Guidance and Information for Residential Leasehold Block Management

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.

Buying a property? Some information for buyers

Buying a property can be like navigating a minefield. Here is some information you should know when considering a purchase.

Access
If the agent holds the keys, agency staff should accompany those who are viewing and anyone else requiring access, unless the seller gives authorisation to the contrary.

Advice
An agent will offer appropriate advice, explanations and assistance to all regardless of age, race, religious belief, gender, sexuality, ethnicity, or disability.

However, bear in mind an agent’s duty of care is to his client.

Agency Agreement
Types of agreement the agent may offer:

Sole agency which means that if contracts are exchanged with someone who your agent has introduced to the purchase, the agent will be entitled to the fee.

Sole selling rights which means that if contracts are exchanged with someone who your agent has introduced or was introduced by another agent or with someone you yourself introduced during the agency period the agent will be entitled to a fee.

Multi agency which means that you have instructed a number of agents and agreed that the agent who introduces the buyer to the purchase will be the one who is entitled to the fee. Note that multi agency fees are generally higher than for a sole agency.

Ready, willing and able which means that if someone is demonstrably ready, willing and able to purchase your property (even if an exchange of contracts does not occur) then the agent will be entitled to a fee.

Ensure that you understand:

The fee that will be charged and whether it is based on a sliding scale or a fixed amount.

How long the agreement runs for; how you can terminate it and with what period of notice is required.

Whether you will have any continuing liability to the agent for a fee if you do terminate the agreement.

The options open to you regarding the preparation of the Energy Performance Certificate (who will supply it and the cost).

The arrangements for boards and whether the agent will accompany all viewings or is expecting you to conduct some or all of them.

In particular you should:

Understand that you when you sign the agreement you are entering into a legally binding contract under which you may be liable for fees.

Ensure that you have read and understood the terms of the agreement and the commitments you have entered into. Do not feel pressured into simply signing it and be aware that if you sign the document in your home or at your place of work you are entitled to cancel it within 14 days.

Make sure that you receive copies of all relevant documents such as the agreement, terms of business and the final sales particulars after you have approved them in draft form.

Associated Services
You are not required to use any associated service which is offered by the agent. You are entitled to use your own financial adviser, legal representative and surveyor. Refusal of additional services should not prejudice any offers or viewings made through the agent.

If the buyer accepts services offered though the agent, the agent must inform the seller in writing of those services.

Buying a Flat
When buying a flat the estate agent should provide you with information such as the level of services charges. Further information can be found in the TPO Code of Practice for Residential Estate Agents and here.

Duty of Care
An agent will always work in the best interests of their client, that is to say the person who is paying for the estate agency services (usually the seller). An agent should treat all those involved in the proposed sale or purchase fairly and with courtesy. If the agent or one of his staff has any personal or business interest in the property, this must be divulged as soon as possible in writing.

Energy Performance Certificate
The agent should advise the seller about his obligations to obtain an energy performance certificate, prior to marketing begining.

Buyers can ask to see the energy performance certificate for the property.

Fees and Charges
An agent must inform you in writing, before you agree to use his service, what fees (including VAT) are payable and when they are due. Fees must be clear and transparent.

Financial Checks
An agent will ask sellers to provide proof of identity, as required by the Money Laundering Regulations 2007. Buyers will be asked for similar information, along with details of their funding for the proposed purchase at the point an offer is made.

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.

The Legal Representation
A licensed conveyancer or solicitor and will progress the formalities of the sale and determine with you the potential dates for exchanging contracts and completion.

The Mortgage Provider
If you require a mortgage to buy the property you may be dealing with a bank or building society, either directly or through an adviser. The agent is not allowed by law to give you any financial advice but he might refer you to an adviser with which he has links or which is a separate part of the same company. The agent will not have access to the records of the mortgage provider or adviser and has no control over the progress of any mortgage application.

Marketing
The agent must describe the property as accurately as possible and not misrepresent the details.

