What is a Retention When Buying a Leasehold?
A retention when buying a leasehold is money held back by either the buyer or seller's solicitor, in order to pay a future liability of the seller. They can be tricky to negotiate; the wording often causes issues in the future, and administering a retention can take a lot of time. However, for a buyer, if your solicitor gets it wrong, it'll be you who is out of pocket.
In this article, we'll explain the types of leasehold retentions, how much money should be held back on completion, and how long a solicitor can hold a retention.
What is a retention in UK Conveyancing?
A retention is a legally agreed sum of money, usually between £200 and £500, that will be held in the client account of either the seller or the buyer's solicitor after completion. The retention isn't paid to the seller along with the other sale proceeds. It is being held back for use against a potential future liability.
The retention is held for a set period or time, or at an event in the future. The reason the retention is needed is that at the time of completion, the seller cannot confirm 100% that there isn't a liability they have to pay.
Examples of leasehold retentions
Type of retention | Frequency | Details |
Service charges | Very common | This is the most common. Service charge retention means the service charge accounts have not yet been finalised, and there is a risk that the seller may owe money related to their ownership of the property. If the accounts were done, these would be handled as apportionments; as they are not, a retention will be required. |
Ground rent | Uncommon | Having unpaid ground rent is very uncommon. It could arise if the freeholder is absent and hasn't served a ground rent demand on the seller to pay the rent. |
Major works | Uncommon | Where a Section 20: Major Works notice has been served, but it doesn't include a budget for the costs of the works. |
Expert Tip: Don't worry - the money can't go anywhere
The buyer shouldn't worry if the seller's solicitor holds onto the retention because the money isn't held by the seller; it is held by their solicitor within their client account. A client account is protected by the Solicitors Accounts Rules, or for Licenced Conveyancers, the CLC Accounts Code.
The retention cannot be released to the seller without the terms of the clause being adhered to. Well, that's unless the retention clause is poorly worded, and I'll come onto this later.
Andrew Boast FMAAT
CEO of SAM Conveyancing
The deficit risk: Why are retentions necessary?
The need for retention comes down to how block management companies run their finances. They operate on an estimate-and-adjust system:
The estimate
At the start of their financial year, the managing agent issues an estimated budget based on predicted costs (cleaning, lift maintenance, insurance). Leaseholders pay this throughout the year.
The real cost
Months after the financial year ends, the accountants finalise the actual expenditure. If costs overrun the budget (e.g., an emergency roof repair is needed), a service charge deficit bill is issued. It is this final bill that the retention is intended to cover the seller's share.
The problem for the buyer
It routinely takes managing agents between 6 and 18 months after the year-end to produce these finalised accounts. Legally, the freeholder or managing agent will always demand payment for a deficit from the current registered owner of the flat. Without a conveyancing retention clause, you could complete your purchase in March, receive a massive shortfall bill in October for repairs carried out the previous year, and have no legal way to force the seller to pay it.
What is the leasehold retention process?
To successfully protect both parties, conveyancing solicitors follow a strict step-by-step timeline when managing a leasehold retention:
Reviewing the enquiries
The buyer's solicitor reviews the LPE1 Leasehold Management Pack and identifies an unfinalised financial year, raising the risk of a future deficit bill that belongs to the seller.
Agreeing the retention sum
The buyer's solicitor formally requests a retention (typically between £200 and £500). Both legal teams negotiate and confirm an amount capable of covering the estimated shortfall.
Drafting the contract rider
The buyer's solicitor drafts a special condition (a rider) inside the contract. This legally binds the seller to the retention rules, sets a sunset clause deadline, and details how the funds will be released.
Completion & ring-fencing funds
On completion day, the buyer takes ownership. The agreed retention sum is deducted from the sale proceeds and remains frozen inside the seller's solicitor's secure client account.
Finalising accounts & releasing the balance
Once the managing agent publishes the final audited accounts, the solicitors determine if a shortfall exists. If a deficit is billed, it is paid directly out of the retention. Any remaining surplus is immediately forwarded to the seller.
