Leasehold Issues

LEASEHOLD PROPERTY MANAGEMENT: ALL YOU NEED TO KNOW

According to Land Registry data, the number of properties sold under a leasehold agreement soared last year. This increase happened despite a government ban on leaseholds for almost all new-build houses.

Leasehold flats still dominate – in fact, leasehold is by far the most common form of flat ownership, with only 2.13% of flats sold in 2017 were freehold.

The leasehold system seems here to stay, so what will the increasing numbers of leaseholders actually own and what are their rights?

For further information and guidance on Leasehold Issues Click [HERE]


RIGHT TO MANAGE

WHAT IS RIGHT TO MANAGE (RTM) The Commonhold and Leasehold reform Act 2002 allows leasehold tenants to remove the company which manages their apartments and either manage the building themselves or replace it with a better management company.

Acquiring the Right To Manage (RTM) is an alternative to buying the Freehold because it is cheaper and quicker. There is no purchase price to pay as you would not be obtaining any legal title to the land, you would just be exercising your rights under the legislation. One usual advantage to purchasing the Freehold is that the residents would not have to pay any ground rent.

HOW MUCH DOES IT COST I have seen advertisements  where companies typically charge £35 per apartment (including VAT) subject to a minimum charge of £500.00 DO YOU QUALIFY FOR RIGHT TO MANAGE (RTM)

1 If there is a commercial unit within the building which is more than 25% of the total floor area within the building then you will not qualify for Right to Manage (RTM).
2 At least 2/3 of the apartments within the building must originally have been let on long leases of at least 21 years or more.
3 At least 50% of all apartments must participate in the Right To Manage (RTM) Scheme.

PROCEDURE

1 The first step is to set up a Right To Manage (RTM) company.
2 The Right To Manage (RTM) company must then serve notices on all the non participating apartments owners.
3 After 14 days of serving the notice on the non participating apartment owners, a further notice is served on the Freeholder.
4 The Freeholder has 1 month to respond with a council notice either accepting or rejecting the Right To Manage.
5 If the Freeholder accepts our Right To Manage they will set a date for the acquisition of our Right To Manage which is approximately 3 months after the council notice date.
6 The whole process from beginning to end usually takes 4/5 months depending on the number of participating apartments.
7 Any funds held in a sinking fund or reserve fund must be transferred from the Landlord to the Right To Manage (RTM) company on the acquisition date.

RESPONSIBILITIES OF THE RIGHT TO MANAGE (RTM) COMPANY The management of the building can either be carried out by the Right To Manage (RTM) company or an external management company can be appointed. If the external management company do not meet your requirements they can be sacked and a new management company appointed. If the management of the building is carried out by the Right To Manage (RTM) group then they will need to arrange such things as

(a) To take out an appropriate building insurance. (b) Arrange maintenance contracts for the Building (c) Monitoring and payment of utility bills.

ADVANTAGES OF RIGHT TO MANAGE (1) Typically savings of between 30% and 60% can be achieved on the maintenance charges (2) Resale values of properties should increase on the basis of not being tied to a specific management company.

USEFUL LINKS It’s worth checking out the following links.
https://www.redbrickpm.co.uk/blog/leasehold-property-management-need-know/
https://www.allagents.co.uk/om-property-management/
http://www.moneysavingexpert.com/mortgages/buy-freehold-right-to-manage http://leaseholdadvicecentre.co.uk/Collective%20Enfranchisement.htm?gclid=CM2M9bbToc8CFYgy0wodoEAH-A https://www.gov.uk/leasehold-property/buying-the-freehold http://england.shelter.org.uk/get_advice/leaseholders_rights http://www.freeholdcalculator.com/home.php


SECTION 20 NOTICE

What is a Section 20 Notice and what are they for?
Section 20 of the Landlord & Tenant Act 1985 (as amended by the Commonhold & Leasehold Reform Act 2002) sets out the three-stage consultation procedure with which to follow when carrying out qualifying works to your building where the contribution from any one lessee exceeds £250, or a qualifying long-term agreement where the contribution from any one lessee exceeds £100 in one financial year. If your Residents’ Management Company (RMC) is looking to carry out works, or enter into a long-term agreement of this nature, then consultation must take place with all lessees. If there is a Recognised Tenants’ (or Residents’) Association (RTA), then you must include them within your consultation.

