What is a Lease
We are able to offer insurance for buildings that have been divided in to self-contained flats. These flats can either be purpose built with concrete floors or houses which have been converted in to flats.
What is a lease
Whatever type of flat you own, in all but rare occasions, you will own it on a lease. A lease gives you the right to occupy your portion of the building and use the common parts for a certain period of time. A typical lease would be for either 125 years or 99 years. At the end of the lease period the “ownership” of the flats reverts back to the freeholder.
Leases have been developed to give property owners a legal entitlement to land and buildings where it is not possible for them to own the freehold. Leases vary greatly and contain both basic elements and also special terms relating to the specific building. They are made in duplicate and the counterpart is held by the landlord. All the counterparts together form the management company or freeholders association title to the property. Most leases within the building will be the same. Its sometimes difficult to grasp that even though you have purchased a flat, if it is on a lease, you will in fact be a tenant, albeit it one with the right to occupy your property for a considerable amount of time. A lease is a contract between a landlord and a tenant. Each party’s rights and duties are formally written out. The duties are called covenants. Each flat owner ought to have had the lease explained to him/her when buying the property and should be aware of its terms. The owner or landlord will be paid ground rent and a service charge by each individual flat within the block and there will also be rules relating to behavior within each flat and repairs of the property.
The tenant’s covenants
Rules within the lease cover a variety of things. Most of them will be easy to understand and will not need any intervention from the management company or tenants association or group of tenants if things are run on a more ad-hoc basis. The covenants that interest leaseholders usually relate to the collection of money for the ground rent and the service charge.
Ground rent is normally a small sum (a peppercorn amount) and it may give the landlord a small income. If the tenants all group together and buy the freehold then this yearly amount is paid to themselves and it can be used to subsidise the cost of maintenance and insurance.
The service charge is a necessity whoever owns the freehold as it is used towards building insurance premiums and general maintenance. It is usually a good idea to keep money in a fund as the collection of charges can sometimes be a long drawn out affair especially if any of the leaseholders do not live on the premises
Types of Leasehold Clauses
‘Quiet possession’ is a clause that is to be found in every lease. It means that as long as the flat owner carries out his/her duties and obligations, then the lessor has no right at all to interfere.
The freeholder or his delegated managing agent must ensure that the building is covered by insurance (building, not contents) with a block policy. The insurance cover will need to be studied to make sure it is suitable for the leaseholders to be able to secure a mortgage. Often a leaseholder’s mortgage provider will want their interest noted on the policy schedule and in the event of a serious event such as a large fire, they will expect to be notified.
The cost of this insurance is recoverable from the flat owners by working out what proportion each is to be liable for. Building Insurance is paid in this way as it would not be possible to make sure that the entire building was correctly covered by insurance if each individual were to only be responsible for their own part of the building. Many leaseholders still try to obtain building insurance for a single flat but this is not to be recommended.
The Freeholder has a duty to maintain the building. This is an ongoing obligation. The cost of the maintenance and repairs are recovered under the service charge. The flat owners will expect the service charge to be used in an efficient way and, for this reason; another duty of the freeholder company is to produce comprehensive annual accounts for the flat owners. In practice, these are sometimes difficult to obtain.
If you have any question with regard to your ability to purchase insurance for a building that has been divided in to a flat, please do not hesitate to contact us, we will be pleased to assist.