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Fact 10. Leasehold Property Conveyancing - what are the issues?

Conveyancers review lease terms, manage service charge details, and ensure legal compliance. They also address additional matters such as ground rent clauses, lease length, restrictive covenants, and the responsibilities of landlords and management companies.

Buying or selling a leasehold property introduces a layer of complexity beyond ordinary freehold transactions. Whether it’s a flat in a converted Victorian townhouse or a modern apartment in a managed block, leasehold conveyancing demands careful scrutiny of the lease terms, service charges, and management arrangements that govern the property.

An experienced conveyancer plays a critical role in protecting the buyer or seller’s interests, ensuring that the legal obligations under the lease are fully understood and compliant with current law.

Understanding Leasehold Ownership

When someone buys a leasehold property, they do not own the land on which the property stands. Instead, they acquire the right to occupy the property for a fixed number of years as set out in the lease — often 99, 125, or 999 years. The land and building remain under the ownership of the freeholder or landlord, who retains certain rights and responsibilities.

As a result, leaseholders must:

- Pay ground rent (though reforms significantly restrict this for new leases).

- Contribute to service charges for maintaining communal areas or the structure.

- Comply with lease covenants, such as restrictions on alterations or subletting.

Each lease operates as its own contract, setting out the relationship between the leaseholder and freeholder. A conveyancer’s job is to interpret and explain these obligations clearly, ensuring clients know exactly what they are buying and what future costs or restrictions could arise.

The Conveyancer’s Role in Leasehold Transactions

Leasehold conveyancing requires additional due diligence, specialist knowledge, and attention to administrative detail. Typical tasks include:

- Reviewing the Lease: Checking for the length of the lease, renewal rights, rent review clauses, restrictions on use or alterations, and any unusual provisions.

- Investigating the Managing Agent: Ensuring that the management company is legitimate, solvent, and compliant with regulations.

- Examining Service Charge Accounts: Reviewing past service charge statements and budgets to identify disputes, arrears, or planned major works.

- Ground Rent Checks: Confirming that any ground rent terms comply with recent legislative reforms such as the Leasehold Reform (Ground Rent) Act 2022.

- Ensuring Compliance: Confirming that notices, consents, and compliance certificates have been properly obtained.

These detailed checks are crucial to avoid unexpected liabilities or disputes later. A conveyancer will liaise with the seller’s solicitor, managing agent, and freeholder to obtain the necessary documents and clarify any outstanding issues.

Reviewing the Lease Terms in Detail

The lease agreement is at the heart of a leasehold transaction. It can span dozens of pages and outline everything from parking rights to pet restrictions. Conveyancers look especially closely at the following:

- Lease Term (Years Remaining): Mortgage lenders typically insist on a minimum unexpired lease term — often at least 70 years at the time of purchase. A short lease can reduce the property’s value and limit mortgage eligibility.

- Ground Rent Clauses: Historic leases may include escalating ground rents that double every decade or follow inflation-linked formulas. Modern reforms have curtailed excessive increases, but older leases still require careful review.

- Repair and Maintenance Obligations: The lease defines who maintains which parts of the building. Usually, leaseholders maintain the interior of their flat, while the freeholder or management company maintains common parts and structure.

- Restrictions (Covenants): These can limit alterations, use of the property as a business, or even ownership by certain parties. Breaches could lead to enforcement action by the freeholder.

- Rights and Easements: Access rights, use of gardens, parking spaces, or bin areas all depend on what the lease permits.

Where the lease terms are ambiguous or outdated, conveyancers will explain the risks and may recommend renegotiation or indemnity insurance.

Understanding Ground Rent

Ground rent is a payment from the leaseholder to the freeholder for using the land. In recent years, ground rent scandals have made headlines, where doubling or escalating rent structures trapped owners in unsellable leases.

Key points:

- The Leasehold Reform (Ground Rent) Act 2022 abolished ground rent for most new residential long leases granted after 30 June 2022, setting rent at a peppercorn (zero value).

- Older leases can still contain escalating clauses requiring early attention. Some mortgage lenders refuse to lend where ground rent doubles too frequently or exceeds £250 outside London (£1,000 within London).

- Conveyancers check the rent formula carefully and alert clients if future affordability or saleability could be affected.

If problematic ground rent is discovered, options may include negotiating a deed of variation or asking the freeholder to amend the term before exchange.

Service Charges and Maintenance Funds

Most leasehold properties share common spaces — hallways, lifts, roofs, and gardens — maintained through a service charge system. Each leaseholder pays a contribution based on the lease terms or percentage stated in the lease.

