Approximately 3 million properties in the UK are leasehold. When you own a leasehold of a property it means that you are the owner of the property for a fixed period of time, these can vary but are often set at 99 or 125 years at the start of the leasehold of the property, each year that passes, this period is reduced by a year and thus when it is sold it is less than this initial period.  Within this period the freeholder is entitled to sell the freehold, however they must give the leaseholders of a property first refusal of the freehold.  When the leasehold of a property ends the ownership returns to the freeholder where they may choose to lease the property again. 

There are two different types of lease available, internal repair only or a full repairing and insuring lease.  These are both detailed below to show the differences.

Internal Repair Lease

With leasehold properties the landlord (freeholder) is responsible for arranging the repairs to the property, such as roof, structure etc.  However they are not responsible for paying for the works carried out, this is divided between the leaseholders as set out in their leasehold agreements.

As part of a lease, the leaseholders will usually have to pay a service charge for the maintenance of the communal parts of a building, such as staircases, roofs, gardens, building insurance etc.  You may also be liable for ground rent, if this is included in your leaseholder agreement.  

The leaseholder will be responsible for having contents insurance for the property.  

As a leaseholder you may be required to pay into a fund to help cover any unexpected maintenance costs for repairs such as replacing a roof or structural work to the property.  If you sell the leasehold before the maintenance is carried out you will not be entitled to have back any money you have paid into this sinking fund when you move out.  

If the property requires maintenance works to be carried out then the leaseholder has the right to be consulted about any charges that are more than £250 for planned work.  This would introduce the Section 20 process, this consists of usually three stages:

1. A notice of intention - this will detail the proposed works or specify when the description will be available.  It should also describe why the works are required and invite observations within 30 days of the notice from the leaseholders. It can also include a section for the leaseholder to nominate a contractor of their choice for the works.
2. Notification of estimates - this will include the details of at least two estimates, observations should then be invited in writing within 30 days and must include the observations already received. 
3. Notification of award of contract - this notice should be given within 21 days of entering into the contract, it must contain the reasons for awarding the contract to the chosen contractor and give a summary of the observations received by the leaseholders regarding the estimates and provide a place at which these can be inspected.  This notice is not required if the contract has been awarded to a nominated contractor or it has been awarded with the contractor with the lowest tender return. 

The leaseholder is usually responsible for the area inside their leasehold property; the carpets, plasterwork, floorboards, wiring, internal plumbing, paintwork and decorations etc.  The contents of the leasehold property is also the responsibility of the leaseholder.

As a leaseholder you should report any problems to the freeholder as soon as they arise to ensure that work can be carried out promptly.  In order to do this you should write to the freeholder, giving details of the repairs that are needed and give them a realistic deadline for carrying them out.  You should date the letter and keep a copy for your future reference.  If the freeholder is liable for arranging the repairs under the lease agreement and they fail to arrange the repairs then they are breaking the conditions of the lease and you would need to seek legal advice for this.  If the work is dangerous or damaging to your health then you can report the problem to the councils environmental health department, they will inspect the property and determine if the repair work required is dangerous or a hazard to health and order the freeholder to carry out the works.  

If the leaseholders refuse to pay for the required works, the freeholder cannot use this as an excuse to not carry out the works required.  The freeholder can include these costs in the service charge providing they have consulted the leaseholders about the work and the costs are reasonable.  If the leaseholder refuses to pay the required costs then the freeholder is within their rights to take the leaseholder(s) to court to recover these fee’s.  Each freeholder cannot be asked to pay more than their agreed share, as detailed within their lease agreement.  

Full Repairing and Insuring Lease

This type of lease imposes full repairing and insuring obligations to the tenant, thus relieving the landlord of any costs of repairing or insuring the property.  This is most commonly used with commercial properties and allows for a higher investment value for the landlord by passing on as many costs to the tenant as possible.

The extent of repairs is set out within the agreement of the lease.  Once the lease is accepted it is the tenants job to repair, maintain and renew the property in the state that it was leased in throughout the remainder of the lease period.  Before the lease is accepted it is important to ensure that the property meets this ideal set out within the agreement, as such usually a Building Surveyor is instructed who will highlight any problem areas.  

If the premises is in poor condition then several options may be open to the tenant, such as: 

• The building to be brought up to standard by the landlord prior to the lease being accepted, to ensure that the property is within a good state of repair from when the lease commences and then the tenant is responsible for up keeping this state during the lease period.
• Another option would be to extract certain items from the obligations for repair, an example of this could be the roof.  
• Another option would be to append to the lease document a schedule of condition highlighting the condition of the property when the lease commences, thus allowing for a comparison at the end of the lease period to set a standard by which to compare and return in this condition.
• A tenant may also wish to include fair wear and tear of the property during their lease period or to exclude inherent defects, this would be subject to an agreement with the landlord of the property.

In many cases the landlord will wish to insure the property and the tenant is required to pay back the premium to the landlord. If this is the case it is important for the tenant to ensure that the property is covered for rebuilding in the event of damage, also that the landlord is responsible for the shortfall of any costs required for rebuilding the property in the event of under-insuring the property by the landlord.  The agreement should also have a clause that ensures that if the property is damaged and rebuilding is necessary then the rent will be reduced by the landlord and this is covered within the insurance claim as loss of rent for the period of rebuilding, this can be up to three years.  

If you wish to terminate the lease then 40 days will need to be given to the landlord in the form of a notice to terminate by which the lease will terminate on the date detailed within the lease agreement.  Once this is terminated any repairs can be calculated and the tenant may be liable for extra fee’s due to the repair of the property at the end of the lease as detailed within the lease agreement.