• do you know what you’re getting into when buying a flat?

    • Here's what to find out before buying...

      Buying any property for the first time can be a daunting prospect.  Buying a leasehold flat could be baffling if you don’t understand the difference between buying a freehold house and a leasehold flat. 

      Before you buy a flat, there are responsibilities you need to understand which oblige you to observe under the lease, called covenants. 

      Would you want to make sure you know exactly what you’re getting into? 

      When you buy any property you will employ a conveyancing solicitor who will look into aspects of the property to ensure there won’t be any surprises after you excitedly collect the keys to your new home.

      It’s easy – and tempting – to think that you’re just buying a property and it’s all the same.  But when it comes to owning a leasehold flat, it really isn’t as straightforward as owning a freehold property.

      The problem is – and this often occurs – the owner of a flat has little or no idea of what their responsibilities are or even what they’ve actually purchased, particularly if this is the first flat they’ve owned. 

      It’s even more daunting if you flick through the lease to find out what it says, and discover it might as well be written entirely in Latin for all the sense it makes to you.  Leases written more than about twenty years ago tend to be written in legal language that is hard to understand and often incomprehensible to the layperson.  That is if you even attempt to look at the lease.  More often than not it will be consigned to your box of important documents and forgotten about.

      So Carlton Property Management has prepared a checklist on the things you should find out before you complete your leasehold purchase.This may be a conversation with your conveyancer but it’s important you’re armed with this knowledge:-

      Management

      What do I own?

      The first thing to understand is that you are actually buying a lease not the bricks and mortar of the physical flat – these remain the property of the Landlord (also known as the freeholder).  With a freehold house you would own both the building and the land under it.  A leasehold flat means you own the right to occupy the property for the number of years remaining in the lease. 

      The lease sets out the detailed terms, rights and obligations under which you are entitled to occupy the flat, and it is the absolute authority of what can and what cannot be done with the flat and the building.It also sets out what is exclusively yours (the “demise”) and what is shared.The bottom line is that you have to obey the covenants in the lease.The managing agent is there to manage the property on behalf of the Landlord, and undertakes the Landlord’s obligations under the lease.

      I’m buying a flat that has a share of the freehold, why can’t I just do what I want?

      You should remember that your obligations as a leaseholder remains legally dominant and you wouldn’t be allowed to do what you like with the flat – you still have to obey the lease covenants.

      Normally, this would mean that the freehold is owned by a freehold limited company, which is the Landlord, and the leaseholders who “own a share of the freehold” are shareholders of that company. The directors of the company make the decisions on behalf of the shareholders.

      More rarely, the freehold is directly owned by individual leaseholders.In this instance, things are more complicated and no decisions can be taken unless there is 100% agreement.If there is a single veto, then work however urgent cannot be done.This can cause significant and expensive problems. Most solicitors now advise against buying a flat in this type of freehold ownership unless there is a Declaration of Trust in place where democratic decision can be made.

      Being a shareholder gives you the ability to choose how money is spent on the building and to make decisions about how it’s managed. 

      Who is responsible for managing and maintaining the building, making sure that the management is cost-effective and legally correct, and everyone’s investment doesn’t devalue?

      There is nothing to stop the directors of of a residents company from managing the building themselves.  They may have the time and the knowledge to carry out all the necessary work.  However it’s important to be aware that it is not necessarily a job for amateur managers because residential block management is a legally complex matter with new legal obligations arising regularly from changes in legislation.  If there isn’t an accredited expert professional managing the building, it would be too easy to undermine the legal obligations in the lease or the many regulations and legislation which also have to be complied with.  This could result in some expensive mistakes which in turn affect all the leaseholders’ pockets. 

      Leaseholders have substantial legal rights, enshrined in the lease and such legislation as the Landlord & Tenant Acts 1985 and 1987, the Commonhold and Leasehold Reform Act 2002 and many other Acts of Parliament.These allow the leaseholders to take the Landlord to the First Tier Tribunal under certain conditions to challenge decisions they consider are adversely affecting them and are against their rights, even when they’re shareholders or members of an RMCo.

      Equally, the landlord also has substantial rights enshrined in the lease and the same Acts of Parliament to make sure that their rights and obligations cannot be undermined.

      Service Charges

      How much are the annual service charges I must pay?

      The annual service charge budget covers the year’s maintenance costs for the building.It will also include a provision for reactive repairs.The lease will stipulate what this must cover and these costs are recovered from the leaseholders through service charges, with the percentage shares from each leaseholder being stated in the lease.Thes could be equal shares for all, or a percentage share.

      How many times in the year is this annual charge invoiced out? 

      The number of times a year is stated in the lease, and the dates in the lease are when you have to pay the charges.Normally these service charges are payable in advance and on account.

      How long after the “due date” can I pay?  

      Usually this is 14 or 21 days, whatever the lease says, and after this period Late Payment Interest starts to accrue on the outstanding amount – from the due date till payment is made.

