Common issues associated with leasehold properties

Recently, there has been widespread coverage of some of the problems associated with leasehold properties. These have ranged from escalating ground rents to exorbitant service charges. There’s also the thorny subject of exterior cladding.

If you have concerns about selling your leasehold property, it is a good idea to talk to your solicitor early on so they can review the terms of your lease and identify any potential issues. This will also make it easier to manage your buyer’s expectations and keep your transaction on track.

“Leasehold flats are a long-established feature of this country’s property market,” says Salv Sole, head of property at KWW. “In most cases, selling your leasehold apartment should not be too different from selling a freehold house, although there may be additional issues to address and the process may take a little longer.”

Here, Salv sets out some of the main areas where issues tend to arise on leasehold properties.  

Dealing with management companies

With an apartment, you will usually own the interior shell of your unit. Your landlord or a management company will own the remainder of the building and any shared areas. These are called ‘the common parts’ and the management company will be responsible for insuring and maintaining them. It will recover its costs via the service charge, which you and the other apartment owners pay.

Your lease will detail the arrangements, which will vary from development to development. However, your buyer and his solicitor will also want to check there are no hidden problems, such as planned major repairs which are not covered by a reserve.

The solicitor may ask lots of questions, so it is a good idea to collate all the correspondence you have with the management company, including receipts for the service charge, ground rent and insurance. This will help your solicitor deal with your buyer’s solicitor’s enquiries promptly.

Ownership of the common parts

You should be receiving updates from the management company and making regular service charge payments. If not, this could indicate a more serious problem which needs investigation

For example, common parts are often owned initially by the developer who should transfer them to the management company on completion of the development. If they remain in the developer’s ownership, the management company cannot fulfil its obligations or recover the service charge. Resolving this is usually relatively straightforward, for example if the developer agrees to transfer the common parts retrospectively.

Occasionally, it may not be possible to trace the developer, or it may be a company which no longer exists. In this case, your solicitor may seek to have the company reinstated, to negotiate a transfer from a third party or to apply to court for directions.

A dissolved management company

Sometimes the management company is badly run. There are various legal safeguards which may help if this is the case, and your solicitor can advise you on the options.

However, if nobody is managing the common parts, collecting the service charge, or making essential repairs to the building, this could be because the management company has not filed the correct paperwork at Companies House and it has become dissolved.

Problems may also arise if there is a restriction on the register of title, which requires the management company’s consent before the Land Registry can give effect to a sale transfer.

It is possible to apply to have the management company reinstated, or for an order permitting registration of the transfer despite the restriction, although this will take time to resolve.

The cladding crisis and lenders’ response

Following the Grenfell Tower fire tragedy, the Government revised the rules on which materials can be used in the construction of new blocks of flats. However, these rules do not apply to existing buildings, leaving buyers and lenders uncertain about their safety.

As a result, some lenders now require the completion of a special safety review, called an External Wall Safety Review, or EWS1, before lending on any unit in a multi-storey building. Because there is a shortage of qualified assessors, some sellers are having to wait months for completion of this review to satisfy their buyer’s lender. Others are finding it difficult even to get the process started as the management company, as owner of the building, must initiate the EWS1.

Engage with a proactive solicitor

Fortunately, the Government is introducing legislation to address these problems. In the meantime, if you plan to sell your apartment, try to find out if other unit holders have experienced any issues. Ask the management company about any requests for an EWS1. You may find one already exists. Having a proactive solicitor, who understands lenders’ requirements and who will engage positively with the management company, will also help.

Remember there is usually a solution to every problem. For example, lenders may make an advance even where an EWS1 indicates the building requires remedial works: a retention until the works are complete could address their concerns.

It is important to identify any issues with your apartment or the management company as soon as possible. Discuss any concerns with your solicitor, ideally before putting your apartment on the market. If there is a problem, they can then start finding the best solution for your particular circumstances.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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