LEASEHOLDERS’ RIGHTS AND OBLIGATIONS

A lease is an important document and therefore all owners and prospective buyers of leasehold property should ensure they have a copy available to refer to. A lease, which is a legally binding contract, transfers possession of a flat for an agreed fixed period of time and usually gives the leaseholder use of or access to any communal areas. The lease also sets out the rights and obligations of the landlord and the leaseholder and in some cases another named party such as the manager. The lease will normally specify who is responsible for maintaining different parts of the building and its terms may limit how the property may be used, for example, it may prevent or restrict business activity.

It may also contain conditions regarding the sale or transfer of the lease; the landlord may have the first option to buy the leasehold interest and leaseholder may require permission from the landlord prior to sale. This arrangement common where the landlord is a charity or a registered social housing provider, also known as a housing association.

The lease will usually require the leaseholder to pay ground rent to the landlord and will also require leaseholders to reimburse the landlord or appointed managers for any expenditure incurred maintaining the building, through service charges and often by contributions to reserve funds.

A new owner generally only acquires the remaining time left to run on the original lease. However, some leases require the ‘surrender and re-grant’ of the lease which means that a new owner will obtain an entirely new lease term starting from the purchase date.

The lease will expire automatically at the end of the term but most long leaseholders will have a statutory right to continue in occupation as rented tenants at the end of the lease term. They will also have statutory rights to extend their lease or buy the freehold with some of the other leaseholders. (Please see the LA Information Sheet 113 Enfranchisement).

There is no standard form of lease despite the fact that most leases will include similar terms and conditions. Leaseholders need to become familiar with their own lease, perhaps with the help of a professional adviser, in particular with regard to their rights and obligations and those of their landlord. Residential leases within the same property and where the leaseholders are contributing towards the same service charges will usually be substantially the same. This means their leases would be virtually identical apart from individual leaseholder’s personal details and the date and length of term.

In the event of enquiries or disputes, the leaseholder should first refer to the lease itself, and seek professional assistance before deciding what, if any, action to take. The Leaseholder Association (LA) provides to its members with advice on interpreting residential leases.

What are a leaseholders' rights and obligations under a typical lease?

As mentioned above, many leases will contain different terms, especially those relating to specialist types of property such as retirement housing and although it is not meant to be an exhaustive list most leases will include the following rights and obligations:

Leaseholders’ rights (in addition to the statutory rights set out below):

Leaseholders’ obligations (in addition to all of the statutory obligations):

Landlords’ rights (in addition to the statutory rights set out below):

Landlords’ obligations (in addition to the statutory obligations):

What statutory rights does the leaseholder have?

This is a summary of the statutory rights leaseholders have which will be additional to the contractual rights set out in the lease for their particular property:

Please see The LA information sheets 111 Lease Extensions, 113 Enfranchisement and 117 Right of First Refusal for a full explanation of the collective rights listed above.

What is ground rent?

Ground rent is a payment made by a residential leaseholder to the landlord as an obligation set out in the lease. The lease will state the amount of ground rent for the duration of the lease and it will clarify the date of an increase, if any, or a formula for reviewing this rent. Most long residential leases require ground rent to be paid on a particular date and possibly in a specific way, whether or not the landlord has demanded payment from the leaseholder. However, changes to legislation now mean that landlords must serve a written notice in a prescribed form on a residential leaseholder on each occasion ground rent becomes payable.

The demand in the form of a written notice must specify:

This demand for ground rent, must also include:

The date specified for payment must not be less than 30 days before or more than 60 days after the date of service of the notice, or before it is meant to be paid in accordance with the lease. Unless the leaseholder has previously notified the landlord of an alternative address, the notice must be sent by post to the address of the house or flat to which it relates.

The landlord is prevented from making any additional charge in respect of the ground rent unless they have served a written notice and the ground rent remains unpaid after the due date. The landlord is also prevented from beginning forfeiture action, which means to re-enter and take possession of the property, without issuing a Section 146 written notice and the ground rent remains unpaid after the due date.

The landlord cannot begin any legal action for recovery of ground rent, including action for forfeiture and possession, unless the demand notice has previously been served in the correct format, given the required period of notice, and the leaseholder has failed to respond.

What might happen if charges are not paid by a leaseholder?

Although there is no specific legislation relating to housing debt recovery, there is useful good practice guidance in the government approved codes of practice for the landlord or manager to follow and it is expected they will have their own procedures for dealing with this matter.

These procedures might include the following:

In cases where a leaseholder has arrears and these continue to accrue in order to avoid legal costs and to minimise any distress leaseholders are advised to seek independent advice, e.g. from The LA, a housing advice centre, citizens’ advice bureau, the Leasehold Advisory Service or a solicitor.

What enforcement action might be taken?

If a leaseholder does not keep to an agreed payment arrangement or fails to keep in contact with the landlord or manager to try to resolve the arrears problems, they may find that one of the following enforcement options is taken for recovery of the debt:

In cases where a leaseholder has passed away, the landlord or manager may agree to defer payments of charges until the property can be sold or perhaps let. However, this concession is discretionary and the landlord or manager retains the contractual right to take action for recovery in accordance with the lease.

What is forfeiture?

