What to do when buying a flat

---

A few thoughts for the flat buyer.
You will make your own decision about decor, lifestyle, and location, but there is a lot more than that to the price you offer.
What you will read below may have little effect on that, but can very often have a substantial, and even scary, effect on the initial agreed price. A vendor may not agree to a reduction, happy to try again, and, as you will lose money and time and your dreams and plans dashed, you might compromise.
EAs often play on this, encouraging the tough questions to be asked later and “sorted by solicitors” who in turn often only highlight the big issues late in the day. Similarly your survey and valuation and request for information from managing agents or freeholders can take a couple of weeks and important issues come to light late in the process.

As you can see the assumption is that the price is accurate and legally physically and organisationally, all will be well. The problem is that where it isn’t, you are often on the back foot in renegotiation as your move and all the related changes will be planned.

What I outline below runs contrary to established routines but will help you, and not the EA or vendor, so be patient persistent and polite with them.
It is important to try and extract the information needed from the vendor at the negotiation stage, as it is often to hand or available online with better managing agents or freeholders, and not later.

Step I What you can’t See -understand that you are going to need to check, with professional help, the hidden issues of services and utilities, the plumbing boilers and electrics.
Step 2 Revisit - the property and locale several times especially in the evening and weekend; inconsiderate neighbours, not enough parking and people lurking nearby might not be apparent on a Wednesday afternoon.
Step 3 Is “what you see, what you get?”- roof terraces gardens might not be included so ask the vendors or EA to confirm that there is right to use it or own it, a few pots shrubs and a deck chair doesn’t mean that the roof is yours or that space to park doesn’t mean you can.
Step 4 Its never too early to Read the Lease- this is favourite put off by EA’s anxious to sell and have you on the backfoot when issues arise. The lease is available online at the Land Registry and some Vendors might even have a copy.
-Length of the Lease- A flat with 122 years and an identical one next door with 75 years have vastly different sale values, which is often not taken into account by the EA’s “ valuation” for sale. It is essential that the lease, no matter who owns the freehold, is long enough to be a long term investment for you. You are buying the lease of a flat for X years which in theory is handed back at the end and is therefore a valuable long term investment. Postponing that by extending the length means that the landlord ( whether a freeholder or residents group that own the freehold) must be compensated. That makes big difference to your offer and if the lease is offered with an interest in the freehold, there is no guarantee that the extension is “free”.
-Ground Rent - this is a mandatory payment and can vary from a peppercorn a year, to several £000, which, in many modern leases is regularly, and often hugely, increased. Not only is this, for you, a lot for nothing, it can significantly increase the cost of a lease extension.
-Restrictions- Just because you own it doesn’t mean that there are no restrictions on pets, the right to let it out, alterations, or installing the devils floorboards-laminate flooring.
-Who Does What- you are buying a drawer in chest of drawers and in most cases someone else is responsible for the rest and you pay a share for that. Even in small converted houses that does not mean that the work can be done DIY or by hiring a Chum and costs are therefore often higher and out of direct control.
In some cases you are buying a layer of a cake and are responsible for the walls and often a roof or foundation and drains. That may be advantageous,. But can the nice but penniless old lady above afford to maintain the roof, even if she wants to?
-Is there Someone At the Wheel-It is important to understand who and how this takes care of the building and if it is effective as it has a big effect on the service charges and while “ we just sort it out between us” sounds attractive, it can mask problems with agreement and cost sharing, plus dangerous amateurism on wasted money on inexpert work inadequate insurance cover and in appropriate priorities.
Poor planning can lead to surprise bills, huge ones at that, and the friendly cooperative can explode with arguments that linger for years. External freeholders are just as likely to surprise you too. In the former you might well have more input, but the risk is that nothing gets done, while in the latter needed work is normally pushed through, so signs of good coherent management is a must. I
-Service Charge- Service charge information looks at the current and previous years estimated charges, the budget, and the actual charges that are compared to the estimate at year end, in one form or another of accounts, and any difference refunded or billed to you. Remember these are in most cases an estimate which you pay in advance to allow the owner or their agent to arrange for and pay for works, not after the work has been done. You should try to get the current if not at least three years of the budgets and accounts.

-The Survey- it is important to add to your own look round the building and grounds, to specifically ask the surveyor to identify what needs doing, in the future, and how much it might cost. That will affect the service charge, and who does what- something might be a specific flat owner’s responsibility and not a communal one- and how well the building is or will be maintained.

