CQS Leasehold Purchase Policy (Sept25)

Purpose

The purpose of this policy is to ensure that buyers of leasehold property (including those being granted a new lease) are properly advised about the extra risks and issues that apply to leasehold property. You must observe the principles set out in this policy when acting for such buyers

Scope

This policy applies to all staff in The Eric Whitehead Partnership that are subject to compliance with the Conveyancing Quality Scheme (CQS). For the purposes of this policy, the term “Staff” means all members of The Eric Whitehead Partnership staff including permanent, fixed term, and temporary staff, any third‑party representatives, agency workers, volunteers, engaged within the business under CQS.

This policy is in line with Requirement 5.17 of the CQS Core Practice Management Standards, Version: 23 February 2022 (effective from 1 May 2022).

Know your limits

Leases are technically demanding. If you feel out of your depth on any issue and do not feel able to provide competent advice to the client, you must ensure that your supervisor or another more experienced colleague reviews the file and provides guidance on how to proceed.

Failure to consider and advise on the matters covered by this policy may result in a complaint, a claim in professional negligence or in the firm being removed from a lender’s panel.

When opening any file relating to a leasehold (whether a sale or purchase), the description of the matter must identify that it is a leasehold transaction so that the SRO is aware of each and every leasehold matter opened, and can review whether we wish to accept the instructions in a timely manner.

Advise buyers about key factors

1. Identify all factors and potential risks in the lease which are likely to affect a client’s decision to proceed. This includes risks of a kind which may be obvious to you but which the client may not appreciate.
2. Advise the client – this advice must:
   • be given before the client commits to buy allowing them sufficient time to read it and raise any questions;
   • be fully and competently brought to their attention preferably in a single report (and not contained in numerous separate emails for example, where the client may overlook it);
   • be put both in writing and raised verbally with the client.
   • the written report must be full, clear and accessible. Part of that is ensuring that only plain English is used and that legal language is fully explained, (preferably by reference to a standard list of common technical terms which is supplied with the report to the client) and is only used when necessary.

Advise mortgage lenders

Where a purchaser client is buying with the aid of a mortgage, and you are acting for both the purchaser and the lender, it is important to remember that the firm owes a duty of care to both clients simultaneously.  A lease which is acceptable to a purchaser client may nevertheless be unacceptable to a lender client. Instructions given by each client, and advice to be given to each client, must be considered separately.

Issues which may call into question the acceptability of the security, such as the lease term, doubling rents and rent review period should be raised with mortgage lenders as early as possible, and certainly before the buyer exchanges contracts to buy.

In acting for a lender, you will be guided by the relevant sections of Part 1 of the UK Finance Mortgage Lenders’ Handbook For Conveyancers and the specific requirements of Part 2 of the Handbook as to what is acceptable.

Acting for cash buyers

When acting for a purchaser client who is a cash buyer, you should still have regard to the requirements of the UK Finance Mortgage Lenders’ Handbook. These set a minimum benchmark of good conveyancing practice and commercial acceptability. Cash buyers still need to be fully informed as to the matters which may influence a future mortgage lender, as this will affect the saleability of their property. Further, cash buyers may later wish to take out a charge against the property.

Risk areas which you must advise clients about:

• Leasehold houses

There is generally no good reason why a house (as opposed to a flat) should be held on a leasehold basis. Until recently, some housing developers have used very one-sided leases, with onerous provisions about escalating ground rents, etc. The Leasehold and Freehold Reform Act 2024, in a provision which is due to come into force on a date TBC, introduces a ban on leasehold tenure on the sale of newly built houses (with some exceptions).

Existing leaseholds will however stand even when the Act comes into force, although leaseholders will benefit from increased rights. It is essential that you ensure that any buyer of a leasehold house is fully advised about the implications of leasehold ownership and focus on any onerous clauses in the lease.

• Clients unfamiliar with the concept of leasehold title

You should assume that clients are unfamiliar with the difference between leasehold and freehold ownership and the leasehold concepts of, for example, the requirement to pay an annual ground rent, and the diminishing term of the lease. It is therefore vital that you provide a clear written explanation as to the difference between a freehold and leasehold property so that clients fully understand what they are buying and the implications of this (see the template advice letter to a buyer client about a lease below for an example of how to do this).

Many clients will not be aware of the statutory rights that are available to acquire the landlord’s interest in the property or may not appreciate the cost. If the right to buy the freehold is important to the client, they need to understand that we cannot provide a valuation, and they should consult a specialist valuer.

For risk management purposes, ensure that the file fully records exactly what information and documents were sent to the client and keep copies in case this is questioned later.

• Short leases

Clients must be advised on the acceptability or otherwise of the length of term remaining on an existing lease or the length or term being offered by the landlord on the grant of a lease.