Agents are legally bound under the Consumer Protection from Unfair Trading Regulations 2008 to describe a property truthfully and provide material information to allow potential buyers to make an informed transactional decision. Sales particulars should give a general description of the property and will highlight, for instance, the type of heating, double glazing installed, or appliances or furnishings that may be included in the sale. The agent will not have tested any facilities but if they are of particular importance to you it is wise to question the agent further and he can ascertain the relevant information from the seller on your behalf.

Negligence Claims
Negligence is a term with a legal meaning and only a court can decide if an agent’s actions or inactions were negligent. The Ombudsman cannot decide claims of negligence and cannot speculate on what a court may decide. Consumers should seek legal advice if they wish to pursue a negligence claim.

Offers
The agent must record all offers received and pass a written copy of the offer promptly to the seller. The agent must not conceal, misrepresent, withhold or delay communicating offers.

The agent should confirm your formal offer in writing to you and whether the seller has accepted that offer.

It is the seller who decides whether to accept an offer; to reject an offer; when to stop marketing the property after an offer has been made, and to whom to sell the property to and at what price. The agent can only guide the seller in this regard, it is not his decision. The agent is working for his client, the person selling the property.

Pre-Contract Deposits
As a general rule, estate agents should not take pre-contract deposits. However, in the case of new home sales, agents may take into account specific instructions from sellers. If a deposit is taken, then a written receipt must be given, and the circumstances under which the deposit is held and any interest accrued are refundable, must be clearly stated in writing. Unless the agent’s client has provided written authority, agents should not deduct any costs and charges from any client’s money. In Scotland, agents are not allowed to accept pre-contract deposits.

Role of the Estate Agent
He is instructed by the seller of the property but has a responsibility to treat any prospective buyer fairly.

The agent is required to act in the best interests of his client. The agent will ususally conduct a market appraisal, draft sales particulars, ensure an energy perfomance certificate is in place, agree a marketing strategy and undertake viewings, whilst receiving and passing on offers. The agent has no control over the legal process but will generally assist in checking on the progress of the purchase and, if agreed, in handing keys over on completion of the sale.

‘For Sale’ Boards
The agent must ask if the seller wants a ‘For Sale’ board to be displayed and ensure that only one board of the correct size is displayed for each property.

Boards must not be displayed in areas where they are not permitted.

Sale by Tender / Buyer Pays Fee
Sale by tender/buyer pays fee is an alternative commercial practice that has developed across the industry with a number of agencies employing it as a way of attracting business by offering sellers their agency services for reduced or zero cost fees. Under this approach the agent enters into an agreement with a seller to market a property whereby offers are submitted through a sealed bid/tender process.

Prospective buyers submit their offers to the agent having entered into an agreement to meet the agent’s fee liability which is over and above the agreed price for the property.

Sealed Bids
The process whereby the agent asks all potential buyers to make a ‘sealed’ offer to be received by a certain date and time. The agent will ‘open’ the offers at the designated time and advise the seller accordingly. The seller will then choose which offer to accept. The seller and the buyer retain the right to withdraw from the purchase thereafter.

Survey and Valuation
The surveyor or valuer will be engaged by the prospective buyer or their mortgage provider and will offer various types of surveys from a general valuation report to a structural survey. Unless the mortgage provider specifies otherwise it is the buyers choice as to the type of survey undertaken.

Terms of Business
All agents must give their clients written Terms of Business. The agent must clearly explain all fees and charges and tell you if any fee will be payable if you withdraw your instructions to sell the property.

Viewings
The agent must seek and act on the seller’s instructions about how viewings should be conducted.

Reasonable notice should be provided to the occupants of the property, prior to the viewing taking place.

If you can think of anything else we may have left out, leave a comment and let us know!

The Dispute Resolution Process

What is the purpose of The Property Ombudsman service?

It is a dispute resolution service between consumers and property agents. The advice offered by the property Ombudsman is free, impartial and independent.

Property agents are encouraged to sign up with the property Ombudsman for various reasons. A membership with it shows an agents’ professionalism in the sense that they are committed to the professional standards, thereby increasing the customer’s confidence in them.

