Quick block management guide – leasehold properties

QUICK BLOCK MANAGEMENT GUIDE – LEASEHOLD PROPERTIES

INTRODUCTION

Buying a leasehold flat comes with its own rights and responsibilities. Therefore, it’s important to know what the ownership structure is and what rights and obligations come with the ownership of the property. This document will help you understand

• residential leasehold
• your legal rights and
• your responsibilities

UNDERSTAND LEASEHOLD PROPERTY

Leaseholds are purpose-built flats; the ownership of a leasehold property is simply a long style tenancy. The contract period would be referred to as the term of the lease, which is normally for 99 to 125 years and must be renewed once it’s close to expiry.

The ownership of a leasehold property means everything within the four walls of the flat is owned by the leaseholder, however, the land on which the structure is built is owned by the landlord or the freeholder. The landlord is responsible for the maintenance of the development built on the land it owns. However, the costs for this maintenance are recoverable through service charges which are invoiced to the leaseholders and reported on through service charge accounting. The landlord can be a company or a person, the leaseholders can also purchase the freehold of the building and be considered as the leaseholders and landlords of the property. A landlord will normally appoint a property management company for the efficient running and maintenance of the development.

WHAT IS A LEASE AND WHY IS IT NEEDED

The lease is a document which produces a contract of agreement between the landlord and the owner, giving the owner conditional ownership for a specific period. It is important to have a copy of your lease if you do not have one you can get one from the Land Registry or the solicitor who helped you purchase your property.

The lease sets out the prescribed duties of both parties, the landlord and the owner. The obligations of the leaseholder will be to pay the ground rent, the costs of maintaining, insuring and managing the development. The lease should also confirm the responsibilities of the landlord which would generally include being the maintenance of the development, collections of service charges and providing an accountability report confirms how the service charge has been used, usually in the form of service charge accounts.

When a flat is sold, the seller transfers the lease over to the buyer including the rights and responsibilities.

WHAT IS A PROPERTY MANAGEMENT COMPANY?

Landlords usually appoint a managing agent to manage the landlord’s responsibilities on their behalf, as set out in the lease. A property management company will preserve the development, collect service charges from leaseholders and prepare and send out accounts to confirm how the development has been maintained, and the usage of the leaseholder’s funds. The accounts prepared are either prepared in-house or outsourced to specialist service charge accountants. These accounts are also certified by specialist service charge accountants confirming that the funds have been used as stated in the service charge accounts.

Service charge accounts must be issued to all leaseholders within 6 months of the year-end of the property, the year end is stated within the lease document. Any delay beyond these 6 months must be covered using a section 20b notice to make sure that compliance with the lease remains.

A final surplus or deficit invoice is issued with these accounts which must be paid by the leaseholders to the landlord. As a leaseholder, you need to make sure that the accounts have been certified by service charge accountants who specialize in service charge accounting and understand the industry to be able to review and flag things which can be of concern.

WHAT ARE YOUR RIGHTS AS A LEASEHOLDER?

As the leaseholder, you have the right to quiet enjoyment of your property. In addition to the use of the property you also have the right to expect that the landlord will maintain the building in which you have your property and the common parts.

WHAT ARE YOUR RESPONSIBILITIES AS A LEASEHOLDER?

You must make sure the flat is kept in good order, the common areas are used with proper respect, no structural changes are made without the consent of the landlord and that the property is not sublet without appropriate consent from the landlord.

KEY TERMS YOU SHOULD KNOW ABOUT

Ground Rent: As the leasehold can be considered a tenancy there is a need to make a rental payment to retain the rental rights. Normally the ground rent is rent paid to whoever owns the land on which the leasehold development is built upon.

Service Charge: The landlord is responsible for maintaining the development, service charges are collected from the leaseholders to carry out effective maintenance of the development.

Reserve Fund: Reserve funds are collected in the form of advance payments to make sure there are enough funds for future major works.

Managing Agent: These are property management companies who specialize in managing developments on behalf of the landlord.

Right to Manage: If a group of leaseholders who meet certain conditions decide they want to change the management of their property they can do so by using right to manage.

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