Be wary of informal friendly arrangements as they can explode when the roof has to be done and the chap of the GF refuses to pay. This applies equally to modern new build and old converted piles covered in moss.
-No such thing as share of freehold- you will own the lease of your flat and that is what you will own and borrow on and sell in future. There are two main setups for the building ownership/management
1 a landlord/freeholder or a residents group with joint ownership of the building or via company in which they have a share or are a member of.
2 A tripartite lease where an intermediary takes on all or most of the management of the building and can be a company owned by the residents or a company that owns and manages premises, and historically a person such as a trustee or chartered surveyor
All of these may employ a managing agent acting for them.
There are also right to manage companies, owned by residents, and tribunal appointed managers, where the control has been removed from the freeholder. In social housing, management might be provided by the council a housing association or a tenants management organisation- TMO.
Residents Associations are commonly referred to in error as they are rarely in control and in fact are only advisory and consultative bodies. Their role and control should be verified.
Making The Offer
Let me restate that the initial offer/price might not reflect problems and affect saleability and the price.
The EA and Vendor will insist that this is dealt with later as
a you will be out £1000s time and dreams and likely to compromise
b the Vendor need not agree to any reduction and try their luck with a less astute buyer
Step 1 Make your offer
- subject to Survey
- verification of the SC GR and lease length and
- what you see IS what you get

Step 2 Instruct Your surveyor to inspect immediately even if it means paying again for the mortgage valuation
Step 3 Tell your solicitor not to use their standard procedure and urgently
-obtain a copy of the lease and report on it to you
-immediately seek the managing agent/freeholder enquires( there will be a fee)assuming you only have some of it so far fomr public sources and or the vendor.
That way your offer, and any issues, are quickly addressed early on, as the other job that a solicitor does in reporting on title, the contract and related enquiries, local searches, and carpets and curtains create fewer problems less often.

This approach may only take a few days to a week and is well worth pursuing to make sure that problems are identified and dealt with at the earliest time, not 4/5 weeks before you planned to jump in the moving van!

Commonhold

Commonhold

Commonhold (CH) This is often seen as a magic pill, it’s appeal is in it’s apparent simplicity that whether say 10 or 100 flats, it would hand outright ownership of • units to home owners, the unitholders (UH), and • the “block” to homeowners via a commonhold Company (CHA) as freehold estate in commonhold.

That therefore is assumed to ensure fairness and accountability as each have a common interest. How then does that differ from say -a freehold (FH) transferred to a company owned by the residents group (RG) - flats owned on leases of 999 or 9999 years, or Perpetuity minus a day “P-1” I would say “not a lot”.

The following is neither a condemnation of CH nor an argument for business as usual. I intend to encourage supporters of CH, and those who want reform, to think about the issues and see that what is being presented is not a magic pill, but at best only a few ingredients, while ultimately confusing home ownership for everyone involved. You may be tempted to think “ah, but”, or learned readers add “except if”, however do wait until the end. For example, like the textbook example above, the premise is simple, but except in the simplest of schemes, CH can fall short at the first hurdle. It does not allow for houses on a development to be included and can leave common areas- grounds and parking etc- in the hands of the developer and their companies or buyers n.b. local authorities are not going to go back to adoption. Even if we restrict ourselves to retirement schemes, there is the vexed issue of staff and leisure accommodation.

The key issues in reform are in two areas. The first is fairness, exploitation and standards, and the second, in ownership, forfeiture and control. The first is a subject on its own; however I will address elements that relate to how CH addresses the second group.

Forfeiture – What is it Good For?

The most emotive and frightening issue is of course forfeiture, the termination of the lease which leads to a loss of the home. It is important to understand that legislation protects owners so that breaches and disputes have to be determined before a Court can even consider forfeiture and the Court has a number of options to choose before that. The problem is that in terms of enforcement, leases have been drafted on a forfeiture only basis and the terms of the lease, and the potential windfall, has acted as a commercial basis (even an incentive) to act when Courts rarely award full costs. It is still rare to find a lease that allows for the alternatives and, crucially, allows those costs to be recovered.

