Leasehold Flats – fundamentals

Leasehold Tenure

Leasehold ownership of a flat is simply a long tenancy, giving the right for someone to occupy and use the flat for a long period, typically between 99 – 999 years (the Lease period). Typically leasehold ownership covers everything within the four walls of the flat including floorboards and plaster to walls and ceiling but it does not usually include the external or structural walls.

The structure, part of the building on land it stands is owned by the freeholder (known as the landlord). Maintenance and repairs are the responsibility for the landlord although costs are recoverable through the service charge which is paid by the leaseholders.

This form of tenure is the model that governed the 19th century expansion of the city. Landowners would release their land for building on a 99 year or other long lease allowing the builder to construct the building and sell on the leases to investors.

Thereafter, the owner of the lease would rent out the house to tenants or give a sublease to a landlord who would do the letting. When the leases expired, the land and buildings on them would revert to the owner of the land.

The system gave the landowners a capital sum when the leases were originally sold, as well as a steady income from ground rents over the life of the leases, and huge capital gains when the leases ran out, as the lands could then be redeveloped on new leases or houses sold.

The system explains a lot about why London looks the way it does. Many landowners set down strict conditions for the builders developing the land, to ensure the development will retain value. They may specify the cost of flats to be built or what their size and configuration or provide rules about the appearance of the building.

Flats can be bought and sold throughout the lease. However the Lease is a diminishing asset and if it were not for inflation the value of the lease would diminish over time until its expiration when the flat reverts to the landlord.

What the Lease does

The landlord is required to manage and maintain the structure, exterior and common areas of the property to collect service charges from leaseholders and to ensure the building keep the accounts.

This is stipulated in a lease which sets out the contractual obligations of the two parties what the leaseholder has contracted to do what the landlord is bound to do. Leaseholder’s obligations include paving of the ground rent and contributions for maintaining, insuring and managing the building.

Service charges are payments from the leaseholders of the landlords for all services the landlord provides. Repairs heating, lifts, porterage, estate staff, lighting and cleaning of common part, etc. Any dispute about service charges can be referred to the first tier Tribunal of the property chamber.