Due to the fact that leasehold is a tenancy, there is a payment of a rent (which can be nominal) to the landlord. Ground rent is a specific requisite of the lease and needs to be paid on an arranged date.
Leasehold Service Charges
Service charges are payments made by the leaseholder to the landlord for the entire range of services the landlord provides, including maintenance and repairs, building insurance, and in certain cases, central heating provision, porterage, lifts, lighting as well as cleaning of common areas, gardening of grounds and so on.
Charges include management costs, charged by the landlord or a professional managing agent.
Service charges may vary year to year. They could increase or decrease, yet they need to remain reasonable.
However, the lease will set out the fraction of the cost or percentage that the leaseholder needs to pay and the accounting period to which the landlord must produce annual accounts highlighting expenditure and service charge payments.
Specific details of what the landlord can and cannot charged and the proportion of the charge to be paid by the individual leaseholder will be set out in the lease.
The landlord provides all the services, with the leaseholder paying for them.
All costs are sorted out by the leaseholders, with the landlord generally not making any financial contribution. The majority of modern leases permit landlords to collect service charges in advance, reimbursing any surplus or collecting any shortfall at the end of the year.
The landlord is able to recover reasonable costs. Leaseholders have quite formidable rights to challenge service charges they consider to be unreasonable at the Leasehold Valuation Tribunal (LVT).
When considering buying a leasehold flat, it is crucial to know, for the sake of personal finances, what the present and future service charges are likely to be. You also need to check to see if there is a reserve fund. You also need to check what plans there may be for major works that could affect the service charge in the few years following the purchase.
Leasehold – What are Reserve Funds?
A majority of leases enable the landlord to collect sums in advance to create a reserve or ‘sinking’ fund, to make sure that enough money is available for future scheduled major works, like external decorations or lift replacement. The lease will clarify sums involved and when cyclical, regular, maintenance works are due.
Contributions to the reserve fund are not reimbursed when the flat is sold.
What happens if the leaseholder does not pay?
It is the leaseholder’s obligation to pay the service charges and ground rent promptly under the terms of the lease. Should they not be paid and the landlord is able to show that the charges are reasonable, then he is able to commence with forfeiture proceedings.
Should a court approve this, then this can lead to the landlord repossessing the flat. Furthermore, under the Commonhold and Leasehold Reform Act 2002, the landlord’s right will be restricted.