Whilst a standard home is often owned freehold, as in holding the title for that literal piece of land, there are residential scenarios where the property is owned through a long lease instead. This is often for flats in multiple-use properties, for example a block of flats or flats owned above shops.
The logic is that the land and property is more easily chopped up and held in individual titles through leases, which are easier to involve shared rights and obligations with, and which help literally allow different ownerships, one above the other on the same freehold title.
Often these are long lease, typically over 100 years and even up to 1000 years, and although they will technically need renewing at that point, the value and current term is so long that it is designed to act like you own the property lock stock and barrel. They’re therefore very common, meaning that when you purchase, say, a flat, you’re really paying to have this lease assigned over to you rather than gain the freehold title.
There can be a few things to watch out for with these though, both by the nature of the multiple-occupation they tend to involve, and the lease that determines the dwelling. You may not realise these until it’s too late, and you move in and hit the reality of living there, or you have solicitors coming up with all kinds of questions during the conveyancing process.
So here are 10 general factors to be aware of from a property management perspective, not exhaustive but including some of the main issues and practical pointers:
1. The Purpose of Ownership
This may sound blatantly obvious, but you need to understand what the whole purpose of your residential long leasehold ownership is, as this will affect what your focus then is.
This tends to fall into two camps, the first to do with you simply wanting to live at the property. This will be your new home, and purchasing a long lease is simply the way it is - whatever hoops you have to go through will need to focus on you being able to use, afford, and enjoy the place as much as possible.
The second is an owner investor, where you want to see a return on your investment by renting out to someone else and ideally seeing capital appreciation over time. This is popular with flats and buy-to-let investments, and your focus will be more on the hard fast rents and returns you will see.
Whichever stance you take, remember that you will still need to consider other factors as they will probably have an indirect influence on your priorities somewhere. So an occupier might love a new refurbishment but realise that it's not worth it if the value is not increased by at least that amount of cost, or an investor realises that those day-to-day living issues make a happier tenant that will pay rent more easily.
2. The Management Set-Up
By definition of having a lease you will have other property management duties and people now involved with your property. Typically there is a superior landlord, freeholder, or management company 'above' your lease interest, who may have external representatives like managing agents and solicitors acting for them in formal and day-to-day roles.
If you're letting the property out yourself, then likewise you will have management people and parties involved.
So understand all these, and be clear on how they all relate to you. So if you have a sub tenant it may be best for the overall management company of the wider developer to liaise direct with your occupier on day-to-day issues, whereas formal information and invoices need to go direct to you based away from the premises.
3. Knowing Lease Rights
The good news about residential property, and long leaseholds with residential property in particular, is that you have a hosts of rights both within the lease and general legislation to protect you from the hands of the higher-up 'landlord'.
These range from requirements to serve notices and information, have your lease extended at a fair rate in the future, to purchase the freehold individually or with other fellow flat owners collectively. In addition, the ability to take over management through a new RTM company or by insisting upon a change in the managing agent.
Just remember that you may also have rights to any occupier to bear in mind, and that these rights can be difficult and expensive to implement in reality. Often the simple threat of them can help focus other parties to have a serious dialogue with you.
4. Service Charge Payments
You're more than likely going to have a separate service charge payment in any communal development, and possibly a similar ability for one-off costs in the future for other scenarios.
As above, there are legal rights for these to be implemented reasonably by people, with procedures and limits on what can be charged, but be in mind that some form of charge will need to be budgeted for.
A classic issue is the actual accounting behind these, and trying to establish if there are any nasty additional charges on the way. On one hand request the formal accounts and information, but on the other try and understand from, say, the managing agent what the realty of these are, and if any horrible costs are around the corner, for example a new roof covering.
5. Insurance Cover
This is primarily concerning the building insurance, which often remains the responsibility of the ultimate owner and freeholder, although with the ability to recoup the premium back as a recharge. In addition to making sure this is correct, check what it means in reality for any claims and say actions for if the property is vacant for a period of time.
You will also need your own contents insurance as separate cover, although make sure you know what the line is between cover on these and the building insurance. So a fitted kitchen is often classed as part of the property for building insurance cover, but your own loose microwaves and fridges may well be under your own contents.
6. Ground & Other Rents
Although these are often small amounts, you may need to pay a basic ground rent of up to a few hundred pounds a year. Check when these need paying, often all in advance, and if there is any mechanism in the lease for these to be increased over time. The party raising these also needs to send you a correct invoice and notice for them
Older properties tend to have smaller peppercorn rents which are negligible if ever charged, whereas newer often multiple-let developments tend to have these notable ground rent charges. These can therefore add up over time and form a significant investment value for the freehold, meaning the freehold can change hands and you end up paying a different entity to the management company still dealing with service charge matters.
7. Keeping Compliant
Residential properties do tend to have greater compliance requirements for their space, from the relevant smoke and fire detection systems, to the water systems, and the safe and compliant services. Even the general condition of the property may need to be at a certain level, and having clear roles and paperwork for all these is key.
Watch out as well for the 'gap' in liability between ownership and occupation. So under a long lease hold you may have ultimate responsibility that you can't pass onto a shorter AST tenant therefore you're left with arranging things like the annual gas safety check yourself.
If you're carrying out any works as well, then make sure you request permission from people as needed through the lease and authorities like planning and building control, and that you have an accurate record of condition between any shorter tenancies through inventories and schedules of condition.
8. Keeping Connected
Utilities in particular can be taken for granted, and you need to make sure you know what you have connected, and what accounts and basis you will have going forward. The superior landlord may have responsibility for these through, for example, a shared meter point, and simply recharge as part of the service charge, although other times like with electricity you will have your own account.
If you have any grand ideas to, say, save electricity charges by installing gas heating, then think carefully about how realistic this is in terms of affordability and permissions, as there may be better alternatives like under floor electrical heating or wall heaters to consider.
Think also of modern forms of connection like the internet and TV lines, as these can be essential features nowadays for occupiers. You may not be able to simply move over any existing accounts and apparatus, but be left to use any communal systems in your new property.
10. Beneficial Use
This may sound blatantly obvious, but make sure you can effectively use your property how you want to. This includes factors outside the four walls just as much as inside, for example parking facilities, access arrangements, and limited noise from any neighbours.
Also consider how other people may be using the place, including for your own use and partners, family members, and friends staying over, for example. There may be more formal arrangements though such as temporary lodgers for payment through intermediaries like AirBnB, where you'll need to carefully check things like your lease, mortgage, insurance, and external authorities to see if this is permitted.
Ability to Use The Property
So when it comes to taking on a long leasehold interest of a property interest, appreciating these ten issues surrounding them will help make sure that you go into the situation completely open-eyed and expectant. Although it might sound unusual that you’re actually just buying a lease rather than the ‘full’ freehold title, in reality this is the norm and the market price being paid should reflect this fact.
Once you go through the unique issues surrounding these, linked to both the way in which residence takes shape with this form of lease and the actual legal technicalities, you’ll soon be up to speed and be able to agree and clarify any necessary changes needed.