, , or anything the EA tells you- its probably made up.

How Well Is It Managed- A good look round will tell you and identify future needs. Getting information about the lease and service charge, past and future, especially planned works. is to be asked for straightaway. These two tie in with your surveyors inspection, the additional request to identify potential costs, and specific question to ask landlords or agents. Yes, they have to be paid to do that.

Ad Hoc You should expect to see the last three years budget and accounts and a long term plan, but especially in smaller buildings, it can get a bit ad hoc. You must be cautious of ad hoc arrangements as they can lead to real problems getting work done, as well as the temptation of “ we are small, so your rights don’t apply” when in fact “big or small” company or flock of individuals, the law and practice applies to them. Even in the smallest blocks there is a lot of complicated legislation to comply with and it is rare to find that they fully comply.



And so there you are

[Slepewalker]

Thank you LHA
Wish we had known this when we bought our "share of freehold " flat. Fortunately we sold at a modest profit so I can go back to reading IKEA catalogue but would urge anyone contemplating such a purchase to read your posts at least twice.

[ram]

Minutes of Annual General Meetings - Get copies of the last 3 years

Annual General Meetings. ( A.G.M. )

Leasehold flats.

Often, a good source of how well ( or bad ) the property is being looked after / managed, is to ask for the last 3 years copies of the minutes of the A.G.M's, which you are entitled to ask for, as well as the last 3 years copies of the service charge invoices.

A.G.M. minutes can range from everything is perfect, to "no confidence in the Company Directors or managing agents", and can give an indication what life will be like at the property.

Solicitors will ask ( usualy ) what the next years service charges will be, and if there are any major works about to happen in the next 3 years, which wont show up on next years "estimated"service charges.
For example,An A.G.M. may mention a 5 year plan, or orther items, "The roof will be replaced in 4 years time at a cost of £ 80000 ( divided by 10 flats means in 4 years time, you have an extra £ 10000 to find, on top of, say £ 2000 service charges )

[hookj]

Thank you for that info. However, I am stumped as I have received from a company which are the service managers of our flat that when I put a tenant in I am obliged to serve notice to them and also to the ground rent people. I cannot find this in our lease at all, although they quote a chapter of my lease which is non existent. So each time I put in a tenant, I have to pay twice £65 x2 once to the landlord who we pay ground rent to yearly, and once to the management company...who are in theory the very same people. Is it illegal what they are asking as it is nowhere in our paper work and after 6 years it is the first time I have heard of this. They also ask for ex tenants' details and speak in a threatening manner that if we don't own up about each and everyone of them, they will automatically charge us for a number that they want to make up themselves. Please shine a light on this. Thank you.

[ram]

Thank you for that info.

I have asked the moderator to move this to a new thread.
in the meantime, search for subletting fees.