Let's Talk About Leases

My blog theme for January is going to be all about leases. In my business journey – and during my career prior to starting my own company – this is one area where the public are woefully uneducated when it comes to a lease.

Indeed even business owners can find they get caught out because they don’t know the difference between a lease and a licence. They can sign for a lease, when they’ve previously had a licence, and many won’t bother to go into the detail. This is a BIG mistake which can be very costly. 

As a property manager, I know a lot about leases, they are frankly part of the DNA of my business day in and day out. 

While this may make me sound like a ‘lease geek’, it means I do know what a lease is, what it means, what it doesn’t mean, how to read it, what to look for and what questions to ask. A lease is like any other contract, it’s vital that you read the small print and ask questions about it before you make any kind of financial commitment. 

Indeed, if in doubt, it’s always cost effective to ask a solicitor with experience in commercial and private property to check through any lease (or licence) agreement and flag up any key terms and conditions so that you can be very clear what you are signing up for. This then will mean there are no surprises when it comes to unexpected bills for works carried out on your home or your business premises. 

Therefore my mission this month is to offer some accessible knowledge when it comes to leases. 

What is a lease?

A lease is a contractural agreement where a leaseholder will pay the lessor for the use of an asset. That asset could be a property, a car, or some kind of equipment. This agreement will require responsibilities to be accepted and understood by both parties.

When it comes to property ie. your home this contractural agreement can become a very emotionally-charged document. However that doesn’t detract from the fact that it is a legal agreement where emotion is irrelevant.

Do you know if your home is freehold or leasehold? Most houses in the UK are freehold which means that the property and the land on which it stands belongs to the home-owner. In the UK most flats and apartments with communal facilities and communal spaces are leasehold ie someone owns the land, the communal areas and the overall structure and therefore a payment is required. 

Do you really know the difference? This is important if you are moving into an apartment block, either to rent or buy – regardless of your age. You could be a first time buyer or you could be someone moving into a retirement flat or similar.

What is the detailed difference between being a leaseholder or a freeholder?

The definition of lease: A contract by which one party conveys land, property, services etc to another for a specified time, usually in return for a periodic payment. (Oxford Dictionary) The Lease contract should set down the legal rights and responsibilities of either side. You need to read these or take legal advice around it.

Freehold means, you own the property and the land it stands on outright, in perpetuity. With the freehold, your name is in the land registry as the freeholder, owning the title absolute.

With a freehold, you don’t have to pay annual ground rent or service charges, however you also have the full responsibility for maintaining the fabric of the building – the roof and outside walls, gardens, fencing and the land on which it stands etc etc.

Statistics around leasing in the UK

• Around 14.6 million (63%) of households in England owned their own homes in the two years between 2016 and 2018.
• In 2018-2019 an estimated 4.5 million leasehold dwellings in England which is 19% of the English stock housing.
• Of those leaseholders, 2.5 million (55%) were in the owner occupier sector, 1.8 million (39%) privately owned and let in the private rented sector.
• The remaining 234,000 (5%) were owned by social landlords and let in the social rented sector.
• The majority of leasehold dwellings (69%) were flats, with 3.1 million leasehold flats across all tenures (2.9 million in the private sector and 159,000 in the social rented sector.)
• There were 1.4 million leasehold houses in 2018 – 2019, which made up the remaining 31% of leasehold dwellings.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/898194/Leasehold_Estimate_2018-19.pdf

What are your responsibilities as a leaseholder?

• You do not own the land the property is built on.
• You lease from the freeholder or landlord.
• Leases are usually long term. They are often 90 years, and can be as high as 999 years, but the converse is, they can also be short, for example, 40 years.
• Leaseholders have to pay annual maintenance fees, service charges and their share of the building insurance.
• Leaseholders normally pay an annual ground rent to the freeholder.
• Leaseholders have to obtain permission for any major works done to the property
• Leaseholders may face restrictions, such as not owning pets, or subletting.
• If leaseholders don’t fulfil the terms of the lease, then the lease can become forfeit.

''It is vital to read the small print of any contract, and be sure that you fully understand your rights and responsibilities.''

Also, find out who is responsible for the management of the building, in case you run into problems. Is it the freeholder for the building, or is it a property management company?

For more information, check out “Common misconceptions about leasehold flats” on the Links section of our website.

What are landlords/freeholders responsible for?

Normally, the landlord or freeholder will be responsible for maintaining the common parts of the building, such as the entrance, hallways and staircase, as well as exterior walls and roof. 

Look out for my blog next week which will explore what can you expect of your landlord or their management agent? What does good look like and what are the basics you can expect.

At Fraser Allen, my team and I are here to help you with any issues or queries you have about leasehold properties.

Feel free to contact us on:

Bristol Office: 0117 2980723.

Cheltenham Office: 01242 399130

Or visit our website: https://www.fraserallenem.co.uk