If a leaseholder breaches any of the terms of the lease the landlord may have a contractual right to begin action to forfeit the lease and recover possession of the property. However, the legislation offers leaseholders some protection in these circumstances. Where a leasehold property is still lawfully occupied neither the landlord nor any other party acting on their behalf can re-enter the premises without obtaining a court order. A landlord is also required to serve a notice, known as a section 146 Notice, before exercising the right to forfeit the lease.

The process usually will start with the landlord serving a valid notice under section 146 of the Law of Property Act 1925, the Notice of Seeking Possession. This must provide the leaseholder with details of the alleged breach and give the leaseholder the opportunity to remedy the breach or to compensate the landlord for any effects of the breach. If the action relates to non-payment of service charges, the landlord is unable to start forfeiture action unless the charge has been either agreed or admitted by the leaseholder or determined by a court, FTT or by arbitration.

Where the landlord begins forfeiture action, the steps to be taken are:

There are a number of opportunities during the legal proceedings for the leaseholder to deal with the matter and therefore avoid forfeiture of the lease.

What restrictions are there on forfeiture action?

The landlord cannot serve a valid Section 146 notice to begin forfeiture action unless:

Administration charges for non-payment of the outstanding amount will not be taken into account in determining whether the £350 limit has been exceeded.

Although forfeiture or action seeking repossession may not take place, a landlord may seek to recover arrears by other means, such as the small claims court. Therefore leaseholders should not withhold amounts below the ‘£350 figure’ that are reasonable for the landlord to demand in the mistaken belief that no action can be taken.

Although there is no legal obligation for this, some government approved codes of practice recommend that where forfeiture action has been taken and a property repossessed and sold, a landlord should repay the value of the forfeited lease to the former leaseholder, subject but not limited to the following deductions;

What are the leaseholders’ rights to information about their landlord?

Although the details should be provided as a matter of good practice, the landlord must:

What is a management audit?

Most leaseholders have the right to arrange for a management audit to scrutinise all of the management functions carried out by the landlord or appointed manager. Leaseholders have to meet the full cost of a management audit which will not only include the costs of employing the auditor but also the reasonable costs of the landlord or manager in dealing with the audit. It is mainly for this reason The LA would not advise its members to arrange a management audit until all other methods of trying to obtain relevant information have been exhausted. The LA may help its members in this respect by means of its conciliation services.

This right applies to all long leaseholders who pay variable service charges but must be carried out by a suitably qualified person. Where there are only two properties, one or both leaseholders may exercise the right. If there are more than two, the right must be exercised by at least two-thirds of the long leaseholders. The right to management audit does not allow long leaseholders or their representatives to carry out any investigations of their own into the activities or practices of the landlord or manager.

What is the objective of a management audit?

The main purpose of management audit is to ascertain whether the landlord is carrying out their management obligations required by the lease and by statute in an efficient and effective manner. The audit can apply to any aspect of the management and it can be used to investigate whether service charges are being spent in an economical way.

The auditor can carry out an inspection of the common parts and scrutinise any documents relating to the property. As the management audit can be used to identify discrepancies and obtain evidence of inadequate management, this evidence may be valuable in court or at an FTT. The right to management audit does not in itself provide any specific remedies to problems but it does supply leaseholders with information:

The management audit must be carried out by a qualified surveyor or accountant, who is neither a tenant of any property in the building in question and who does not have any connection with the landlord or manager. The legal right to management audit requires the appointed auditor to serve on the landlord a notice that has been signed by each leaseholder who is supporting the audit.

It should be emphasised that the management audit itself does not provide any redress and leaseholders may find they will still need to apply to a court or FTT if they have found evidence of irregularities or that the level of service charges might not have been reasonable.

What is Appointment of a Surveyor?

The right to appoint a surveyor is only available collectively to a formally recognized Tenants' Association (TA). Individual leaseholders, regardless

of whether they are a member of a recognized TA, do not have this right.

Once appointed by a recognised TA the surveyor has legal rights to scrutinise the landlord's documents and to inspect the common parts. The TA members would be responsible for the full cost of employing the surveyor.

Conclusion

Please see the LA information sheet 101 Glossary for a precise explanation of the terms used in this information sheet. In general the lease will add to the leaseholder’s legal rights and in most circumstances the terms of the lease would not have priority over the relevant legislation. It is essential for all prospective buyers of flats to have basic knowledge of the legal rights and obligations relating to leasehold property and for them to be aware of the terms of their lease and its implications.

Disclaimer: This is a very general explanation of the subject. Where issues are not governed by statute the information is our opinion or best practice. You are advised to seek professional advice before acting on the guidance contained herein. Whereas The Leaseholder Association endeavours to ensure that published information is correct, it does not warrant its completeness or accuracy. The Leaseholder Association assumes no responsibility or liability for any injury, loss or damage incurred as a result of any use or reliance upon the information and material contained herein.

Info Sheet: 119/3/15 ©Copyright

We are a not-for profit organisation who provide on-going support and advice to prospective and current leasehold owners. We only represent leaseholders, giving you confidence that your interests will be represented fairly and justly.

The Leaseholder Association is a not-for-profit company limited by guarantee. Registered in England 11015513

copyright© 2017 Leaseholder Association. All rights reserved