In the event of a dispute, the ombudsman service saves both property agents and customers time and money through the cost of legal fees and legal procedure. The advice is free. And the fact that the infrequent aspects of disputes are taken up by the Ombudsman means that agents are free to concentrate on the real aspects of their business, in marketing, maintaining, renting and selling property.

Complaints Procedure
As one of the terms of membership, property agents have to have some formal complaints procedure in place for customers who may be dissatisfied with their work for some reason. This procedure must of course be in writing and should not only explain how customers can file a complaint, but also that if they are dissatisfied with how it has been investigated, they can take their complaint on to the Ombudsman. It goes without saying that this procedure must be made available to the complainant upon request.

The Code of Practice detailed by the terms of membership has specific timescales for complaints resolution that estate agents must adhere to. In the event of a dispute the Ombudsman will use these established timescales for reviewing if complaints have been dealt satisfactorily by the agent.

When a complaint is received by an agent, the person receiving it should make some form of acknowledgement so there is a record that the complaint has been noted at the property agent’s. It gives a “start date” from which resolution can begin.

If a complainant has been made either by telephone or in person, a record including important details such as the date and time must be noted. At this point the complainant should be provided with a copy of the in-house complaints procedure.

If the complaint has been made over the phone, this copy of the complaints procedure should be sent to them.

If the complainant has visited to make the complaint in person, a copy should be given to them immediately.

At this stage the emphasis is on recording issues formally, so that at a later stage there is no ambiguity over the nature of the complaint, or what was said by whom.

In both cases property agents should request that the complaint be put formally in writing, giving the name of the individual to whom the complaint should be addressed, so that the matter can be promptly investigated. An acknowledgement of the written complaint should be despatched within three days, while the timescale for an investigation and for providing a full response should be within fifteen working days.

If the latter timescale is unable to be met, then the complainant should be provided an estimate of how long it would take for the investigation to be complete.

It is a good practice that complainants have to file their complaints in writing. Not only does this provide a record of the specific issues they are seeking redress over, so that the property agents and – if necessary – the Ombudsman can investigate, it also is a way of ensuring that the complainants are clear themselves over the particular issues that have led them to complain in the first place. In addition, the work of having to formally file a complaint is a way of ensuring that the matter is one of signifcance.

What can count as a complaint?

A complaint could both be over a belief of inaction or malpractice. This means a consumer can make a complaint over something they believed a property agent should have done but didn’t, or one in which the action was wrong. For example, a tenant could make a complaint over property repairs that were promised but have yet to happen. Or the same tenant could make a complaint if repairs to a property were not up to standard.

Any complaint received should be treated seriously even if the property agent’s general feeling is that is has no weight. The complaint must be dealt with in accordance to the above procedures, and the agents must remember to follow procedure.

Property agents must remember to request that verbal complaints are put to them in writing.

A complaint should be dealt with by a senior member of staff who was not directly involved in the transaction. This ensures that there is no bias in the investigation. If the matter remains unresolved after fifteen days, another review should be sent up the chain to the Managing Director or Senior Partner or Principal. Similarly, this person should have had no previous involvement to ensure impartiality in the process.

But what about the case of practitioner firms, where one person runs the whole show? The sole practitioner must clearly state to the complainant and later the ombudsman (if the matter is subsequently referred) the level of their involvement in the matter to ensure that the level of impartiality is set out from the onset.

 

In some cases, property agents may wish to make some financial recompense towards the complainant to make restitution in the matter. The goodwill offer should always be appropriate to the matter, as an offer that is desultory only serves to inflame tensions.

The Ombudsman always encourages quick resolutions of disputes, because it is a positive process from which both parties can move forward. This does not mean, however, that the Ombudsman always encourages financial recompense. But in cases where complainants file a dispute because of work not done, or not up to standard, a goodwill offer to make good the matter may be a more healthy way forward for both parties, rather than be dragged into legal matters where the time and energy spent trying to apportion blame and responsibilty may outweigh the size of the claim.

If the complainant accepts the goodwill offer in full and final settlement of all complaints, the Ombudsman will consider the matter closed and settled.