While that does not eliminate or temper the very real stress and fear, the numbers of forfeitures are as numerous as hen’s teeth. The real peril is therefore costs (which can often be addressed by adding legal expenses cover to your home insurance for modest premiums), and which in fact arise out of resolving the dispute itself, rather than the cost of the forfeiture element of proceedings. It is a common conflation that leads to the assumption that “no forfeiture = no (or proportional) costs”.

Even if forfeiture is eliminated, a dispute still has to be resolved and costs will fall on the parties. Complicated cases will still lead to extraordinary costs. Forfeiture is clearly anachronistic; however it is the final remedy to truly unpleasant antisocial behaviour or individuals, or situations that are irretrievable. As there is a gulf between criminal and unlawful behaviour, landlords, whether a FH or RG, can face having to deal with the same problems on a repeated basis.

 If it has to be retained for specific and limited purposes, and excludes say arrears, then perhaps it should be restricted to the power of sale-proceeds less costs- by a Court appointed agent independent of the landlord or managing agent.

Reform has to look at how and why a CHA, RG, or FH would enforce the terms of the lease in a forfeiture free world. Statutory amendment to legislation and leases would be required to allow for the costs of options e.g. court orders and injunctions to be recoverable, otherwise it would be impossible to enforce the terms of the lease or unit agreement; it would be ruinous to do so.

Before rejecting this notion, if it were an RG with either a FH or CH, they would still be faced with resolving the dispute enforcing the lease terms and the cost. In that they are no different to an investor. If the implication is that they cannot recover costs, or is limited in how much it can therefore spend, then recovery of service charges ( for these purposes that includes commonhold unit charges) and enforcement of leases, or unit agreements, becomes a lottery and a complainants’ charter.

Many schemes have Resident’s management companies, who are a party to a lease and therefore cannot forfeit, and face this issue every time they have to litigate. If the lessee doesn’t have to pay, the company has to, and not all Articles or leases allow recovery of that shortfall. Commonhold offers no better alternative or solution to this and the CHA is in a similar situation as the RMC.

Ownership.

Leases are criticised as they are not outright ownership and there is a degree of interference with that, home life and financially. The principal objection is that leases are reversionary; you have to hand the keys back in 99 years, or become an assured tenant, or pay to stay- the lease extension. Given some of the high ground rents and, in recent years, reviews doubling or increasing every 10 years, not 25 or 33, and indexes setting the increase at points over RPI, this is an expensive prospect. Legislation could require all new or extended leases to be 999 or 9999 years, or even perpetuity less a day, a “P-1” lease with a peppercorn every 100 years, it would eliminate the issue of outright ownership and remove ground rents and lease extensions as a source of resentment and interference. Some may argue that “it is still a lease” and that there is still interference, but I would argue, as below, “so what? Commonhold doesn’t change that”

Control - Leases or Unit Agreements

It is vital to understand that whether it is a lease, commonhold unit agreement (UA), strata title or other foreign variant, they are just contracts. They set out what is owned and what is retained, rights over other areas, what services are to be provided, at what standard and how they are paid for, as well as the responsibilities to each other and other building users, and place obligations and restrictions on use, right down to when to put the bins out.

After forfeiture, term and rents are addressed, leases are therefore no different to a unit agreement. Interference will still occur. The main areas of interference and contention are service charges (and all their variants), consents for assignment lettings & notices, legal and admin costs, and exit fees. The CHA articles and assessment (AA) are bound to the UA in setting out the above, and are left blank in the standard format, to be drafted on a scheme by scheme basis. Before ground is broken, this will be done by the developer’s solicitor and surveyors, unaware of the CHA’s wishes philosophy and approach.

While the compulsory handover, on completion, of the block (be it CH or FH subject to P-1 leases) eliminates or moderates the desire for income generating clauses, it carries the risk of widely drafted “bog standard” wording and cost matrices. The developer, with no (substantial) future liability or interest, has no incentive to take pains to do otherwise. The CHA or RG is left with the practical implementation of sprawling drafting and the ensuing debate, and disputes, over • who pays for what, to what standard and purpose, and how much, as well as • what requirements should be fulfilled on assignment, sale or letting, and as work will be done in some shape of form, what costs should be incurred and how much. The CHA’s AA are therefore as open to the same shortcomings concerns and defects (as well as success) as any lease, which are at the heart of most disputes.