A conveyancer’s investigation includes reviewing:

- The service charge accounts for the past three years.

- The budget for upcoming maintenance or major works.

- Any reserve (sinking) fund contributions that cover future repairs like roof replacement.

- Whether there are arrears or disputes between the current leaseholder and managing agent.

Major works announcements under Section 20 of the Landlord and Tenant Act 1985 are particularly important. If expensive repairs are planned, such as lift replacement or cladding remediation, the buyer must be aware of potential costs before proceeding.

Risks of Short Leases

Lease length can dramatically affect both value and mortgage availability. As leases shorten, the cost of extending them rises — particularly after the crucial 80-year mark, when marriage value begins to apply.

Key facts:

- Most lenders require an unexpired term of at least 70–85 years.

- Extending a lease below 80 years can be expensive, as the freeholder becomes entitled to a share of the “marriage value,” i.e. the uplift in property value resulting from the extension.

- The Leasehold Reform (Ground Rent) Act changes did not alter extension rights, but ongoing legislation aims to simplify and reduce the cost of lease extensions in future.

Your conveyancer can estimate extension costs and help you factor this into any offer or negotiation.

Restrictive Covenants and Use Provisions

Leasehold covenants can significantly shape how an owner enjoys their home. Common examples include:

- Restrictions on subletting or running a business.

- Rules on pets, noise, or floor coverings.

- Limitations on structural changes or internal layout changes.

Conveyancers interpret these clauses and explain what practical limits they impose. For instance, a “quiet enjoyment” covenant protects the leaseholder, while a “user covenant” might restrict non-residential activities.

Breaches of covenant can lead to enforcement or forfeiture proceedings, so understanding these terms before commitment is essential.

Landlords, Freeholders, and Management Companies

Every leasehold building involves a management structure. The freeholder (or landlord) may manage directly or appoint an agent or management company. Sometimes, leaseholders collectively own shares in a Right to Manage (RTM) company or residents’ management company (RMC).

A conveyancer investigates who controls the building and how responsibly it is run:

- Are service charges reasonable and accounts properly presented?

- Are required building insurances in place?

- Is the management company compliant with its Companies House obligations?

Good management enhances property value and saleability. Conversely, poor management, unpaid insurance, or administrative disorganisation can make lenders cautious and buyers hesitant.

Communication Between Parties

Leasehold transactions typically involve more parties than freehold deals:

- The seller and buyer, each with their own conveyancer.

- The freeholder or landlord.

- A managing agent or management company.

- Mortgage lenders requesting lease information.

This increases the number of documents required, such as:

- Leasehold Information Packs (LPE1 forms) containing service charge details, insurance and planned works.

- Deeds of Covenant requiring the buyer to agree formally to the lease obligations.

- Notice of Assignment and Notice of Charge to notify the landlord of ownership and mortgage details after completion.

Conveyancers coordinate all these steps, ensuring legal notices and fees are paid correctly and promptly.

Common Issues Affecting Leasehold Sales

Delays and complications frequently arise in leasehold transactions. Common challenges include:

- Slow responses from managing agents when providing information packs.

- Disputes over unpaid service charges or ground rent.

- Missing consents for alterations such as replacement windows or flooring.

- Unclear ownership or inactive management companies.

Proactive conveyancers mitigate delays by ordering leasehold packs early and liaising with all relevant stakeholders.

Leasehold Reforms and Future Outlook

The UK government continues to reform the leasehold system to simplify ownership and improve fairness. Notable developments include:

- Ban on new leasehold houses (planned through future legislation).

- Simplified lease extensions and enfranchisement process, aiming to make it cheaper and faster to buy the freehold or extend a lease.

- Ground rent limitations now in full effect for most new leases.

- A proposed commonhold revival, offering an alternative to leasehold for multi-unit buildings, where flat owners collectively own both their property and the building structure.

Buyers and investors should seek advice from conveyancers who stay abreast of these ongoing reforms to ensure transactions remain compliant and strategically sound.

Why Specialist Leasehold Conveyancing Matters

Not all conveyancing solicitors handle leasehold work regularly, but experience is vital. Specialist leasehold conveyancers:

- Understand complex lease structures and historic quirks.

- Pre-empt lender concerns about short leases and ground rent clauses.

- Recognise management company red flags.

- Ensure full compliance with notice procedures and company documentation.

Comprehensive due diligence protects clients from future disputes, unbudgeted costs, or saleability issues.

Practical Tips for Buyers and Sellers

For Buyers:

- Ask for the leasehold information pack early to review service charges and planned works.

- Check whether the lease term comfortably exceeds 85 years.

- Confirm ground rent clauses comply with recent reforms.