You have decided to buy a flat. Never before have you owned one. The trouble is that English law means that effectively acquiring a flat involves dealing with a lease. And even with the advent of plain English and the eclipsing of medieval language contemporary leases can still be difficult documents to find your way around. With this in mind I have put together a rough guide to the essential elements in a lease.
1) The introduction The date the lease was granted will feature at the beginning. Next will follow the details of the original landlord and tenant and the price paid when the lease was granted. More importantly there should be a description of the area granted by the lease-the so-called “demise”. Ideally the description should be as comprehensive as possible identifying the ownership of floors, walls, ceilings and balconies. The description ought to be by reference to a detailed scale plan. One particular area of dispute is the ownership of external windows. Sometimes there is no mention of them at all or one encounters the tricky situation of the frame belonging to the landlord and the glass to the tenant.
2) The length of the lease How long the lease has left to go is a crucial issue for buyers. As the years go by and the term diminishes the flat will decrease in value. Consequently the flat will become less attractive to mortgage lenders.99 years seems to be the traditional term for residential leases. For local authority buy-to-lets it will be 125 years. And for many brand new developments it could be 999 years-a “virtual freehold”. The date from when the term starts to run may well be earlier than the date the lease was granted. Often this term will commence from one of the quarter days-25th March, 24th June, 29th September or 25th December. So a lease of 99 years from 25th March 1995 will have 86 years left to go.
3) The ground rent This will often be a nominal amount maybe £50 or £100 a year payable half yearly or annually. Frequently the lease stipulates it will rise after a fixed period. Thus a 99 year lease starting at £50 a year may provide for the rent to increase to £100 after 33 years and then to £150 after 66 years. Alternatively there may be the complexity of a review mechanism with the rent going up to a percentage of market value with this figure to be decided by a professional arbitrator if it cannot be agreed.
4) The tenant’s covenants Since the lease is very much a landlord-biased document the majority of obligations will fall upon the tenant. As well as having to pay the ground rent the lease will also insist on the tenant paying service charges. From the landlord’s point of view the ideal lease will enable them to recoup through the service charges all the costs referable to the running of the building. The service charge machinery should state the apportionment of the tenant’s contribution towards the landlords’ costs. Is it an equal share or based upon floor space, number of bedrooms or rateable value? The lease should state the financial year-could be April to March or say January to December-and whether the landlord can ask for service charge money before that year starts. Payments towards a sinking fund may be permitted and the lease should state who signs off the service charge accounts and whether they are to be certified or audited by a professional accountant.
Other tenant’s convents should cover the cleaning and repairing of the flat and restricting the use to a residence. With the growth of the buy-to-let market the lease may well have something to say about sub-letting. If it is not mentioned then one may be free to go ahead and put in an assured shorthold tenant. Alternatively this may only be allowed with the landlord’s prior written consent. Likewise proposed alterations to the flat may require the landlord’s consent. Perhaps permission is only needed where the alterations are structural in nature.
5) The landlord’s covenants The landlord will be required to give “quiet enjoyment” of the flat. Effectively the tenant is being allowed possession and peaceful enjoyment of the flat. In addition the landlord should be required to repair and decorate the structure and exterior of the building including the roof, foundations, drains, gutters and common parts. It is important that the extent of their repairing responsibilities is spelt out in detail.
6) Forfeiture Any well-drafted lease will contain a proviso for forfeiture. On paper it will permit the landlord to repossess the flat if the tenant does not comply with their obligations. In reality it is very much an obstacle course to gain control of the flat entailing what may be lengthy tribunal and court proceedings. But the clause is there to protect the interests of the landlord and to secure the performance of the tenant’s obligations.
There is no standard lease. Sometimes the meat of the document can be found in a series of Schedules. It may be a few pages or a mini-novel. Whatever form it takes the importance of the lease to the flat owner cannot be understated. Insist on your solicitor taking you through its most important provisions and following up with a written report. And keep the lease and the report in a safe place. Whenever you need to sublet or should your landlord raise a complaint time and frustration can be saved if the lease is readily to hand?
