Residential Leases

Granting a residential lease may sound straightforward but have you considered the legal issues? The law grants certain rights to tenants under long leases. Make sure you know what these are before granting a residential lease...

Granting a residential lease may sound straightforward but have you considered the legal issues? The law grants certain rights to tenants under long leases. Make sure you know what these are before granting a residential lease...

Whilst most people think of commercial property when they hear the word lease, and most residential property sales are sales of the freehold (permanent ownership) interest, residential property can be, and is regularly, sold on long leases especially if the property involved is a flat. In this way, the owner of the property, building or site retains the freehold interest, but can draw capital out of the property by “selling it off” on long leases.

Traditionally, when a long lease of residential property was first granted it was normally granted for either 99 years or 125 years. Whilst this is still the “market standard” for a long residential lease it is now not uncommon to grant much longer leases.


What is the relationship between the buyer and the seller where a property is sold on a long lease?

The effect of selling a property on a long lease is that the buyer (which we will from now on call the tenant) purchases the right to live in the property for a fixed number of years whilst the seller (which we will from now on call the landlord) retains the right to enforce the tenant’s obligations in the lease and retains ownership to common parts and areas. The terms of the lease are, therefore, extremely important as this governs the whole relationship between the landlord, the tenant and any management company. However, there are many other legal issues to think about – it is not just the terms of the lease to consider.

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What sorts of legal issues are relevant to long leases?

Residential leases are a particularly tricky area of the law. Whilst the terms of the lease will govern the relationship between the landlord and the tenant in general there are also very prescriptive rules and requirements laid down by the law and a whole of host of legal rights that are afforded to long lease tenants. Here are some of the most important legal issues that you should think about:

  1. Leasehold Enfranchisement – This is the legal right for a collective group of long lease tenants of flats in a building to buy the freehold of the building that they live in if they want to. Similarly, a tenant of a long lease of a house may have the right to buy the freehold of their house. If the legal requirements are satisfied then the tenants will have the right to buy the freehold even if their landlord does not want to sell it. Leasehold Enfranchisement is a particularly tricky and complex area of the law. For more information see Property Management and Leasehold Enfranchisement .
  1. The Right of First Refusal – In most circumstances, a landlord who wants to dispose of the freehold of a property containing flats must give its long leasehold tenants the opportunity to buy the property before selling it to anybody else. This first refusal procedure has prescriptive requirements and time limits attached. If these are not adhered to a landlord will have committed a criminal offence and be subject to a fine while the transaction itself may be unenforceable. As the rules in this area are so complex we would always suggest taking legal advice before taking any action to sell or to buy a building that contains flats on long leases.
  1. Lease Renewals – Long lease tenants of flats who have held their lease for at least 2 years may have the individual legal right to buy a new lease from the landlord. As with any legal right, there are exceptions to this general rule, and various requirements that must be satisfied in relation to procedure, so legal advice on this area is always a good idea before beginning or becoming involved in this process.
  1. Property Management – The landlord is responsible for making sure that all of its own obligations in a long lease are complied with. So it may agree to be responsible for insuring the building and repairing and maintaining the building. The costs of this is usually paid for by the leaseholders by way of a service charge. In addition, depending on the length of the lease term, a landlord has a whole number of prescriptive statutory duties to comply with in relation to good management so many landlords consider managing a property themselves to be more trouble than it is worth. The tenants of long leases of flats in a building also have a legal right to manage the building they live in if they want to.

For these reasons, many developers or landlords setup a freehold or management company which is then transferred to the ownership of the tenants once the last relevant long lease has been sold.  This means the tenants are then responsible for the common parts themselves. See Property Management and Leasehold Enfranchisement for more information.

As the law in relation to long leases is so complicated it is very easy to get it wrong and fall foul of your obligations or lose your legal rights. Always speak to your solicitor and take legal advice as soon as you can if you want to change the way residential leases are managed, sell the freehold of your building or if your tenants want to exercise any of their legal rights.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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