Leasehold Flats (cont'd...1)

What are the purchaser's responsibilities?
Primarily you will be obliged to keep the inside of the flat in good order and to pay on time the ground rent and service charge in relation to the maintenance and running of the building.  You will also have to comply with all the various conditions in the Lease.  These may include obligations to decorate the flat on a regular basis, not to alter it without the Landlord's consent, or even not to play loud music at night or disturb the neighbours.

What is ground rent?
As the property is leasehold it is normally subject to the payment of a rent (which may be nominal) to the Landlord.  The ground rent is a specific requirement of the Lease and must be paid on the due date.  It is important that you receive expert legal advice with regard to the ground rent and its implications as it is possible, where there is a more than average high ground rent, that it can result in Stamp Duty Land Tax being paid on the property even if the purchase price is less than £125,000.

What are service charges?
Service charges are payments by the purchaser to the Landlord for all services the Landlord provides.  These will include maintenance and repairs to the common parts, insurance of the building.  Usually the charges will also include the cost of management either by the Landlord or by a professional Managing Agent.  Service charges can vary from year to year.  They can go up or down without any limit other than that they are reasonable.  Details of what can (and cannot) be charged by the Landlord and the proportion of the charge to be paid by the individual purchaser will be set out in the Lease.  The Landlord arranges for these services and the leaseholder will pay for them.  All costs must be met by the occupant of the leasehold building, the Landlord will generally make no financial contribution.  Most leases allow for the Landlord to collect the service charges in advance, repaying any surplus or collecting any shortfall at the end of the year.  The Landlord can only cover the costs which are reasonable.  Purchasers have powerful rights to challenge service charges they feel are unreasonable.  It is important that your lawyer carefully examines the various service charge accounts for previous years and also checks whether there is likely to be any significant increase in expenditure in the near future (for example if the building needs a new roof) which the purchaser (may/would be) responsible for.

What is a reserve fund?
Some Landlords or Managing Agents collect sums of money in advance to collect a reserve or sinking fund to ensure that sufficient money is available for future scheduled major works such as external decoration, or roof, or repairs or replacement.  It is important that your property lawyer checks whether such a fund exists and the amount of money in the fund so as to ensure that you have the benefit when you purchase the flat.

How is the building insured?
The Lease will normally require the Landlord to take out adequate insurance for the building and common parts and the Lease will give the Landlord the right to recover the cost of the premium through the service charges.  This policy will not normally cover the possessions of the Purchaser.

What is a managing agent?
Sometimes a Landlord carries out the management of the property himself or alternatively a Managing Agent may be appointed to manage and maintain the building on behalf of the Landlord in accordance with the terms of the Lease.  The cost of appointing the Managing Agent will normally be recovered from the leaseholders as part of the service charge.