Who is responsible for Buildings Insurance?
The responsibility for insurance for the building and common parts will normally fall on the freeholder, but this expense is normally recouped through the implementation of service charges.
What are Common Parts?
Common parts are parts of the building not owned solely by one leasehold occupant. Put simply, they are the common areas such as stairwells, main entrance doors, communal gardens or lifts. The maintenance of these are the responsibility of the freeholder and the cost is shared through service charges.
What is Ground Rent and who pays it?
If you are a leaseholder, it is likely you will have to pay ground rent to the freeholder. Your leasehold covers the cost of your own flat or dwelling; your share of the ground rent is normally divided by the number of flats in the building.
Who is the Freeholder?
The freeholder is also sometimes called the superior landlord. The freeholder owns the building – this includes the individual flats and communal areas. The freeholder leases the individual flats to the leaseholders. If you have bought your flat as a leasehold flat, you will need to renew the lease before it runs out, through agreement with the freeholder.
The freeholder is usually responsible for the maintenance and repairs of the building; however costs for maintenance and repair are usually recovered through service charges. It is not uncommon for freeholders to invoice leaseholders for additional repairs to the building.
Illegal / Criminal Activity
Allegations of illegal and criminal activity (e.g. fraud) should be referred to the relevant authority (such as the police) or regulators (such as Trading Standards) who are empowered to undertake enforcement action. The Ombudsman does not have regulatory powers and cannot consider allegations of illegal or criminal activity.
What is the Lease?
The lease is the official document that sets out the contractual obligations between the freeholder and the leaseholder. If you purchase a property, you are buying the terms of the lease. When a leasehold property is sold and changes hands, the rights and responsibilities of the lease are transferred by the seller to the purchaser.
Who is the Leaseholder?
The leaseholder is the party that is leasing the property subject to the terms of the lease. If you are buying a property on leasehold, unfortunately it is as if you are still renting from the freeholder. You might not be paying rent, but you still have a limited time on your property before you need to renew the lease. Leaseholders should be aware of all conditions set out in the lease. Sometimes the freeholder may grant you a new lease on purchase but it is usually unlikely, because it is easier to manage the leases of all flats if they are concurrent. Leases are usually granted on a 99 or 999 year basis, and it is advisable to renew them before they run down to 20 years, because then the advantage lies with the freeholder. If you are a leaseholder, it is best to negotiate a new lease with your freeholder before that stage.
What does the Letting Agent do?
A letting agent is an estate agent that the leaseholder may instruct to find a suitable tenant. The responsibility of the letting agent may also extend to the management of the property in the absence of the leaseholder. In other words, a leaseholder who has bought a property may not necessarily reside in the property, preferring to rent it out. The leaseholder may ask a letting agent to look for a tenant. The responsibility for dealing with the freeholder nevertheless still lies with the leaseholder. The letting agent is merely the intermediary between the tenant and the leaseholder, and neither the letting agent nor tenant should ever have to deal with the freeholder.
What is a Resident Management Company and what does it do?
If a group of leaseholders intend to amend the management of their property, either through themselves, or through the formation of a new company, they have a legal right to buy the share of their freehold. The Commonhold and Leasehold Reform Act 2002 makes provisions for the governance of a freehold to a company set up by the leaseholders, or to the leaseholders themselves. This allows leaseholders as a group to decide the management arrangements for the building. This is particularly useful if the current leaseholders feel that the management of their property is not to their satisfaction – e.g. if the maintenance of common areas is not frequent, or if freeholders are not seen as being pro-active – and would prefer to have more control over how the property is managed.
How is a Residential Leasehold Management Agent different from a Residential Management Company?
A residential leasehold management agent manages the company and is normally appointed by the freeholder or the resident management company. The fees for day-to-day management are footed by the leaseholders as part of the service charges. If there is an occasion where major works are anticipated, an additional fee may be levied by the agent, and each leaseholder may have to account for a percentage of the total cost of such works.
What is a Residents’ Association?
In the case that leaseholders do not own a share of the freeholder, they may consider forming a Residents’ Association to liaise with the freeholder on such matters. Residents associations are made up of members from the different properties, and have responsibilities and rights, such as the entitlement to be consulted on certain matters such as the appointment of managing agents.
What are Service Charges and who pays them?
Service charges are paid by the leaseholder to the freeholder and usually cover the maintenance of communal areas. The lease normally sets out details of what can and cannot be charged by the freeholder. The proportion of the charge may be divided either equally among the number of flats, or by ground area.
The costs of services should be reasonable and in the event that leaseholders feel they are being unreasonably charged, there is the avenue for them to challenge perceived unreasonable service charges at the First-tier Tribunal (Property Chamber).
Why have Reserve Funds?
A reserve fund, also known as a sinking fund, is a fund from previous accumulated service charges for the payment of emergency repairs or other major works. Many leases allow the freeholder to collect sums in advance for such emergency repairs, or to alleviate the higher cost of future works. The sinking fund or reserve fund is usually capped at a certain amount – that is to say, once it has reached a certain figure – so once that has been attained the service charges for future years may be reduced.
Who has the Right to Manage?
Under the Commonhold and Leasehold Reform Act 2002, leaseholders can have the option of deciding who the management of their building should lie with. If at least half the leaseholders agree about the future managements of their building, then the freeholder cannot legally obstruct the process. That is to say, if leaseholders decide to take on the management of their building, or decide to instruct a managing agent in place of the freeholder instead they are legally entitled to do so if more than half of them agree.
What rights do Tenants of Leaseholders have?
While the block management agent will act in the best interest of their client – usually the freeholder or the leaseholders – they must treat any tenant of a leaseholder fairly and with courtesy. If in doubt, the block management agent should refer to the lease as a reference.