A long leasehold contract (also called a lease) gives a leaseholder (also called a lessee or tenant) exclusive ownership of the land and the property on it for a set period of time. The freeholder (also known as the landlord) owns the leasehold property outright.
The land is leased by the freeholder to the leaseholder. The leaseholder usually resides in the property and has the right to use it according to the lease’s terms (also known as clauses or lease covenants). If these laws are not followed, a leaseholder’s property can be forfeited.
The lease contract lays down the terms of the lease, including the leaseholder’s and freeholder’s rights and responsibilities. Leases may be lengthy documents since they seek to cover both the freeholder’s and the leaseholder’s rights and obligations.
The names of the original leaseholder and freeholder will usually be included in the lease, and the terms will extend to all potential leaseholders and freeholders of the land. The terms of a contract may normally only be amended by formal agreement between the parties after it has been signed.
A long leasehold period is usually 99, 125, or 999 years. A lease, on the other hand, can be for any period of time, particularly for previously owned properties.
The term begins when the freeholder creates the lease and does not end when one leaseholder sells the property to another. If the years pass, the lease becomes shorter.
When the lease is less than 80 years old, mortgage lenders are less likely to give mortgages to the leaseholder (for example, when re-mortgaging) or to those who wish to purchase the property from the leaseholder.
The leaseholder’s claim in the land and any property on it expires when the lease term ends, and the freeholder has the right to occupy the land and any property on it.
There is also a contractual right for a leaseholder to prolong a lease if certain conditions are met. This is usually accompanied by a hefty fee, which would skyrocket if the lease is less than 80 years old.
Charges for the Leasehold
A lease normally includes a list of charges that a leaseholder must pay per year. The following are the most common charges:
Charges for ground rent and services
Charges for administration (including permission fees for example to sublet or make alterations to the property)
Request a breakdown of these fees from the real estate agent or developer, as well as information about whether or not they will rise next year and by how much.
Rent on the ground
Ground rent is a charge that you must pay to your freeholder if provisions in your contract warrant it, which is usually the case with long leases. It’s normally given to the freeholder once a year. A provision in the lease should specify the amount and whether it will rise in the future.
Some leases, especially ex-local authority leases, may have a fixed and nominal amount (known as a peppercorn) that may be as low as £10 per year. Others can see a rise in the sum over time. The ground rent, for example, could double at regular intervals, such as every 25 years, or it could rise in response to an index such as the Retail Price Index (RPI).
Lenders may be less willing to offer mortgages to leaseholders to secure a leasehold property based on the amount of ground rent and whether it rises.
Charges for service
The leaseholder pays the freeholder service charges to cover the costs of delivering utilities to the house, as well as often facilities and areas outside the building. A provision in the contract should specify what the fee will cover and when it will be due.
Maintenance and upgrades, building insurance, and cleaning common areas are all possible costs.
To learn more about service charges, click here.
Charges for administration
In certain cases, a leaseholder might also be allowed to pay freeholder administration charges. A fee that relates to one or more of the following is known as an administration charge:
A lease’s grant of approval, or an application for a grant of approval (also known as a permission fee) to do something with the land.
The leaseholder receives documentation from the freeholder.
The leaseholder’s failure to make any lease payments that are due.
A leaseholder’s failure to fulfill a contractual obligation.
The duration of the administration charge and when it is due are usually specified in the contract. There may be a fixed sum stated in some leases, others requiring the leaseholder to pay a “fair” amount, and other variations. Even if it isn’t specified in the contract, you should be aware that an administration fee might be due in other circumstances. Only when the freeholder issues a formal demand are administration fees due.
Fees for permission
Permission fees are one form of administrative charge (also known as a consent fee).
A lease normally includes a clause stating that the leaseholder must obtain permission from the freeholder to do such things, such as:
- sublease the house
- make changes to the property or renovate it
- getting a pet cat / dog
Permission fees are defined in different ways in different leases, and you may be required to pay a fixed sum, a “fair amount,” or something else. In certain cases, the lease can state that the freeholder’s permission is required but does not specify a fee. This does not rule out the possibility of a fee being paid, as the freeholder could request a fee as a condition of granting permission for a request under certain circumstances.
Buying a leasehold property
It’s important to have crucial details early on in the process, before committing to a purchase, so you can determine whether or not a home is right for you.
To begin, familiarize yourself with the differences between a freehold and a leasehold property.
When looking for a leasehold property or visiting one for the first time, ask the estate agent, developer, or freeholder for advice on:
The number of years the lease is still active (this can affect your ability to get a mortgage or the cost of extending the lease).
The annual ground rent, if it is increased, how much it is increased, and how it is increased.
The latest service fee, what it includes, and at least the prior two years’ charges (for previously owned properties) so you can see how prices shift year to year.