However, if a complainant does not acceptable the goodwill offer, either because it is not appropriate to the size of the matter in dispute, because he or she feels that the property agent has not addressed the complaint fully, the matter can be referred to TPO. It some cases where both parties indicate a willingness to settle, but are finding difficulty in reaching a settlement, the Ombudsman may be able to mediate, subject to the approval of both parties. Neither party has to accept this, and in this instance the complaint will proceed to a formal review.

 

If – in the initial instance – TPO is contacted before complainant gives the property agent a chance to resolve their problem in accordance with their complaint procedures, TPO will refer them back to the agent to give them a chance to resolve the matter first.

After fifteen working days, the investigation should be complete and a final viewpoint letter should be issued to the complainant. The purpose of this final viewpoint letter is to provide a written statement which clearly expresses the property agent’s final view on all the complaints raised, and should include mention of any goodwill offers made.

Additionally, it should make the complainant aware that they may refer the matter to TPO if they feel the matter has not been resolved. The final viewpoint letter from the agent should also advise complainants of the timescale for bringing a complaint to TPO.

The final viewpoint letter is a first summative stage of the complaints process. And while it is a summary of the interactions between property agent and complainant, it can be said to form the starting point of TPO’s investigation, if the matter is passed up the chain. It would be easier for TPO, hence, to see that a final viewpoint letter has the date when the complainant has completed the in-house complaints procedure, and what the agent tried to do to clarify the issues considered under that procedure. It should also advise the complainant of subsequent options.

The final viewpoint letter should be headed as such, so it is clear to the complainant that they have completed the procedure, and if they wish to pursue the matter further, they have to go to TPO.

If fifteen days are not enough for the property agent to investigate the complaint, and if progress in the investigation has not been forthcoming, the Ombudsman can take up the complaint even without a final viewpoint letter.

 

The assumption so far in the above is that the complainant is a tenant and the dispute is against the property agent for work not done or work not done to an acceptable standard. But the fault may not necessarily always be entirely of the property agent. Sometimes a complainant, the tenant, may file a complaint but a dispute may have arisen directly or indirectly of certain actions, such as when the tenant has not paid fees such as rent. In cases where there are outstanding fees, the Ombudsman will make the complainant aware that legal action for recovery is possible and within the legal rights of the property agent, and the Ombudsman will suggest that the fee, or any uncontested part of it, is setlled on a “without prejudice” basis.

If property agents are considering legal action to recover fees under a contract, the Ombudsman may either escalate the case for review before the court date, or suspend the review pending the court decision. In the latter case, any subsequent review will only deal with aspects of the complaint not determined by the court, as the Ombudsman does not override and cannot override any matters dealt with by the court.

Property agents need to submit a copy of their company file, which contains certain documentation commonly used to review complaints is listed here. These are confidential and are not released to the complainants, unless the Ombudsman feels copies of relevant documents not previously seen by the complainants may be necessary for them to understand the reasons for his decision – in which case, it is legal for the complainant to see the relevant information.

Upon review, if the Ombudsman supports the complaint, property agents have 14 days to either accept, or appeal the decision. During this time property agents may appeal if they consider that there is a significant error in fact or new evidence that will have a material effect on the decision can be produced.

Both agents and complainants will be informed of the result of any further consideration.

The complainant is given 28 days in which to accept, not accept or make their own representation.

If the Ombudsman does not support the complaint, the complainant will first be contacted in writing about the proposed decision, and given 28 days to produce significant new evidence with bearing on the case or show there is a significant error in fact in the judgement.

The Ombudsman will consider any further representation and if the complainant accepts the proposed decision it becomes legally binding. But if the complainant does not respond to the proposed decision any award will then lapse and the case will be closed Nevertheless, complainants will be free to pursue their complaint elsewhere, but, the Ombudsman’s decision will no longer valid and cannot be used to support any further action.

For those who are new to the property ombudsman service, it is akin to a small  claims tribunal for matters around property.

The property ombudsman aims to mediate between smaller disputes outside of the court, thereby resolving them more quickly and freeing up court time.

Even though the property Ombudsman may make recommendations for awards up to twenty-five thousand pounds, the  average compensation figures were around three to six hundred pounds.