Lessee's or Leaseholder's Obligations
Some examples of common obligations are set out below. These spell out what you are responsible for.
- Ground rent
Ground rent is a payment generally made by the leaseholder to the freeholder under the terms of a lease. It is called ‘ground rent’ because the freeholder owns the ground which your leasehold house or flat sits on, and you have the right to live in the house or flat for the length of the lease. In the past, many ground rents were set at a ‘peppercorn’ to save the landlord having to collect the rent.
However, it is also common for the lease to allow the yearly ground rent to increase at regular intervals until it reaches a fixed amount. For example under a 99-year lease, the initial ground rent may be £100 per year, going up after 33 years to £150 per year and increasing again after 66 years to £200 per year, before remaining at that level for the rest of the term of the lease.
- Service charges
These are payments you make under the terms of the lease towards the landlord’s costs of running and maintaining the building, for example, the costs of arranging building insurance, maintaining the lift, cleaning the shared areas, repairing the roof or redecorating the outside of the building.
Example text you might see in your lease: ‘pay the lessor a fair and reasonable proportion of the costs and expenses incurred by the lessor in the performance of the lessor’s covenants herein contained…’.
You landlord must provide a summary of your rights and obligations with your service charge demand.
- Reserve or sinking fund
Under some leases, you may pay into a sinking fund each year. This is a way to build up a fund (known as a reserve or sinking fund) that is used to cover the cost of major repairs, for example, replacing the roof at some time in the future.
- Administration charges
These are payments you make under the terms of your lease towards various expenses the landlord has to pay. Your lease may include the right for your landlord to charge interest on unpaid service charges, or their right to recover any legal costs they face as a result of the action they take to make sure you meet your obligations under the lease.
Example text you might see in your lease: ‘to pay all costs and expenses that the lessor may incur by reason of any breach of the lessee’s covenants whether or not proceedings are started in a court or tribunal’.
There are three different ways that a lease may affect your right to make alterations.
1. The lease may not mention alterations, in which case you can make any alterations you like as long as they do not damage the building or reduce the value of the flat.
2. The lease may contain a clause which bans all alterations. It is important to know whether this ban applies to alterations in general or just structural alterations. For example, your lease may say, ‘not to carry out any structural alterations or make any structural additions’, which means you cannot carry out any structural alterations. However, if it says, ‘not to carry out any alterations or make any additions’, this is much more extensive and means your landlord can refuse permission for any alterations without giving any reason. They are also allowed to charge a fee for giving you permission.
3. The lease may state that you need the landlord’s permission before making any alterations. As in 2 above, this could apply to all alterations or just structural alterations. Example text you might see in your lease: ‘not to make any structural alterations or structural additions to the property or any part thereof without the previous consent in writing of the lessor’. If there is an RTM (Right To Manage) company, you would need to ask them for permission to make the alterations. If the parties to your lease are you, your landlord and a management company, you may need the management company’s permission to carry out alterations. It’s very important to know the difference between structural alterations and more general alterations. Structural alterations usually involve work to the load-bearing parts of the property but can include non-load-bearing parts if the work would alter the essential appearance and shape of the property. Non-structural alterations are work to the fixtures and fittings in the property. If your lease does not completely ban all alterations, you will need your landlord’s permission, but your landlord is not allowed to refuse permission unreasonably if the alteration would improve the property. Your landlord may give you permission but set certain conditions that you must meet, for example, the need for a formal ‘licence’ to make alterations. Your landlord can charge a reasonable fee for giving you permission to cover their legal and valuation expenses.
There are usually three different ways a lease may restrict your ability to sublet, or there may be no restrictions at all. (Please note that whatever your lease says about subletting, there may still be restrictions on the use of the flat.)
1. If the lease contains no restrictions on subletting, you can assume that you do not need permission to sublet.
2. The lease may ban subletting altogether. Example text you might see in your lease: ‘not to underlet the whole of or any part of the demised premises’. This usually applies to shared-ownership leases where you own less than a 100% share of the flat. Your landlord does not have to be reasonable when refusing permission. This means you will not be able to challenge them in a tribunal on this point. You will only be able to sublet if your landlord gives you permission.
3. The lease may ban subletting only part of the flat. Example text you might see in your lease: ‘not to assign, underlet or part with possession of part only of the demised premises’. If this restriction appears, you are not allowed to sublet anything less than the whole flat, for example, you cannot just let a bedroom.
4. The lease may contain a qualified restriction against subletting, which allows you to sublet the flat as long as you get your landlord’s permission first. Example text you might see in your lease: ‘not to underlet the demised premises without first obtaining the landlord’s consent in writing’. If there is an RTM company, you should ask them for permission. If your lease says that you need permission to sublet your flat, your landlord cannot unreasonably refuse permission. For example, it would be reasonable to refuse permission if you are a commercial tenant and are likely to break the terms of the lease. Your landlord may give you permission but set certain conditions that you must meet, such as applying to them for a licence to sublet. They can also charge a reasonable fee to cover their costs in relation to giving you permission to sublet.
- Use of the flat
Whatever the lease says about subletting, there may still be restrictions on how you can use the flat.
Example text you might see in your lease: ‘not to use the demised premises other than as a private residence in the occupation of a single family only’.
Such a restriction would, for example, prevent you from subletting your flat to a group of unrelated students.
Most leases will also ban you from using the flat in a way that would cause a nuisance to or annoy other occupiers in the building.