Sale and purchase of leasehold property

Until relatively recently land was the dominant source of wealth and so land law was one of the most important areas of law.

The history of English land law can be traced to Roman times but current land law has its roots in the feudal system established after the Norman Conquest.

Feudalism meant that all land belonged to the King who granted estates to his knights and lords as well as the Church. They in turn parcelled the land out to tenants. Tenants and lords had obligations of work, military service and payment of taxes to those up the chain.

Under the feudal system land was held either as free or not free. Basically, free land was held by the Church or by the Lords and Knights who owed the King military service. They were freeholders. The rest were not free and tenants . They were lease holders.
The word Lease is derived from old French laisier (to let, let go) and partly from Latin laxo (to loose)

Modern Leases
In modern law when a freeholder allows someone to use their land for a fixed period of time the land becomes a leasehold and the occupier a tenant who pays rent to the freeholder. The document recording the agreement is a lease. The tenant can in turn grant a lease of the same land (a sub lease or underlease) to another person (a sub tenant or under lessee) for a shorter period than his or her lease.

Leases can be granted for land such as farm land, separate houses or flats. Leases became the most usual way to deal with a building which is sub divided into flats or maisonettes as it is seen as the most effective way to deal with any parts that have to be shared and to give rights and impose conditions that can be enforced by the landlord and fellow tenants.

Leases of separate houses were much less common but in recent years developers have used leases primarily as a means to obtain more money from the buyers by way of rent or service charges
Leasehold law is extremely complex and may present a trap for the unwary. The law has intervened by statute on several occasions to provide a measure of protection for leaseholders, but many problems still remain.

The government has pledged to reform residential leaseholds, but it is not clear what impact (if any) there will be on the estimated 4.3 million existing leasehold homes around the country.

Buying a leasehold property?
Some of the issues which you should consider:

Has the landlord charged an excessive service charge?
Is there a sinking fund to meet the costs in the future of major works, such as a lift, or the roof?
Who is the landlord? Is the landlord active, passive, absent, or insolvent?
How long is the lease? If a lease has less than 85 years remaining, then the issue of extending the lease becomes an important issue, which is better tackled head on at the outset of negotiations. Lenders also have strict requirements regarding the minimum length of lease they will accept when taking on a lease of a flat as security.
If the unexpired term of a lease drops below 80 years, then an owner begins paying an additional element called marriage value, if the owner ever wanted to buy a share of the freehold or extend a lease.
What is the managing agent like in practice? If the agent’s fees are excessive, the owner may be able to exercise rights to get rid of the managing agent.

Are you buying a share in the freehold?
If a buyer has a share of the freehold they will have greater control over service charges and the like, They may also benefit if other flat owners who did not buy a share of the freehold have to extend their leases.
Are the service charges listed correctly? Service charge proportions which don’t add up to the correct percentage. Any shortfall would create inevitably controversy and such shortfall may fall on the shoulders of the remaining leaseholders.
Are there any unusual clauses which for instance stop a buyer letting the flat, keeping a pet or selling the flat on in the open market.
What are the ground rent charges and how are increases structured? Onerous ground rent clauses, which means that the ground rent escalates to a level which blights the lease.
What are the restrictions of the lease? A restriction on the legal title that the Lease cannot be sold unless a “certificate” is given by the Landlord or the Management Company to permit the transfer. Such restrictions are sometimes unsatisfactory, because for instance, no covenant has been given by the Landlord to give the necessary certificate, or it may be made subject to conditions, which make it impossible for a buyer of the lease to be certain that the title can be transferred.

Selling a leasehold property?
The specific wording of a Lease can have a huge bearing on the marketability of the property and its value. If you are considering the sale or purchase of a leasehold property this guide should give you a few points to consider.
Before putting the property on the market, the Seller should take advice as to whether the lease to the property is defective. A defective lease can cause problems when trying to sell as it can affect a potential buyer’s ability to obtain a mortgage. If a mortgage lender believes that the lease does not cover certain provisions, they may refuse to make a loan, forcing the buyer to withdraw.

The lease may be deemed to be defective if the terms are considered unfair, inconsistent or inadequate. These terms may include:
Length of remaining lease
Ground rent increases
Service charge increases
Inadequate rights of access or right for service
Building insurance arrangements
Landlords’ obligations
Absent landlords

Defective leases can be corrected
If your lease is defective or too short It can be corrected by addressing the defective issues.

For instance:

Where the defects are minor and are unlikely to cause problems in practice, they can sometimes be dealt with by taking out indemnity insurance. This can be a cost effective and quick way to reduce the risk.
A deed of variation can be agreed with the freeholder to remedy any defective provisions. The freeholder may want payment for that
A seller may be able to apply to the First-tier Tribunal to vary the lease under the Landlord and Tenant Act 1987 and other leaseholders in the block may be interested in varying their leases too.
If the leaseholder is also in effect a co-owner of the freehold, then the leaseholders could collectively implement a scheme to remediate all the defective leases at the same time, with the cooperation of any existing lenders, who would most likely accept such substituted security because their own security position would be enhanced.
A leaseholder provided he has owned the flat for at least two years can, by invoking certain statutory procedures, obtain an extension to the lease of the flat.
A leaseholder may be able to persuade the other flat owners or an enough them, to exercise “collective enfranchisement” rights given by statute to buy the freehold and once the freehold was purchased by such procedure, then the leaseholders would then be able to extend and “modernise” their individual leases.

If you would like your lease checked by an expert before the sale or purchase of a property, get in touch with Labrums Property Team by calling 01727 858807.