Expert Tip: Better to hold back more than less
A retention is ring-fenced on completion specifically to settle the seller's outstanding liabilities, so ensuring the sum is sufficient to cover any eventual bill is vital. Because there is no fixed statutory amount for a leasehold retention, the final figure must be negotiated between the buyer’s and seller's solicitors during pre-contract enquiries.
This negotiation often becomes a balancing act: the seller naturally wants their equity released and pushes for the smallest possible retention, while the buyer wants a larger safety net to eliminate personal risk.
To determine a fair and reasonable amount, your solicitor will carefully review the Leasehold Management Pack (LPE1 form). If the historic accounts show that the block management company consistently overspends its budget, or if major cyclical works are currently being priced up, your solicitor will firmly insist on a higher retention sum to ensure you are fully protected.
Andrew Boast FMAAT
CEO of SAM Conveyancing
What does a retention rider look like?
Considering how important this financial retention is, some solicitors don't draft the rider as thoroughly as they should. This rider has clear deadlines for the seller and buyer to adhere to and avoid waiting for the retention to be released:
a. The seller shall pay up to the Completion date all amounts outstanding in respect of the service charge, ground rent and buildings insurance demands and will forward to the buyer's solicitor, if evidence of payment has not already been supplied, within 14 days of completion receipts in respect thereof.
b. The seller and the buyer hereby agree and authorise their respective solicitors that on completion the sellers solicitors will retain the sum of £500 (five Hundred pounds) (“the retention”) in respect of the discharge of any liability of the seller to the Landlord up to the Completion date pursuant to the provisions of the Lease apportioned on a daily basis for the current accounting period or in respect of any excess demanded for a previous accounting period.
c. Within 10 working days of the finalisation of the accounts and upon production to the buyer's Solicitor of evidence of any such liability, the Buyer's Solicitor shall immediately inform the Seller's Solicitor of the amount due, and the seller's solicitor will release the retention in discharge of such sums.
d. If no demand has been made by the buyer's solicitor within 18 months of the legal date of completion, the sellers’ solicitors shall release the retention to the seller without further notice to the buyer's Solicitor.
What is a clean break clause?
Due to the high administrative burden caused by managing a retention, and the sheer length of time it can take for a management company to publish finalised accounts, some parties opt for an alternative strategy: accepting an allowance alongside a clean break clause. A typical clause looks like this:
“Upon completion, the seller shall make an allowance of £500 from the purchase price by way of a contribution towards any potential excess service charge which may fall due and owing by the Seller in respect of any period up to the date of completion. Both the seller and the buyer agree that this arrangement constitutes a clean break regarding any balancing service charge deficits or credits which may or may not arise following completion.”
While this approach is incredibly efficient and completely eliminates the post-completion waiting period, it comes with a distinct gamble. If the agreed allowance is too small and the seller's actual historical liability ultimately exceeds that figure, the buyer has absolutely no legal recourse to claw back any further money from the seller.
Frequently Asked Questions About a Conveyancing Retention
Andrew Boast FMAAT is a qualified accountant, conveyancing specialist and author with over 25 years of experience in the UK property sector. Since beginning his career in 2000 within established SRA and CLC-regulated conveyancing solicitor firms, Andrew has overseen the legal journeys of more than 75,000 clients.
He is the self-published author of the first-time buyer guide: How to Buy a House Without Killing Anyone, and a frequent contributor to mainstream UK media on legislative updates, property law, first-time buyer guides, conveyancing best practices, and stamp duty changes. Andrew specialises in resolving complex title issues, property conflict disputes, and property tax options, streamlining the enquiry process to reduce transaction times and maintaining a client-friendly focus.
Amanda Ambler is a highly accomplished conveyancing specialist with over 15 years of dedicated experience across residential property law, legal compliance, and practice management. Having held senior roles, including Head of Legal Practice and Head of Conveyancing at established UK law firms, Amanda possesses a profound, hands-on understanding of the technical intricacies of the property market.
As the designated Legal Content Reviewer for SAM Conveyancing, Amanda ensures that every guide, legal update, and resource published meets the absolute highest standards of accuracy, regulatory compliance, and factual integrity. Her rigorous review process guarantees that complex property legislation and industry processes are communicated clearly, transparently, and safely for home buyers and sellers alike.
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