Will reform give owners a new lease of life?

Property experts gave a mixed response to the recent publication of the government's plans for leasehold reform in England and Wales. While ministers presented the draft bill as the answer to leaseholders' prayers, critics said the proposals stopped short of freeing flat owners from the clutches of greedy freeholders.

Closer inspection of the documents reveals that how much owners of leasehold flats and houses benefit from the changes depends upon their particular situation. To test the likely impact of the changes on individuals, Jobs & Money asked property expert Paul Brecknell at solicitors Withers to outline how much of a difference the draft proposals would make when implemented to three hypothetical leaseholders wrestling with common problems.

1 The residents of a Victorian building containing two flats have an absentee landlord. He refuses to properly maintain the outside of the building. Every now and again they are sent bills for work that hasn't been carried out. They are tired of chasing him up with fruitless phone calls.

What could they do now?

Assuming that the landlord has responsibility for repair of the exterior as is generally the case, the leaseholders could apply to the county court requesting that it appoint a manager under the Landlord and Tenant Act 1987.

If the court is satisfied that there has been default on the part of the landlord, it will appoint a suitable managing agent to collect the service charges and carry out the landlord's obligations.

The alternative would be to buy the freehold if both leaseholders agreed to do so and could afford it. This will also involve an application to the county court with the same documentation that would normally apply to a compulsory purchase by the leaseholders of the freehold.

The court will have to be satisfied that at least one leaseholder has lived in his or her flat for the past 12 months or for three years out of the past 10 years. The price payable will be independently established by a valuer and the money paid into court for the landlord.

Of course, if the leaseholders can track down the landlord, they can suggest he appoint a managing agent to manage because he can recover the costs from the leaseholders and it won't cost him anything. Failing his agreeing to that, they can take him to court and force him to carry out his obligations.

What could they do if the reforms are implemented?

The most obvious solution to the leaseholders' problems would be to take advantage of the new right to manage. This is a right for the leaseholders themselves to manage, rather than someone appointed by the court. The application procedure is similar to that which is applied to the compulsory purchase of the freehold.

By taking over the management of the building the leaseholders will be able to administer their own service charges, although the landlord will still have a say in the management of the building by virtue of having voting rights in the management company. The government's proposals in relation to the number of votes the landlord would get in this situation have not yet been fully formulated.

However, in this case it seems likely that the leaseholders would have effective control of the management company even in the unlikely event that the absentee landlord popped up and voted.

2 Two leasehold flats are above a leasehold shop. Once again, the freeholder is absent and refuses to maintain the building. The leaseholders do bits and pieces, but the shop leaseholder refuses to contribute because he doesn't live there.

What could they do now?

The shop owner's lease will generally contain some service charge provisions but these apply only to costs incurred by the landlord. The leaseholders cannot there fore recover any part of the monies they have spent. The most obvious solution here would again be to apply for the appointment of a manager under the 1987 Act to carry out the landlord's function.

What could they do if the reforms are implemented?

Again, the most obvious solution would be to exercise the right to manage. This should allow the leaseholders to take control but a note of caution should once more be sounded in relation to the voting rights in the management company.

The leaseholders would only be able to buy the freehold if the shop premises do not represent more than 25% of the overall internal floor area of the building. However, even if the compulsory purchase of the freehold is possible, it is unlikely that the leaseholders would want to buy the landlord's interest in the shop and end up as the owners of the freehold reversion to that shop.

It may, therefore, be preferable to rely on the 1987 Act right and seek the appointment of a manager under current law.

3 Leaseholders in a block of 30 flats receive frequent demands from their freeholder for maintenance payments. Work has been done but it is sub-standard. The flat owners have got together to write letters demanding to see the accounts but to no avail. They are withholding payments and the freeholder has threatened them with court action.

What could they do now?

The landlord will only be able to require payment if he has complied with the consultation procedures laid down by the Landlord and Tenant Act 1985.

Moreover under the 1985 Act, service charges can only be recovered to the extent that they relate to works of a reasonable standard. The leaseholders could therefore refer the dispute to the Leasehold Valuation Tribunal.

As mentioned, under the current law the landlord cannot seek to forfeit the lease (bring it to an end) without first taking the dispute to the tribunal for resolution, but the landlord could make a claim for the sums owed in the county court.

There is no award of costs in the tribunal but split between a majority of the leaseholders, this would probably be the most economic remedy.

If the landlord were to take the matter to the county court and obtain a judgment to recover any charges at all then the leaseholders could be required to pay some or all of the landlord's costs.

The leaseholders should not withhold payment of all service charges if some are properly due. If they have a good idea of the value of the defective works, they could withhold that element of the charges. This should protect them from an adverse costs order.

Although the leaseholders are demanding to see the accounts, they are only currently entitled to a costs summary certified by an accountant. That would only appear once the year's service charge accounts have been finalised. That could be anything up to 18 months after the costs have occurred. The certification is limited and should not be confused with an audit.

The leaseholders do have the right to inspect and copy the accounts, invoices, etc. that support the costs summary and the landlord must comply with a request to inspect within one month. If the landlord won't oblige, it will be necessary to threaten an application to the court for an order - naturally to include a claim for costs.

What could they do if the reforms are implemented?

The landlord could be required to get an accountant to explain what certification actually involves. One of the leaseholders may have the right to inspect at any time within 21 days of a request to do so.

There may also be a right to withhold payments up to a certain level when a landlord has failed to provide the information required to by law.

Useful links
Campaign for the Abolition of Residential Leasehold


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