If any new construction projects have recently been completed or are planned for which you will be asked to pay.
If there are some limitations to how you use the property or fees for specific things, such as having a pet or changing your boiler.
If there are any conditions for obtaining permission, such as to sublet or change the land, and if there would be any fees associated with doing so.
What is the status of land rent payments and who is responsible for collecting them?
Who the freeholder is and, if one exists, which managing agent the property is managed by.
Which insurance provider will cover the building and how much will the annual premium be? This should be covered in the details on service charges.
If the freeholder has decided to sell the freehold or plans to do so (especially for new build properties).
When you’ve found a conveyancing solicitor, ask them for detailed advice on the following:
the essence of the leasehold possession the lease’s terms and conditions the lease’s future fees and charges
You can also request a copy of the lease so you can double-check the answers and/or enlist the assistance of your conveyancing solicitor to validate them. The lease, for example, will show you the start date, which will help you validate the details given on the remaining term duration.
Having a leasehold property
If you’ve just bought a leasehold house, there are a few things you can keep an eye out for.
Ground rent is being demanded.
Ground rent is only legally due when the contract specifies it and the freeholder makes a formal claim. The demand should have a payment deadline of at least 30 days and no more than 60 days from the date it was sent. While most demands are for an annual lease, freeholders have the right to make a backdated claim for up to six years of unpaid ground rent.
Requests for service fees
Only when the lease specifies it and the freeholder makes a formal demand are service charges legally due. The lease should specify what can be paid for; the expense must be fair, and the work and services must be of reasonable quality.
At the end of the year, your freeholder can have a statement of accounts detailing how service charges are spent. If this isn’t available, you should write to your freeholder or managing agent and ask for it.
Check your account history to make sure you’re being paid appropriately with all service fees. Check to see whether you were overcharged or if you were paid for items that could have been protected by other charges.
Administrative fees are being demanded.
In most cases, the lease would specify which administration fees are due in various situations, such as a fee for subletting the land. These fees are only due when a formal demand is issued by the freeholder.
If the lease does not contain a specific administration charge, you might be required to pay a fee to the freeholder to complete the job. Some freeholders, for example, can charge a fee for answering questions or providing documents.
The fee must be fair in nature. The clause must be fair if the fee is set by the contract.
You have the right to appeal a charge if you have any questions about it.
Terms of forfeiture
Some contracts state that the contract would be “forfeited” if no conditions are met, such as if a clause is broken or if ground rent is not paid for a certain period of time. The lease may be terminated and the land will return to the freeholder if the lease is forfeited.
Only a court order can legally terminate a residential property’s lease. Since forfeiture is such a serious matter, the Court will normally give you the chance to make it right, such as by paying some unpaid ground rent, before issuing a forfeiture order.
In the event that something goes wrong
Objecting to a charge
If you believe you have been overcharged or that a fee is potentially unreasonable, you should first speak with your freeholder or management company. Keeping meticulous records of all documents pertaining to your property will aid you in proving that you believe a charge is invalid.
You may be eligible to apply to a Tribunal such as the First-Tier Tribunal (Property Chamber) in England, the Leasehold Valuation Tribunal in Wales, or the County Court if you are unhappy with your freeholder’s response and feel the need to escalate your complaints.
Fees to the tribunal or court, as well as any legal fees, are often required for these applications. There’s also the possibility that you’ll have to pay the freeholder’s and/or management company’s fees. All of this should be taken into account when deciding whether or not to present a challenge.
Making an application to the Tribunal
The Tribunal, and in some cases the County Court, has the authority to rule on whether a charge is owed, whether it was paid fairly, and if it is of a sufficient amount.
Be mindful that if you agree (admit) that a fee is due, you will not be able to appeal that charge in front of a Tribunal.
Making a payment is not considered an admission, although it is better to state in writing that you do not admit it is payable at the time you make the payment. Visit the Leasehold Advisory Service for more detail and sample models you may use.
When appealing to a Tribunal to contest a leasehold fee, proof is usually required. This can include things like:
To show what the fee should be, here’s a quote.
Alternatively, correspondence between the freeholder and the leaseholder describing the expense and duration of the job.
Expenses associated with contesting a fee
A charge for an application is often involved in leasehold disputes. You could be paid a hearing fee if your case requires one. If you lose at the tribunal or in court, you will be obliged to pay the freeholder’s costs.
Check your contract for any provisions that state that the leaseholder is responsible for the freeholder’s expenses even if the freeholder loses, and seek legal advice if you are uncertain.
Disputing a leasehold charge and filing a Tribunal application are both time-consuming and expensive procedures. There is no assurance that you can succeed.
Before approaching a tribunal, you can obtain legal advice. For more details, you can create a free account on our website to access our experts 1-to-1 advice.
You may also seek the advice of a lawyer.