Where a lease has less than 80 years to run or may feasibly be in this category within the clients’ period of ownership, they should be advised in writing on the implications of the lease term with particular reference to the marriage value, the right to enfranchise and the associated costs. Clients should also be advised that it may be necessary to seek an extension to the lease in order to maintain the property’s value should they wish to sell or remortgage the property in the future. This ancillary information may be provided in a generic advice document which could also explain the right to acquire the freehold and the right to manage.

Acceptability for a lender client will be governed by the lender’s requirements in Part 2 of the UK Finance Mortgage Lenders’ Handbook. Acceptability for a purchaser client includes not only the acceptability to the purchaser but also to the purchaser’s lender.

• Ground rent

All clients should be told the amount of any current and future ground rent reserved by the lease, and how that will impact on them in the future e.g., upon saleability, mortgageability, future value.

It is important to be aware of the Leasehold Reform (Ground Rent) Act 2022 (‘the Act’) and to ensure that all qualifying residential long leases (with a term of more than 21 years) entered into from and including 30^th June 2022, which you are advising on, comply with the terms of the Act. These include:

• If any ground rent is demanded as part of a regulated new residential long lease, it cannot be for more than one literal peppercorn per year, which has no financial value.
• Landlords are banned from charging administration fees for collecting a peppercorn rent.
• Landlords who require a payment of ground rent in contravention of the Act will face penalties of between £500 and £30,000 enforced by way of a civil penalty regime.
• For existing leaseholders entering into voluntary lease extensions not by way of surrender and re-grant after commencement, the existing rent continues during the ‘excepted period’ (s6(3) of the Act), and thereafter the rent for the remainder of the new term is one peppercorn.

Where a leasehold sale will result in the purchaser taking on the remaining term of the lease with the existing ground rent stipulations, the 2022 Act does not apply.

It is particularly important to draw clients’ attention to any provision for substantial increases in ground rent, even if they will take effect years in the future, and the method for calculating any increase in ground rent.

Lenders have no objection to a lease which contains provision for a periodic increase of the ground rent “provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable.”

Conveyancers are not in the best position to advise on whether increases are reasonable or may materially affect the value of the property and should therefore report increase provisions to both lender and purchaser clients.

Advise on the possible valuation implications of the both the initial ground rent payable, and the provisions in the lease for the variation or increase of the ground rent.

Ensure the ground rent cannot rise to a level whereby the lease can be regarded as an assured tenancy under the Housing Act 1988. This creates the risk, where the lease contains a forfeiture clause, that the landlord may be able to terminate the lease and recover possession of the property under ground 8 in Schedule 2 of the Housing Act 1988. Where this risk is already present in an existing lease, clients must be advised of it and any ways in which risk may be alleviated (by way of a deed of variation of the lease, or an indemnity insurance policy providing sufficient cover for the clients’ interest).

• Service charge

Advise the client about their liability for service charges. That should include the amounts currently payable and what may be payable in future, to whom the service charge is payable, what can be charged for and whether there is provision for a sinking or reserve fund.

This is just one particularly important aspect of the advice one would always give about the arrangements for the management of the building or estate.

• Cladding and fire risk/ other potentially dangerous construction issues

This is of particular importance for clients purchasing flats/ apartments in high-rise buildings.

 Advise the client and lender of any potential fire and cladding risks related to the construction of the building. Recommend that they refer to a fire safety expert for advice on building safety and the likely costs involved.

Client should also be advised of other potentially dangerous construction issues, such as balconies and Fire Risk Assessments (FRA), EWS1 Certificates – the valuation assessment to enable lenders to decide whether to lend.

It is important to have an awareness of and to advise clients, as appropriate, about the following:

1. The key piece of primary legislation being the Building Safety Act 2022 (that came into force on 1^st April 2023) as well as other primary and secondary legislation e.g., Building Regulations 2010 and the Fire safety order 2005;
2. Government advice notes on fire safety;
3. Potential sources of government funding for sellers with fire safety problems affecting the sale.

• Other onerous provisions

Ensure the lease contains no other onerous provisions (e.g., forfeiture on the occasion of the tenant’s insolvency, obligations to repair the property or seek the freeholder’s permission to alter the property).

Ensure generally that the terms of the lease do not contravene any of the requirements of the UK Finance Mortgage Lenders’ Handbook. Fee earners conducting this kind of work should be fully aware of the requirements of the relevant lender under both Parts 1 and 2 of the Handbook.

Advise clearly and in writing

Advice on major issues and their practical and financial implications must be clearly brought to a client’s attention, at the earliest possible opportunity in a single document, rather than contained in a long, written report, where they may miss it. Important matters should be both put in writing and raised orally with the client.

