CQS-accredited firms must have an effective policy governing the purchase of leasehold property. Section 5.16 of the Core Practice Management Standards makes this a specific area of operational control, not simply a subject to be addressed informally by individual fee earners.
A leasehold policy cannot be prepared for accreditation and then left untouched. Leasehold legislation, lender requirements, building-safety obligations and mortgageability criteria continue to change. A firm’s procedures, supervision arrangements and reporting requirements must change with them.
A current and properly implemented CQS Purchase of a Leasehold Policy should tell fee earners what must be investigated, when an issue must be referred and what the buyer and mortgage lender need to be told.
Why an outdated leasehold policy creates risk
An outdated policy can result in different fee earners applying different standards to similar transactions. It can also leave the firm unable to demonstrate that emerging risks have been considered, communicated and incorporated into everyday practice.
The Leasehold and Freehold Reform Act 2024, its staged implementation and the Government’s Draft Commonhold and Leasehold Reform Bill all require firms to keep their procedures under active review. A policy should distinguish between legislation already in force, enacted provisions that have not yet been commenced and proposals that may change before becoming law.
Future reform must not distract firms from present requirements. Conveyancers must continue to check the applicable UK Finance Mortgage Lenders’ Handbook instructions, including lender-specific Part 2 requirements concerning lease length, ground rent, service charges, mortgagee-protection provisions and the marketability of the lease.
Our earlier article on changes to lender leasehold requirements illustrates why a policy cannot rely on a single set of criteria indefinitely.
What should a CQS Purchase of Leasehold Policy cover?
The policy should provide practical instructions rather than simply repeat broad compliance principles. As a minimum, firms should consider procedures covering:
- the remaining lease term and its effect on value and mortgageability;
- ground rent, rent-review provisions and potentially onerous clauses;
- service charges, reserve funds and anticipated major works;
- management information and delays in obtaining the management pack;
- restrictions on use, occupation, assignment, subletting and alterations;
- repair, maintenance and insurance obligations;
- Building Safety Act considerations and higher-risk buildings;
- the adequacy of mortgagee-protection provisions;
- lender-specific Part 2 requirements;
- underleases and other unusual leasehold structures;
- referrals, conflicts of interest and escalation procedures;
- reporting clearly to the buyer and mortgage lender; and
- post-completion notices, certificates and registration requirements.
The policy should identify who is responsible for each stage, what evidence must be retained on the file and when the matter must be referred to a supervisor.
Lease length, value and mortgageability
The unexpired term affects more than the buyer’s ability to obtain a mortgage. It can affect value, the future cost of extending the lease and the pool of potential buyers when the property is sold.
The firm’s policy should require the remaining term to be calculated accurately and considered against both the client’s intended ownership period and the mortgage lender’s instructions. It should also identify when specialist valuation or lease-extension advice may be needed.
Fee earners should not rely on a general office rule that a particular number of years is always acceptable. Lender requirements vary and can change. The relevant lender’s current instructions must be checked on every financed transaction.
Ground rent and other financial obligations
The policy should address the amount of ground rent, the review mechanism, the frequency of increases and the potential effect on mortgageability. It should also require proper consideration of service charges, reserve funds, anticipated major works and any unusual administration or consent fees.
An obligation may appear affordable on the completion date but still create a problem on a later sale or remortgage. The client should understand both the present cost and the possible future effect.
Where escalating or onerous ground rent is only appreciated years later, it may be necessary to establish what the lender required and what the buyer was told at the time. WhenIBought.com explains the practical problems that ground-rent provisions can create after purchase.
Building safety and leasehold transactions
Building-safety issues cannot be dealt with by adding a single generic paragraph to the policy. The appropriate investigation and advice will depend on the building, the lease, the status of the parties and the information available in the particular transaction.
The policy should explain when additional documents or enquiries are required, how potential liability for remediation or other costs should be investigated, when the lender must be informed and when the matter should be escalated to an experienced supervisor.
It should also require fee earners to record the advice given and the client’s instructions. A checklist entry confirming that building safety was “considered” is not a substitute for evidence of the actual investigation and advice.
Reporting clearly to the leasehold buyer
The client needs to understand the practical consequences of a leasehold provision, not merely that the provision exists. A report that reproduces part of the lease without explaining its effect may not enable the client to make an informed decision.
The Report on Title should distinguish between:
- the legal position;
- the practical consequence for the buyer;
- the mortgage lender’s requirements;
- any available options or protections; and
- any decision required before exchange.
This links directly to the wider need to manage client expectations throughout the conveyancing transaction.
Firms should also ensure that their reporting precedents remain current. The e-ROT Notification Service provides monthly suggested paragraphs that firms can consider adding to their existing Report on Title precedents.
Change control: proving that the policy is current
A CQS Purchase of Leasehold Policy should contain a clear change-control record. This demonstrates that the firm is monitoring developments, considering their effect on its work and implementing necessary changes.
The record should not simply list dates and version numbers. It should explain why the review took place, what changed, who approved the amendment and whether further training or changes to precedents were required.
| Review date | Version | Reason for review | Action taken | Approved by |
|---|---|---|---|---|
| [Date] | [Version] | Legislative or regulatory change | Policy and relevant procedures reviewed | [Name or role] |
| [Date] | [Version] | Lender requirement changed | Referral and reporting requirements updated | [Name or role] |
| [Date] | [Version] | File audit or complaint finding | Guidance, supervision and training revised | [Name or role] |
| [Date] | [Version] | Annual scheduled review | Outcome and any amendments recorded | [Name or role] |
Where a review identifies a material change, the firm should also consider whether its checklists, standard enquiries, Report on Title paragraphs, training material and file-audit criteria need to be updated. Changing the policy alone will not improve practice if the change is not communicated and implemented.
Why clear leasehold reporting matters years later
The consequences of inadequate leasehold investigation or reporting may not become apparent until years after completion. An owner may only discover the significance of a short lease, escalating ground rent, defective provision or absent freeholder when they try to sell or remortgage.
WhenIBought.com provides practical information for owners who discover property problems after purchase and are questioning what they were told at the time. Its leasehold topics include short leases, ground rent, defective leases, absent freeholders, service charges and building-safety issues.
The possibility of a later sale or remortgage should inform the advice given at the original purchase. A report that merely reproduces lease wording without explaining its practical effect may leave the client unaware of a problem that becomes significant later.
Is your firm’s leasehold policy still effective?
A CQS Purchase of Leasehold Policy should be a working document. It should produce consistent investigation, clear referral decisions and practical advice to clients and lenders.
Firms should now ask:
- When was the policy last reviewed?
- Does it reflect current legislation and lender requirements?
- Does it cover the principal leasehold risks encountered by the firm?
- Do fee earners know when and how to escalate an issue?
- Are the policy, checklists and Report on Title precedents consistent?
- Can the firm demonstrate that changes have been communicated and implemented?
If the policy has not been reviewed recently, the answer should not be to wait for a CQS assessment, lender audit or complaint. The firm should review the document, record the outcome and address any associated changes to its procedures, precedents, supervision and training.
Firms that require a structured starting point can review the CQS Purchase of a Leasehold Policy template.