Stage One
For qualifying works, under Section 20 you would be required to serve a “Notice of Intention to Carry Out Works” upon all lessees. The Notice must generally describe the proposed works, state the reasons for considering the proposed works, and invite leaseholders to make written observations within 30 days. The correspondence address for observations should be stated within the Notice as well. The importance of the Notice of Intention is that it offers lessees with the opportunity to provide the name of a contractor from whom the Landlord/RMC should try to obtain an estimate for the proposed works.

Stage Two
At the expiration of the 30 day consultation period, at least two estimates should be obtained: one of these estimates must be from a person completely independent of the Landlord/RMC. If nominations were made within the consultation period, then estimates should have been obtained from at least one of these nominations. The Landlord/RMC must then provide a “Statement of Estimates” which sets out the details of estimates that have been obtained and a summary of observations received within the consultation period. Any estimates that have been obtained must be available for inspection by the lessees, including estimates obtained from nominated contractors. A “Notice to Accompany the Statement of Estimates” must also be served in conjunction with the Statement of Estimates, which sets out the hours and place where details of the estimates may be inspected, inviting lessees to make written observations on the estimates within 30 days, specifying the address to which those observations should be sent.

Stage Three
If, at the expiration of the consultation period, the chosen contractor did not provide the lowest estimate, then a “Notice of Reasons” must be served upon all lessees. This essentially states the Landlord’s/RMC’s reasons for awarding the contract. It is worth noting that if a nominee is chosen to carry out the works, and they didn’t provide the lowest estimate, then although the requirements of Section 20 have been fulfilled, it would be prudent to serve a Notice of Reasons because that estimate could be tested for reasonableness by the Leasehold Valuation Tribunal (LVT) under Section 19 of the 1985 Landlord & Tenant Act.

For long-term agreements, the procedure is essentially the same, however Stage 2 is referred to as a Notice of Proposals. For instance, an agreement such as an intercom maintenance contract isn’t just about the cost of the maintenance, but the number of visits per year, frequency of visits, number of staff per visit, inclusions/exclusions of service etc.

In the event that the consultation procedure is not followed correctly and the Landlord/RMC is successfully challenged at the LVT, then the maximum amount recoverable from lessees under the service charge is £250 for major works and £100 for long-term agreements.

For fully comprehensive information on Section 20 I would recommend looking at advice guides on the LEASE website.

4 thoughts on “Leasehold Issues

    1. I totally agree with you. It only applies in England and Wales which basically speaks volumes in that the government is probably afraid of upsetting some very powerful people. It was abolished in Scotland and Ireland some time ago. We can keep trying but I don’t think it likely that a change will occur in our lifetime.

  1. Call for evidence by Government November 2017 Protecting consumers in the letting and managing agent market

    This evidence is submitted by Pocketts Wharf Residents Association (PWRA), representing a block of 48 flats and maisonettes located in the Marina, Swansea.

    Preamble
    There is currently a lot of publicity around the need to reform the leasehold system in England and Wales. We are aware, and supportive of, the Leasehold Knowledge Partnership’s (LKP) role as the secretariat of the All Party Parliamentary Group for reform of leasehold and commonhold.

    We support the Leasehold Bill introduced by Justin Madders MP in his 10 minute rule bill on 7 November, simplifying the formula for calculating cost of extending a lease, and adjusting the unfair practise that ALL the legal and technical costs be met by homeowners wishing to do so.

    We believe that, as already implemented in Scotland and Northern Ireland, the system of leasehold should be abolished in Wales and in England.

    Managing Agents – the need for reform
    1. Regardless of the outcome of current debate about the need for reform of leasehold, there will still be a need for mechanisms for managing and maintaining blocks of flats such as ours. Our observations exclude circumstances where homeowners have made their own arrangements to manage and will be, as such, self-regulating and may not require overarching industry regulation.

