GUIDANCE ON LEASEHOLD APPORTIONMENTS & RETENTIONS


Definitions:

Landlord: The Person or Company which owns the freehold (superior title in the land) and Leases the Property to you. This person may own the freehold or may have a superior leasehold interest in the Property.

 

Freeholder: The owner of the Freehold of the entire building.  This is person is also usually the Landlord and is the party named as the Landlord in the Lease or the person who purchased the freehold from the original Landlord.  

 

Management Company: A Management Company referred to in the Lease or a Right to Manage Company created by Law to provide services and administer the terms of the Lease.  They will arrange and manage the maintenance and repairs to the building and grounds.  They receive the Service Charges to cover the cost of the same.

 

Managing Agent: A person or organisation which acts on behalf of the Landlord, Management Company or Tenant’s Right to Manage Company.

 

Retention: A retention is a sum of money held back on completion to cover arrears or balancing payments required for ground rent or service charges. It is quite usual for the seller's Conveyancer to hold a “retention” from the sale proceeds, so that when the final accounts are produced for the year (well after completion), any balancing charge, which relates wholly or partly to the seller's period of ownership, can be taken from the seller’s retention before returning the balance. If there is no balancing charge then the retention can be refunded less any fees due to the seller’s solicitors.



APPORTIONMENTS

Upon completion you may be required to pay an apportionment of the Service Charges and/or Ground rent.  This is because the seller pays these in advance for a 6 or 12 month period.  The seller will need to be reimbursed for their overpayment.  

 

The seller’s Conveyancer will confirm the amounts payable once a completion date is known and these sums will be added to your completion statement. 

 

Your Conveyancer will endeavour to check the apportionment calculations based on the information available at the time but they  cannot guarantee that the apportionments are correct. In some instances information may not have been passed to them by the seller, his Conveyancer, the Freeholder or Management Company. 

 

You should be sent a copy of the apportionments to approve.  If there are any errors in the apportionments these should be resolved before completion.  Unfortunately, it is difficult to remedy this afterwards. It is therefore important that you check the apportionments sent to you and confirm if you think there are any errors.

 

You must also appreciate that with leasehold properties the apportionments of Ground Rent and Service Charge are estimated and there is always a risk in relying on estimates.

 

RETENTIONS

It is normal for a seller’s Conveyancer to retain a sum of money on completion to cover any shortfalls in the year-end accounts.  This is called a Retention.

 

The Service Charge paid by the seller is an estimate and the works carried out may be more than estimated.  As the year end accounts will be finalised well after completion occurs it is quite normal for a buyer to ask for a retention to cover any shortfalls for the seller’s period.

 

Your Conveyancer’s file must remain open for the duration of the Retention Period and you will need to provide them with your end of year statement. Your Conveyancer can then check whether the seller must pay any sums from the retention monies held.  The retention is usually held for 12 months from completion and after that time, if no contact is made by the buyer’s Conveyancer the retention is returned to the seller.

 

ARREARS

It is part of the conveyancing process that the buyer’s Conveyancer asks the seller’s Conveyancer to clear any Ground Rent and Service Charge Arrears on completion.  The seller’s Conveyancer will usually pay the arrears out of the seller’s proceeds of sale on the day of completion.

 

LEASE WORDING

The Lease is the most important deed on a Leasehold Property but will not be in your name.  It will show the name of the original parties when the Lease was first granted. The Lease is a historical deed. 


The up to date office copies of registered title show the current owner and will be in the seller’s name.  Upon completion your Conveyancer applies to have the registered title in your name.  

 

Please read through the Lease in order to ensure that you are aware of the covenants and conditions which you will be required to adhere to during your ownership and the rights which you will have.   If you have any queries speak to your Conveyancer.

 

When purchasing Leasehold Property you are buying the term of the Lease not the Property.  The Lease is the contract between you and the Landlord.

 

NB: YOU MUST GET LANDLORD CONSENT, IN ADVANCE, BEFORE EXTENDING OR ALTERING LEASEHOLD PROPERTY.

 

You should read the whole of the Lease paying particular attention to the following:

 

 • The Tenants covenants (legal promises)


 • The Landlords’ covenants


 • The Management Company covenants


 • The Easements Rights & Privileges granted to you


 • The Regulations & Restrictions you agree to adhere to

 

• Rent review & Sub-letting terms


• Forfeiture -  the Landlord can seek forfeiture and take possession of the Property if you do not pay ground rent and service charges.

 

Repossession proceedings can be taken by the Landlord for non-payment, whether they have demanded them or not.  You should be aware that if this course of action was successful your lender would lose their security but you would still be responsible for repaying your mortgage debt.

 

GROUND RENT

Note the Ground Rent payable along with any Rent Review provisions. In some Leases the Ground Rent is a peppercorn, or minimal sum, such as £1.


 SERVICE CHARGES

In addition to Ground Rent you will be required to pay Service Charges which are your share of the cost of repairing, maintaining and renewing any communal areas and the building as a whole.  The Service Charge budget (estimate) will be provided to you.

 

Service Charges can vary greatly from year to year depending on the amount of work carried out to the communal areas.

 

If major works are carried out you may find that your Service Charge Charge can increase by several hundreds of pounds.

 

No guarantee can be given as to future service charges and you should take this into account when purchasing Leasehold Property.


SECTION 20 – MAJOR WORKS NOTICES

Take note of ANY reference in the Leasehold Management Pack (LPE1) to existing, future or potential section 20 Notices (Major Works Notices) referencing repairs, decoration or maintenance.  You will be required to contribute to the cost of these via your service charge payments. 

 

This may substantially increase the service charges payable.  As and when works are required to the building or grounds you should receive appropriate notification from the Freeholder, Landlord or Management Company confirming the proposed works and likely costs. 

 

You will be responsible for your share of the works.  I strongly suggest that you liaise with the Freeholder, Landlord or Management Company regarding the costs involved before proceeding to exchange of contracts.  

 

AFTER COMPLETION

Contact the freeholder or their agent to ensure they have your full contact details regarding future Ground Rent payments.

 

Contact the Management Company to ensure they have your contact details regarding future Service Charge Payments.

 

NOTICES TO BE SERVED POST COMPLETION

Upon completion, and as per the Lease terms,  your Conveyancer is required to serve Notice of Transfer and Notice of Mortgage.

 

Conveyancers must serve Notice on BOTH the Freeholder (as to Ground Rent payments) and Management Company or Agent (as to Service Charge payments) so they are aware of the change of ownership. 

 

Your  Conveyancer will serve ALL of the Notices on your behalf.  Notices Fees are charged by the Freeholder & Management Company.

 

NB: These Fees are disbursements payable to the above third parties and they remain your responsibility.  You will be in breach of the lease if you do not pay the same.

 

Where your Conveyancer is advised of the relevant notice fees before completion they will include these in your completion statement.  Otherwise, you will need to put them in funds for the same when requested post-completion. Your purchase often cannot be registered without a certificate confirming compliance.

 

RESTRICTION IN OFFICE COPIES AND CERTIFICATE OF COMPLIANCE

There is often a Restriction in favour of the Landlord or Management Company which your Conveyancer must comply with or they cannot  register your ownership. The restriction ensures all arrears are paid and notices are served.

 

NB: Notice Fees, and other Post Completion Fees raised by the Management Company, are disbursements payable to the Freeholder, Landlord or Management Company and they remain your responsibility. You will be in breach of the lease if you do not pay the same. 

 

 

16 views0 comments

Recent Posts

See All