The government may have recently passed new legislation that will eventually see commonhold become the tenure of choice in many UK residential properties, but leasehold is still the only choice for many people buying a flat or some other home in a building with common parts. Leasehold is very much misunderstood. While there are potentially problems with it as a form of ownership, many of the misconceptions prove to be without basis, as long as you are aware of the law, your rights and the responsibilities that you must shoulder. Hopefully, this article will highlight some of the main areas that you need to think about and point you in the direction of some further help if you need it.

When you buy a freehold, as is normally the case when you buy a house, you are purchasing the land on which the property stands and the right to live on that land indefinitely.

In contrast, leasehold ownership is merely a long tenancy - the right to occupy and use the land for the term of the lease. Your 'ownership' under the leasehold usually covers everything within the property, including flooring, plaster, walls and the ceiling, but it does not usually convey any rights to alter the external or structural walls.

A 'landlord', who is also known as the freeholder, owns the structure of the building and the land on which it stands. The landlord can be an individual or a company, sometimes one that the leaseholders own between them.

A lease is a private, legally binding contract between the leaseholder and the freeholder. The lease, which can often be quite a complicated, densely worded legal document, sets out the contractual obligations of both parties. The leaseholder will usually be required by the lease to pay ground rent and contributions to the cost of maintaining and managing the building. There will also normally be a number of conditions attached to the right of the leaseholder to occupy the property, in terms of usage and behaviour. These are there to protect the interests of the freeholder and the other leaseholders residing in the building. For their part, the freeholder will be obliged to maintain the property, collect contributions from the leaseholders and keep accounting records.

Leases are normally granted for durations ranging from 99 to 999 years, during which time the property can be bought and sold. At the end of the term, the property reverts to the freeholder, at which point the leaseholder loses the right to sell the lease to another buyer, effectively rendering it worthless.

If you are buying an existing leasehold property, then the remaining time left on the lease will be less than was originally granted, so it is important to establish exactly how long is left before it expires. If there are only a limited number of years left on a lease, then it can be difficult to get a mortgage, since lenders like to know that the property will not be worth less than the price you paid for it, should it fall into the lender's hands in the event of repossession.

A lease with over 60 years remaining from the time of your purchase should be OK, as most lenders usually insist that there are no less than 25 to 35 years to run on the lease from the end of your mortgage repayments. However, this will exclude you from some lenders, as there are those who insist that leasehold property must have at least 70 years remaining from the time of purchase.

Leases can be extended. If you have lived in a qualifying property for more than 3 years, then you will have the right to purchase an extension to the lease. Most flats purchased in the last decade will qualify if the annual ground rent is less than £1,000 in London, or £250 elsewhere. For properties leased before April 1990, the rules are slightly different, but it is still very rare for a flat not to qualify.

Leasehold is a type of tenancy, and as such, it requires the payment of rent to the landlord. Unlike a normal tenancy, however, this is usually a nominal sum of money that is either set for the duration of the lease or increasing gradually according to terms defined in the lease.

Service charges are payments made to the landlord (often via a managing agent) to cover the costs of managing and maintaining the exterior of the building and the communal areas. Such things as gardening, general maintenance, buildings insurance, lighting, lifts, porterage, cleaning and the provision of management services all incur costs, which are paid for out of the service charges. The landlord can only charge a reasonable amount for the provision of services. Leaseholders have rights to challenge any service charges that they feel are unreasonable.

Service charges are usually paid up front every 6 or 12 months based on estimates of the likely cost, often with a balancing charge at the end of an accounting period to repay any surplus or collect any deficits.

The lease also normally makes provision for the landlord to collect a separate sum of money to create a reserve or 'sinking' fund. This is used to ensure that sufficient money is available to cover the cost of future scheduled works, such as decoration of the property. The lease will set out the sums involved and establish the frequency of such maintenance works.

It is vital that you ask your solicitor to confirm with the vendor and the managing agents that the current leaseholder is up to date with ground rent and service charges, because any outstanding debts will be passed to the new owner on the completion of the purchase.

You should also get written confirmation that there are no plans to undertake expensive work on the communal areas, as you will be liable for a portion of the cost if there are planned works. Landlords have to give leaseholders notice before carrying out any major refurbishments and leaseholders normally then have 30 days to object to the proposals with reasonable grounds, otherwise the landlord can proceed. If this process has taken place before your purchase is complete, you will have no choice but to pay your share.

An agent is normally appointed by the landlord to manage and maintain the property on their behalf. They work directly for the freeholder, but should also be aware of the needs and wishes of the leaseholders.

The managing agent receives an annual management fee, which is taken from the service charges paid by the leaseholders. Their fees should be a fixed fee per annum, but it does happen that agents charge a percentage of the service charges, therefore giving them little incentive to obtain services at the most competitive price.

Leaseholders are legally entitled to enjoy quiet enjoyment of the property without harassment for the duration of the term, provided that they abide by the terms of the lease. They also have the right to expect the landlord to maintain the common areas and keep the building in good order.

Meanwhile, the leaseholder is required to keep the property in good order, to pay a share of the costs of maintaining and running the building, to behave in a neighbourly way and to abide by any other terms of the lease.

There is a wide range of leaseholder rights set out in law, some of which include:

• The landlord must provide his name and a contact address within the UK, which must be stated on every demand for service charges. Leaseholders can demand summaries of the service charges, details of the insurance cover and have the right to inspect accounts and other documents.
• The landlord cannot carry out major works to the building without first consulting the leaseholders in the proper fashion - if he fails to do this he may not be able to recover all the costs of carrying out the work.
• Leaseholders can apply to the Leasehold Valuation Tribunal to seek a determination of the reasonableness of the service charges if they feel they are unjustly high.
• If the management is deficient, the leaseholders can apply to the LVT for the appointment of a new manager.
• Groups of leaseholders who satisfy certain conditions can get together and enforce the purchase of the freehold, with the price being agreed between the parties or, if this is not possible, set by the LVT.
• Where the landlord proposes to sell his interest in the building, he must offer it to the leaseholders first or he can be prosecuted.

LEASE is the leasehold advisory service, funded by the Department of Transport, Local Government and the Regions. They provide free advice and guidance to leaseholders and landlords on all aspects of leasehold law.

Telephone helpline: 020 7490 9580
Website: http://www.lease-advice.org