You should ensure that the tone, volume, presentation and content of all such communications is appropriate to the client. Bear in mind that first time buyers will not be familiar with the conveyancing process. You may have to adapt your approach depending on your client: remember the SRA Code of Conduct for Solicitors, RELs and RFLs requirement at 8.6  that you give clients information in a way they can understand.

Leasehold report/advice letter to buyer client about lease

A leasehold report is a highly technical document, and the contents should be unique to the transaction at hand. As a starting point, the report should advise the client on the following areas:

• length of the lease
• current ground rent
• increases in ground rent
• service charge
• other onerous terms/key information
• other matters which are specified in the lender’s requirements regarding leasehold transactions.

The template below may be used when advising about leases and will help ensure you consider the main issues. Add more detail as appropriate to the needs of the case.

Template advice letter to a buyer client about lease

Dear …

I need to make sure you are aware of the following aspects of the lease of the property you are buying. You should only proceed if you fully understand and are happy with these issues.

It is very important that you fully understand the financial and practical implications of buying a leasehold property.

Purchasing a leasehold property means you will own the property for a fixed term but not the land upon which it stands. The land generally remains with the freeholder or landlord who created the lease and, in purchasing the property, you agree to the terms of the lease granted by the freeholder/landlord.

This is opposed to the purchase of a freehold property where the new owner will own the property outright, including the land that it is built on.

Owning a leasehold means there are likely to be restrictions on what you can change or alter in the property, without first obtaining the freeholder/landlord’s permission and they may require a fee to be paid before providing this. Some leases stipulate that permission is only required for major works whilst others may state that you require permission for any work. The restrictions which apply to the lease in question are [insert detail, including whether a fee is payable to obtain the necessary permission].

It is vital that you understand the terms of the lease you are buying and consider whether you are prepared to accept the implications of this for however long you own the lease for.

It is also important to understand that the nature of the tenure (i.e., it being a leasehold property and the limitations that come with this) is reflected in the price and to be aware that a property being leasehold may impact on the open market value you are likely to achieve in the future, should you go on to sell the property, and whether the property is likely to be an attractive proposition to attract prospective buyers in the first instance. There is also the likelihood of being able to obtain a mortgage in the future to consider (which often depends on factors, such as the number of years left to run in the lease – see below for further information).

Length of the lease

The lease has [?] years to run. You should be aware that once a lease has less than about [85 to 90] years to run, it can be more difficult to obtain a mortgage and the property tends to be worth less on the open market than a longer lease. At this point, you should think about asking the freeholder/landlord to extend the lease for a significant amount of time or whether they would be open to you buying the lease (although note, to be eligible to buy the lease, you must generally have had a long lease with a low rent within an original term or 21 years with a right to renewal which you have held for the past two years).

You can ask the freeholder/landlord to extend the lease at any time, however it is important to note that you only have the legal right to renegotiate the terms of your lease if you have held the property for two years and it was originally leased on a “long lease,” which is usually more than 21 years. Extending or buying your lease can be an expensive and complicated process, particularly when solicitors and surveyors are involved, which is recommended to ensure the process is handled correctly.

Also note, when the lease falls below 80 years, it will cost more to extend it as ‘marriage value’ is included in the formula used to calculate the premium to be paid for the lease extension. [add a brief explanation of what marriage value is and the likely financial impact for the client].

Current Ground Rent

The annual ground rent is [£?]. This is payable to [?] by [insert method] and is currently paid [up to date/is in arrears].

Increases in Ground Rent

The ground rent will increase as follows [insert detail, including any exponential effect of clauses which provide for rents to increase periodically by a fixed amount e.g., doubling]. This is [/is not] likely to significantly affect the value of the lease in future.

Service Charge

A service charge is payable to support [the insurance of the property, maintenance of common parts of the building / continue as appropriate].

The service charge in recent years has been [?]. This does not guarantee what the future level of the service charge may be, therefore you will need to budget appropriately to ensure that you can afford any future increases to the service charge. [Continue as appropriate including advising whether or not it has been possible to obtain information about likely future service charges.]

Other Onerous Terms/ Key Information

The lease has the following terms which are non-standard, and to which I need to draw to your attention.  [Continue as appropriate].

[I also need to advise you about insert detail of any other key information which is appropriate to the particular lease].

[Other matters which are specified in your lender’s requirements regarding leasehold transactions

Add detail, if applicable]

Please contact me if you have any queries about the contents of this letter. Please note that we are not valuers so we can only alert you to legal issues, not estimate their impact on the market value of the property.

Yours sincerely…

File and risk reviews

The requirements of this policy will be checked as part of the firm’s periodic file review process, and as part of the file closing risk assessment process.

Review of this policy

This policy will be reviewed by the CQS SRO on an annual basis.

September 2025