The following questions are regularly raised by residents who have not previously owned a flat. Please do not hesitate to call us if you have any questions that are not covered below.
1. Why is my flat leasehold?
Principally for two reasons. Firstly because you may live in a communal environment and occupy subject to a lease which sets out the rights and responsibilities of all the parties to the lease. Secondly because the ground on which the flat is built may belong to someone else.
2. What is a lease?
A lease is a formal legal document setting out the terms under which you may occupy your flat. It explains the rights and responsibilities of each party to the lease, the obligations of the parties to each other and the remedies if the terms of the lease are not observed.
3. Who are the parties to the lease?
Often there are three parties to a lease. The first may be the freeholder who owns the land upon which the flat is built and to whom ground rent may be paid, the second may be a management company that is responsible for carrying out the running of the flats and the third you, the individual lessee. Sometimes there may only be two, the freeholder and the lessee.
4. What is ground rent?
This is the payment you make for the right to use the land upon which the flat sits.
5. Can ground rents increase?
This depends entirely on the terms of the lease. Typically older ground rents are more likely to be fixed for the term of the lease whilst newer ones tend to go up at intervals during the lease.
6. How long will I have to pay the ground rent?
Again this depends on the term of the lease. Older leases tend to be for a term of 99 years from the start date and newer leases tend to be longer, maybe 125 years or more.
7. To whom do I pay the ground rent?
Usually to the freeholder.
8. What is the management company?
The management company is usually a company set up initially by the freeholder and subsequently taken Chaneys Chartered Surveyors over by the lessees which stands between the freeholder and the lessees and which takes over the responsibility [on behalf of the lessees] for making sure that the property is maintained and looked after, properly occupied and properly run and complies with the terms of the lease. The management company is usually a proper company, registered at Companies House, with shareholders and directors [usually the lessees]. The company’s books will be audited and annual returns made to Companies House.
9. Who owns the management company?
The management company may initially be owned by the freeholder and then passed on to the flat owners and usually it will be owned by you and your fellow lessees. Each of you may have one share in the company and the company officers, such as the directors, will probably be flat owners – maybe even you yourself.
10. What does the management company do?
The role of the management company is often to make sure that the day to day maintenance and running of the flats is carried out including such matters as making sure that the property is insured, that repairs are carried out, that common parts [halls/stairways/paths/car parks etc] are maintained and cleaned, that lifts are serviced and properly running etc. Leases often require that management companies accept these and other responsibilities and in turn oblige lessees to contract with management companies to be responsible for their individual share.
11. Does the management company organise this itself?
Sometimes but often it employs a firm of managing agents to organise running the block on its behalf.
12. How does the managing agent pay the cost of running the maintenance?
By the collection of a service charge from the individual lessees including you.
13. To whom does the service charge belong once I have paid it to the management company?
The management company, not the freeholder nor the managing agent, and it can only be used to pay bills properly incurred by the management company.
14. How is the cost of maintenance calculated?
At some time usually when the flats are first built and then at periodic intervals afterwards – sometimes annually – a budget will be produced. Money values will be attributed to all items of expenditure that may be incurred in the day to day running such as electricity and water costs for the common parts, gardening, cleaning of common parts, refuse collection, window cleaning, insurance, audit fees, company house return costs, bank charges, managing agents fees, entry system maintenance, lift maintenance, fire extinguisher maintenance, repairs allowance, sinking fund costs for both interior and exterior. This list is not exhaustive and varies from property to property. The total is then divided between each flat on a pro rata basis and the resulting amount is the service charge attributable to that flat.
15. What protection do I get to make sure my money is looked after and spent properly?
You should make sure that the agent handling your service charge is a member of a recognised body such as the Royal Institution of Chartered Surveyors. Not only will you then have the protection of the law but also the protection offered by the stringent rules governing the agent. You should make sure that your service charge payment is held in a separate client account with any interest earned accruing to the account.
16. Who insures the flats?
This depends on the terms of the lease. Whatever happens you will pay the insurance premium, just as you would if you owned a freehold house and insured that. Usually the property is insured as a whole and the premium divided up in pre-agreed proportion [it is not always divided equally, sometimes larger flats such as penthouses will pay, fairly, a larger share of the premium]. Sometimes the insurance is included in the service charge, sometimes it is collected separately. The lease may provide for the landlord to insure and recover the cost from the lessees, it may provide for the lessees to insure through the management company with an underwriter of the freeholders choice or it may leave the lessees to insure providing that it is done properly. Whatever the terms it is essential that the insurance cover is for the right amount, with a proper insurance company of repute and at the right premium and it is important to make sure that this is the case.
17. What will the insurance cover?
Again it depends on the terms of the policy but it will probably cover the actual structure of the property and associated risks. What it won’t cover will be your own contents, cars, personal effects and similar such items and you will have to take out your own insurance to cover these. It won’t cover fees relating to the handling of a claim, nor will your contents cover, and if you should be unfortunate enough to have a claim you should be aware of this if such a service is not included in your agents charges. Please note that it is important that you are aware of the extent of your insurance cover – don’t just leave it to chance.
18. Am I allowed to sublet my flat?
Probably, although once again it depends on the terms of the lease. Some leases expressly exclude subletting on any basis whatsoever although in a modern lease this is unlikely. Some leases exclude all subletting except for short term lets on a periodic basis – which is probably how most flat owners want to sublet anyway! But remember that if the lease excludes it and you still go ahead you will be in breach of the terms of your lease!
19. What advice would you give to anyone wanting to buy a leasehold flat?
Read the lease! And if you don’t understand it make sure that you use a Solicitor who will explain it to you in words that you understand or seek the advice of a Surveyor to explain it to you.
20. What is a Share Certificate?
Not all leasehold flats have limited companies which look after the maintenance however if yours does it is likely that as a flat owner you will be a shareholder of the company. If so you will be issued with a share certificate when you purchase the flat. You may need to refer to the certificate from time to time particularly if you decide to sell the flat so we recommend that you keep the share certificate along with a copy of your lease in a safe place. If you are uncertain as to whether or not you should have a share certificate and you do not have one, check first of all from your lease whether or not there is a management company of which you are a member and then ask the solicitor who acted for you when you purchased the flat as they should have obtained the certificate for you.