    2. Kelly Tolhurst MP, also on 7 November 2017, introduced a debate, recorded in Hansard, on the need to address the imbalance of power between homeowners and the fees payable to Property Management Companies. We agree with the concerns expressed by a number of MP’s throughout the debate in particular “there is no onus on the property management company to provide any evidence of the services they are charging for being carried out. They merely need to provide end-of-year accounts long after the end of the year”.

    3. Sally Keeble listed the following concerns on which action is required following her resignation as the Regulator of ARMA – the Association of Residential Property Managers:-
    The need for management contracts between homeowners and their Property Management Company (PMC)
    The need for transparent and fair procedures in the use of in house and associated companies by a PMC
    Banking requirements for client and company funds
    Responsibility for Health and Safety
    Long term maintenance

    4. We agree that these concerns need to be addressed. The introduction of mechanisms which resolve the concerns expressed by Sally Keeble would go a long way to eradicating the problems which are presently rife within the property management industry.

    Pocketts Wharf Residents Association views
    PWRA is submitting a brief response to the call for evidence – to show our support for the need to change the relationship between Property Management Companies(PMC) and individual homeowners, AKA leaseholders.

    PWRA defers to the competence of LKP and their expertise, and supports without hesitation any submission made by LKP in response to the call for evidence.

    PWRA’s Managing Agent is a company called First Port – previously known as Peveral, who were previously named OM Management. We understand this serial rebranding occurred because of bad publicity attached to the company’s poor practises. Examples of these poor practises are well documented by LKP.

    As homeowners, legally bound by the terms of our lease to hand over our service charge, we submit there is a need for greater accountability and transparency in the calculation, collection and spending of our money.

    When purchasing a lease on a property, we believe the lease details should itemise the areas of work to which the service charges apply. This should include a schedule for maintenance, annual, periodic and long term and the implementation/replacement terms in number of years.
    The reserves built up in this way, for planned major works ( e.g., external painting, replacement of lifts, resurfacing car parks, repair and replacement of car park roller shutters and replacement of windows – whatever) should be ring fenced. A record should be kept of the intervals in which these works are undertaken.

    Annual estimates and year end accounts produced by managing agents should be clear and transparent for all costs to be charged. Expenditure against the reserve fund should be identified. There should be a mechanism as of right for residents to dispute and/or agree these estimates.

    PMC’s should provide best value when purchasing services e.g. insurance, particularly where they propose to use related companies. Residents should have the right to nominate local suppliers of services where the PMC is unable to justify their choice of supplier

    The Right to Manage (RTM) should be automatically made known to homeowners when they buy their property.

    The process of RTM should be far less onerous, and the homeowners should not have to bear ALL the costs of all parties, something which has become a money-spinner for the PMC’s and a financial barrier and unfair burden to homeowners.

    PMC’s can and do exploit the ambiguities of the Data Protection Act. Data held by the PMC should be made available for the purposes of exploring the Right to Manage as well as for collective enfranchisement and to form a Residents Association.

    The contact details of other homeowners within a given block, held by the Managing Agent in the course of collection of Service Charges, should be accessible to a Residents Association. This is a reply we received (17/3/17) to our request:- In relation your request for details of all other residents,  regrettably this is not possible to provide you with this personal information, The  Data Protection Act 1998 Cleary sets out very strict rules on giving out such information.

    We attach a copy of one competitive tender which illustrates the concerns we express. The tender is for resurfacing an external car park, and the lowest tender was submitted following extensive representations by members of PWRA to include this supplier. The difference between the lowest £18,522 and the two tenders from suppliers selected by First Port at £95,760 and £98,744 is frightening. It also illustrates that the more of our money the Managing Agent spends, the more management fees they collect. This goes against the maxim of providing best value to the resident owners who hand over their service charges.

    As resident owners, our submission is focussed on mechanisms we believe would better empower us as the owners of leasehold premises. We have included examples to illustrate our concerns. We believe the concerns listed above by Sally Keeble MP cover the main areas on which action is required.

    Elen Pierce
    Prepared on behalf of PWRA
    24 November 2017

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