No article on selling a leasehold property can go without a mention of the Building Safety Act 2022 (BSA) and the immense difficulties it has now caused on any leasehold flat being sold. There is a lot more terminology for sellers (and their solicitors) to wrap their heads around and it is important to familiarise yourself and anticipate issues so that you can save time and cut down on the number of questions once the conveyancing process does get going.
Many solicitors are now declining instructions where the flat is located in a building that is 11m/5 storeys or above. You may be thinking that it’s a fairly simple job to count the number of storeys or measure the building, but it has not been so for some leaseholders where landlords are disputing the height of the building or can’t even get their own information correct. There are still many Landlords and Management Companies that have not familiarised themselves with what is required of them.
The starting point, is the height of the building. If your flat is in a building that is 3 or 4 storeys it is even more important to ascertain the height of the building. If the ‘storey requirement’ (5 storeys) isn’t met, you could easily have a building that is 11m or more in height. If the building is clearly 5 storeys or more (the ground floor counts as the first storey), then the BSA will apply.
Estate agents or surveyors may be reluctant to provide measurements for the height of the building, in case they get it wrong. Your solicitor is NOT qualified to do this measurement. Therefore, an enquiry should be made of the Landlord to determine if the flat is in a “Relevant Building”: Definition of ‘relevant building’ - GOV.UK (www.gov.uk) If the flat is not in a relevant building, then potential buyers will not have any protection under the BSA and will be wary of any potential costs that may fall on them if the building requires work doing to it. Buildings under 11m, built in the last 30 years, have no protections and leaseholders would be expected to pay towards the cost of remediation.
Once you have determined if the flat is in Relevant Building, you will need to determine whether or not you are a Qualifying Leaseholder. The guidance is found here: Qualifying date, qualifying lease and extent - GOV.UK (www.gov.uk) Many of you will find yourself in the situation where you are not a qualifying leaseholder and therefore your flat will not be as attractive to prospective buyers (making it more difficult to sell) as the protections only apply to those who were qualifying leaseholders on 14.02.22.
If you are a qualifying leaseholder, seek guidance from your solicitor on completing and serving your Leaseholder Deed of Certificate – failure to complete the form properly or not provide the correct information could result in the leaseholder protections being lost.
Further information can be found on Building safety leaseholder protections: guidance for leaseholders - GOV.UK (www.gov.uk)
What can you do to prepare?
Instruct a solicitor whilst the property is being marketed. There is a lot of form filling to do.
You must answer the questions as honestly as you can and if you do not know, do NOT guess the answer, check with your conveyancer so that you understand the meaning of the question before you answer. There is a risk of your buyer being able to bring a claim against you for misrepresentation and/or criminal liability under the Fraud Act 2002 where the responses given are incorrect, or have not been given honestly or deliberately concealed.
You should ensure you keep a copy of your responses and update your solicitor if any of the answers change during the course of the transaction. You may need to refer back to them where further questions are raised by the buyer’s solicitors.
You are expected to complete the Protocol or “TA” Forms unaided. The TA7 form or “Leasehold Information Form” is especially important. At the beginning of form you will see various “Definitions”. This is to help you get to grips with the terminology used. You should have been told about the ‘legal structure’ when you purchased – i.e. who owns the freehold, whether or not there is a separate management company or agent appointed to act on their behalf, but also from your own knowledge of who you are paying and what the payment is for. Time spent whilst the property is being marketed could be well spent with your conveyancer obtaining copies of title documents to establish the legal structures and pre-empting any potential questions that could be raised by a buyer.
If you are a qualifying leaseholder, it would be prudent to establish and protect the status of your lease buy using this time to prepare and serve the Leaseholder Deed of Certificate.
The reply to question 5.4 “Does the seller contribute to the cost of maintaining the building?” would normally be ‘yes’ where you pay service charges. (This question is frequently answered incorrectly.)
If you are not a qualifying leaseholder, then you may struggle to sell the flat to someone who requires a mortgage. Any cash buyer may also seek to negotiate the price of the property down so as to compensate them for being left open to unquantifiable bills from the Landlord.
Other Important Information to Assist you with selling:
There is a move towards Material Information and “Upfront Information”. Further information can be found here: Material Information - National Trading Standards
The following main points/frequently asked questions could be collated and provided to the estate agent to assist them with questions from the buyer:
Length of Lease – Obtain the start date of the lease (not necessarily the date it was granted) and the number of years of the lease. If you provide the approximate number of years left, don’t forget this will need to be updated if your flat is taking time to sell. The number of years left on a lease will affect a buyer’s ability to obtain a mortgage if there are less than 85 years left to run on the lease. If a lease extension is required then the cost of this (and perhaps arranging for the same to be done whilst the property is being marketed/going through the conveyancing process) is something that you will need to factor in.
Ground Rent – if you make payments for ground rent please let your agent know how much this is and if you have experienced any increase during your ownership, there may be a ground rent review clause in your lease. This may become important during the sale process as the frequency of review and the amount of the rise in the ground rent may cause issues for mortgage lending purposes.
Service Charges – do provide information about how much you currently pay for service charges, the frequency of your payment (e.g. annually, bi-annually, monthly, etc.).
Fire Risk Assessments: Check with your Landlord/Management company that this is up to date and any recommendations from the previous fire risk assessment have been implemented. Any building that now has 2 or more residential units requires the Fire Risk Assessment to contain a statement that the external walls have been considered. https://www.gov.uk/government/publications/fire-safety-act-2021/fire-safety-act-2021-factscheet-information-on-commencement-of-sections-1-and-3-of-the-fire-safety-act
Restrictions affecting the property – some buyers may be on the prowl for an investment property - e.g. for rental purposes. Letting for Air BNB purposes is usually not allowed (though to be sure you could ask the Landlord/Management Company to confirm their requirements). Another question that frequently gets asked is does the Landlord allow pets?
You could also obtain copies of the form EWS1 if your building has been affected by cladding and provide this to the estate agent as buyers may want to see a copy before they make an offer.
Leaseholds are a lot more work than freehold property due to the volume of information required and the requirement for input from entities that are not a party to the contract such as the Landlord and Management Company/Agent. As part of the sale process you are expected to pay for a Freeholder Information Pack which the Landlord/Management Company is required to provide replies to industry standard from Leasehold Property Enquiries (LPE1). There is usually a fee payable by you for the information so you may wish to contact the Landlord/Management Company to confirm the amount so your solicitor has it ready to order when a buyer is found. It is important not to request this too early, as the information is only valid for 6 months. If your flat takes a while to sell, you don’t want to have to pay for the information to be updated or a whole new fresh pack.
Do get your legal advisor on board at the beginning of your journey – there will be ups and downs, especially in the current climate with the BSA and ever changing requirements from mortgage lenders. Whilst the agent may persuade you that they are your best friend, remember they get a lot more than your legal advisor and that your lawyer is actually the one on your side during this process. Make sure you find someone suitably skilled, and not just based on the “cheapest” possible price. The estimate may be made to look lower than it actually is with the true amount hidden in the small print.
Non-Qualifying Leaseholders
For those of you who are non-qualifying leaseholders and are struggling to sell your flats, please write to your local MP Find your MP - MPs and Lords - UK Parliament and do lend your support to the Building Safety Remediation Scheme Building Safety Scheme – Consumer Protection for Buildings - there is an option on the table that the government needs to take more seriously so that home owners have some redress against the developers who have built unsafe buildings.
Zahrah Aullybocus is a consultant property solicitor at Nexa.