      What is the amount of interest stipulated in the lease?

      This could be as little as 3% above the bank base rate, or as much as 15% above the base rate.Delaying payment after the period allowed in the lease would also mean you could be receiving arrears reminders for which the managing agent will charge an administration fee.Generally after one or two arrears reminders, giving 14 days to pay the service charges due, the Landlord may take the matter to legal action to recover the arrears.

      Arrears can be a serious cause of cash flow problems for maintaining the building and paying for its necessary services, so credit control is an extremely important element of managing the building.

      Is there a Reserve Fund?  How much is in it? 

      Providing a Reserve Fund is allowed by the lease, this should tell you if the management of the block is saving responsibly for future major works, such as roof works, external repairs or redecoration or other periodic works stated in the lease.Reserve Funds should save at an appropriate level across changes of leasehold owners – which means that no individual leaseholder owns their flat without contributing to these major building elements while they own their flat.

      You should note that if there aren’t sufficient Reserve Funds to pay for planned major works, the leaseholders would have to be charged supplementary charges, on top of the budgeted maintenance costs, in order to carry out planned works.Some leases allow charges to be made outside the normal charge demand dates.But whether the major works supplementary charges are made on normal due dates or at additional times, these are also service charge payments and are subject to the same conditions regarding payment periods and late payment interest and even legal recovery.

      Lease Covenants

      If you’re planning any of the following, you need to know that you will have to apply for certain consents from the Landlord:-

      Keeping a Pet

      The lease will have a covenant (under “Regulations” or “Stipulations”) stating that you will not be allowed to keep a pet without the Landlord’s consent.Most of the time these provisions also state that even if permission is given, if your pet causes noise or annoyance to other residents, resulting in complaints, the permission could be withdrawn and the pet required to be removed.When this could affect a beloved pet it could be very difficult.If you sub-let your flat your tenant is also subject to this requirement – if they bring in a pet and it causes problems for other residents, then you are responsible for this.Managing agents will charge a small fee for issuing the pet licence.

      Structural Alterations

      Whether you are planning a full or partial refurbishment of the flat, you must obtain the Landlord’s prior written consent.This may well include providing proof of local authority consents, architect’s drawings, surveyor’s inspections, even a structural engineer’s report, The managing agent’s work involved in collecting and managing the consent process will also be required, whose costs will be chargeable to you.Your lease will describe what parts of the flat are demised to the leaseholder and generally this will include the plastered walls, ceiling above and floorboards, but not the brick, load-bearing or structural walls and the joists above and below.

      The wording in the lease will indicate whether the Landlord has full right to decide whether or not to consent to the proposed work or whether reasonable consent must be given under certain conditions.

      Finally a Licence to Alter must be issued before the proposed work can start, and all the Landlord’s cossts for investigating the nature of the proposed work must be paid by the leaseholder.If the floor plan in the lease is going to be altered, then a new floor plan must be registered at the Land Registry for that lease.If alterations are made to the flat without a Licence, reselling the flat would present legal difficulties, particularly if the floor plan is different.

      Sub-letting

      Whether or not you’re getting a buy-to-let mortgage and planning to sub-let the flat from the start, or could end up sub-letting at some point in the future, you may well require the Landlord’s written consent.Commonly, leases will require the Landlord’s prior written consent.Some leases will allow a minimum period to sub-let for before you have to obtain that consent.Either way, the lease will certainly stipulate that you can only sub-let the whole flat to a single family unit (which would also mean a couple).All leases will specifically state that you cannot sub-let part of the flat – this means that you will not be allowed to sub-let to several separate individuals at the same time irrespective of whether this is on a single tenancy agreement or several individual agreements.Such an arrangement could create an HMO which will also put you in breach of local authority regulations.It’s worth remembering that even if you apply for an HMO licence, that could put you in breach of the lease.So it’s always worth checking with whoever is managing the block.

      You will need to provide the managing agent with your alternative correspondence address and contact details.Leases may also stipulate that you must enter into a Deed of Covenant with each sub-let tenant you enter into a tenancy agreement with, and provide this to the managing agent as well as pay a fee to register this.They will issue you with a licence to sub-let.

      It would also be sensible for you to include the Regulations from the lease in the AST to make sure your sub-let tenant doesn’t behave in ways that will cause you to be in breach of your lease.

      Floor Coverings

      In general the lease will require that the floors must be covered with suitable sound deadening underlay and carpeting, particularly if there are flats below.Some leases will allow the bottom floor flat to have a hard floor if preferred.Whatever the provision, if you are planning to have wood floors in your flat, you must find out what the lease stipulates. You probably don’t want to end up breaching the lease, which could be an expensive mistake on your part in addition to potentially losing the goodwill of other residents.

      Once you have asked these questions, you will be in a far better position to understand your obligations, and be free to enjoy your new home.