10 Things To Understand About Owning A Leasehold Flat

The idea of ‘buying’ or ‘owning a leasehold flat’ is a misconception – perpetrated by estate agents in my opinion. It’s a misconception because you’re not buying the flat – you’re buying a lease, which entitles you to use the flat, for an awfully long time.

Leasehold is confusing. But it’s probably more understood now than it was in the past, due to discussions in the popular press and on the news in recent years. The cladding crisis, building safety and leasehold reform proposals have seen brief explanations in the media about what it means to buy leasehold. But the fine legalities and the practicalities of living in a leasehold flat are still confusing for the majority.

This article will hopefully make a few things clearer for those considering buying a leasehold flat … or those who have bought and now find themselves confused.

1. You don’t ‘own’ your flat

This is a tough pill to swallow for most. You’ve spent a huge amount of time organising an enormous mortgage and have saved for years to scrape together a large enough deposit to buy your home – but, you don’t own that home. All that time and expense bought you a bunch of confusing legal gobbledegook called a lease … which permits you to ‘rent’ your home, for 99 or 125 years … 999 years in some cases.

In theory, once the lease term expires, ownership reverts back to the freeholder of the building. Now, you can extend your lease term – but it’s an expensive process. And meanwhile, if you breach the rules of the lease, the freeholder can claim back ownership via forfeiture.

2. If you are a director of the Residents’ Company, you will not be compensated

Volunteering your time and energy as a resident director of a residents’ company has very little upside. You don’t get paid for your time, your expertise or your effort. BUT … you do have to accept personal liability for the decisions made by you and your fellow directors. Health and safety, landlord and tenant law, company law and a myriad of other responsibilities fall on your shoulders. Yes, you can get Directors’ & Officers’ Insurance … but if something goes horribly wrong, the ambulance chasing lawyers will go after you.

On top of that, your neighbours will complain the grass isn’t green enough – and they won’t thank you when all goes well (ok … every now and again someone will say thank you, but not often).

3. Managing agents are unregulated

While managing agents are legally obliged to belong to an approved redress scheme – which enables leaseholders to make formal complaints (The Property Ombudsman and the Property Redress Scheme) – property management companies are not officially regulated. There is no statutory or compulsory regulation system, which means that almost anyone can set up as a managing agent – even if they’re totally unqualified and inexperienced (as I was when I started my first company in 1984).

Therefore, always do thorough due diligence before buying a leasehold flat. Researching the managing agent and their reputation is essential – although remember people rarely post good things on the internet, so Google can be misleading.

4. If your building is badly managed, you can ask for a new manager

Managing agents and individual property managers come in all degrees of wonderfulness. If you’re at the unlucky end of the spectrum and your block is being badly managed, you can complain to the First-tier Tribunal (Property Chamber) and they have the power to appoint a new manager if they agree there has been mismanagement. So, you don’t have to sit and moan to yourself – you can be proactive and do something to change the situation.

5. Major expenditure requires consultation

Major works, or long-term agreements, are defined as:

Works which will cost any one leaseholder more than £250
An agreement for more than a year, any one leaseholder more than £100 a year

If either of the above apply, leaseholders must be consulted via “the section 20 process”. This requires leaseholders to be informed and they can respond with comments and/or nominations for suitable contractors. They are also advised about quotations and contractor appointments.

6. You can buy the freehold of your building with your fellow leaseholders

If more than 50% of the leaseholders in the building agree, they can serve notice on the freeholder requiring the freehold to be sold to their “nominated purchaser” … which is normally a company owned by the leaseholders. Having purchased, their company takes over responsibility for management of the building and administering the terms of the leases.

7. You need permission to collect a reserve fund

A reserve fund is a pot of money that all leaseholders pay into during the ‘cheap years’ so that money is available in the ‘expensive years’. These funds are used to pay for emergency works and/or long-term cyclical maintenance; such as exterior redecorations, lift renewal or similar projects. However, to set up a reserve fund, it must be stipulated in the terms of the lease that a reserve fund is permitted.

8. Leasehold disputes have their own dedicated part of the Court system

The First-tier Tribunal (Property Chamber) is a property offshoot of the County Court system, which deals specifically with leasehold disputes. It can deal with most complaints including those related to service charges, Right to Manage claims, lease extension premiums, and freehold purchases.

Although it uses formal legal processes, the FTT caters for non-legally trained people. Thus, leaseholders can have their disputes determined without the requirement to use solicitors or barristers.

9. It is against the law to smoke in your block

Smoking is prohibited, at all blocks of flats. This is because the communal areas are a ‘work place’ for the contractors and professionals who run the property. You can be fined for breaking this rule and signage should be displayed in common areas to make leaseholders and their visitors aware.

10. The most common complaint made by flat owners is…

… noise. Living closely with your neighbours in adjoining flats is guaranteed to lead to some tensions and conflicts about noise levels. If issues can’t be resolved amicably between neighbours – or through mediation via the managing agent – the local environmental health officers can step in to keep the peace.

The Tip Of The Iceberg

As I said at the beginning, leasehold is confusing for the majority of people. The wording of the lease is often legal gobbledegook and there are thousands of legal cases about leaseholder disputes. Education and leasehold advice are needed.