The latest government data records an estimated 4.86m leasehold homes in England, with 2.82m owner occupied and 1.79 million privately owned and let in the private rented sector. This report also states leasehold homes account for about 20% of England’s housing stock.
2002 saw radical reform of leasehold legislation, with the introduction of the Commonhold and Leasehold Reform Act, giving leaseholders new options with the right to manage their block of flats or collectively buy the freehold. The Act also introduced commonhold as a new way of owning a flat.
Commonhold was widely hailed as the new and fair way to own a flat. It would give flat owners ownership of their properties, rather than just a long lease. They would own the indefinite freehold tenure of part of a multi-occupancy building (their flat) with shared ownership of and responsibility for common areas and services. A Commonhold Council has now been set up to encourage the uptake of the new form of home ownership.
Leasehold law, like most property law, can be complex and has been honed over the centuries, with new laws referring back to and amending older ones, which may explain why older leases still use such arcane language and can have such complicated documents.
Yet leasehold can work well for all parties, especially with new safeguards in place by the reforms of the 2002 Act, such as leaseholders’ rights to choose who they employ to manage their building, or to manage it themselves or to club together and buy the freehold for themselves.
How did leasehold become so entrenched?
In the 1920s, landlords were faced with new laws holding down rents and restricting their rights to evict tenants. Because of this, many started to sell longer leases, which were sometimes for 99 to 125 years, to bring in more money. Leases were sold on the understanding that, when the lease expired, ownership of the land and property would revert straight back to the landlord who owned the freehold. The leaseholder would have nothing.
Legislation introduced between 1967 and 2002 has created a more level playing field for freeholders (also known as landlords) and leaseholders (also known as tenants).
Key among these changes has been the right to extend their leases for an additional 90 years for a fair agreed price. Indeed, it’s not unheard of for new leases to be granted for 999 years, making forfeiture (handing the property back to the landlord) a negligible risk while still binding the leaseholder to the terms of the lease and its covenants.
Of course, we do hear horror stories of bad landlords (freeholders) and unhappy tenants (leaseholders) but many of us continue to live well and happily in flats, and successive laws have progressively altered the balance in favour of leaseholders. Government plans to regulate managing agents look likely to be the next major step forward. After all, we know what best-practice good management is thanks to the work of bodies like ARMA (Association of Residential Managing Agents) and training by the IRPM (Institute of Residential Property Management).
Covenants and the all-important lease
If you live in a leasehold flat, then understanding your lease is important.
Covenants in leases define rights and responsibilities: they say what the freeholder must and must not do; and they say what the leaseholder must and must not do. The lease also says who pays for what. Leaseholders’ obligations can range from paying ground rent, insurance, and service charges. It can also include specific rules, such as terms for keeping pets, requirements to lay carpets to prevent noise for downstairs neighbours, or alterations permitted without express permission from the freeholder.
In theory, the lease is the framework for everyone getting along well and living in a well-maintained building. But, the clauses in leases are sometimes written in a complicated way, so take the time to make sure you understand them.
For example:
“To do all such works as under any legislation are directed or required to be done on or in respect of the Property (whether by landlord tenant or occupier) not to do or omit to be done any act matter or thing in respect of the Property which shall contravene any such legislation and to keep the Corporation and the Management Company indemnified against all claims demands and liabilities in respect thereof”.
“The Lessee paying the rent hereby reserved and performing and observing the covenants on his part herein contained shall peaceably hold and enjoy the premises for the term hereby created without any interruption by the Lessor or any person lawfully claiming under or in trust for it”
We are not going to try and unpick them here, but our key take-away is that all parties must act lawfully and stick to the covenants. Or if you are buying a flat, ask your conveyancing solicitor to explain each clause before you sign up to what is a binding agreement.
It is possible for leaseholders to get together to buy the freehold themselves, but even when you own a share of the freehold you are still also a leaseholder and bound by its covenants. Typically, leaseholders who do get together to buy their building’s freehold (collective enfranchisement) update and modernise the lease at the same time. Extending leases to 999 years, prohibiting short term lets (Airbnb etc.), and controlling the use of parking spaces can be common additions.
Blocks of Flats Insurance from Gallagher
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