Perhaps after public consultation, we need to look at the use of standard or model clauses for both UA and leases for common issues such as alterations, nuisance, assignment, under letting repair and improvement etc. In respect to complicated or specific situations, and in the case of service provision and service charge matrices, these might be prepared independently by a qualified surveyor, with liability to future home owners, as well as the developer and CHA or RG. These would help achieve an independent well drafted scheme for the unit owners (especially as buyers), and block ownership, to assess and put into practice. This will involve some statutory guidance and limitation on matters be it exit fees or costs. These can be implemented without commonhold and, if made mandatory in the case of lease variations, extensions and enfranchisement, gradually improve matters for existing as well as new schemes. If we address the shortcomings of these contracts to make them fair, clear and purposeful, the underlying problem is of course now clear, even a good contract is open to abuse or disagreement.

Commonhold is seen as the remedy, however as long as the freehold is transferred on completion, is there a difference between the two systems?

Residents are now “in control”, free from a malign influence, or interests which run contrary to those who live there. If agreement on issues is in theory more likely, is it guaranteed?

Control - What if we can’t agree

Whatever the ownership, disagreements disputes or uncertainty will arise between unit owner(s) and block ownership. Even at its simplest, priorities differ on • expenses with first time buyers wanting a minimum spend and stay for short periods, • in retirement homes, those on the home stretch are often less willing to use funds than those beginning retirement • the complexities of communal living from pets to noise or new carpet colour The perceived advantage is that it is “our dispute” rather than one with an external owner. The company is owned by residents and though Articles may vary, directors are broadly accountable to the owners.

On the face of it there is therefore no difference between CH and an RG owning the FH. Outside the prism of a particular group of landlords and agents, practitioners and residents can reference successes as well as examples of • the “dreaded committee” or “the wrath of the chair” • mismanagement- intentional and misguided • bribery, favouritism, collusion, bullying and exclusion • the damage done by inertia or plain daft ideas

The most common problem (affordability aside) is operating like a company and ignoring the contracts that they have with the individual owners, the leases, and the statutory rights and controls they operate within. The belief is that as a company, majority votes for example override the lease by banning subletting , exempt them from consultation under “section 20”, or refusing access to accounting records as shareholders have no such right.

Directors boards and committees can be brought to book and even replaced, but the procedures vary and are complex, needing precision (before you even get to the issues at hand) to form both into workable, lawful and enforceable notices and resolutions. It is easy to unite against the “landlord in Luton”, but quite another to take on your neighbours. There is an implied or expected trust, or, at the other extreme, fear, in that relationship which is not easily overcome. Even if the merit of the issue is clear, it is another step to convince others of the need to act and retain their interest. These groups are often entrenched and protective of their position and the discomfort of flat 1, or even a handful of you, “vs. the evil mare in no 22” can be daunting and affect your sense of security and home. Those who have not had direct experience of this are foolish to dismiss or underestimate it. Very often they become that problem, and fail to appreciate the duty to work with those of a different perspective or weaker disposition.

The reverse is also true with those in control having to resolve “insurgent activity in block C”, or facing the very difficult decision of having to take legal action against a person(s), even if their personal or financial situation is difficult. It is in the issue of control, costs and rights that a very worrying disparity arises in CH vs. FH.

Control -Remedies

Where there is disagreement, most decisions are reached by the director’s decisions or a majority vote. Beyond that the CHA and owners can only go to mediation or the Court, although the Law makes reference to an undefined Ombudsman service. This might look at procedural and minor issues but would likely lack the scope expertise or funding to deal with more comprehensive issues, as to do so, it would have to become a fully fledged tribunal. CHA and owners have to understand that they are in a new framework outside “landlord and tenant” unlike a FH owned by an RG.

There it, and owners split, or in dispute, or needing independent determination, say on a large and extensive project, have the benefit of independent determination via the Tribunal ( flawed as it might be) within a comprehensive body of law.

Key protections are also lost in CH  eg

• No objective requirement that charges are fair and reasonable

• No consultation on major works nor independent determination

• No requirement to hold “service charges” on trust protecting them from the companies insolvency

The structure of the CHA is therefore likely operating inside the “unfair terms” protections, company law and the supply of goods and services legislation. They and owners face a bewildering choice of ADR, an Ombudsman and the Court, with no real body of law (in the context of property) to guide them as to remedies.

Even if the FTT had its jurisdiction extended to the CH for these disputes, it would not be on “landlord and tenant” law. This is a particular problem for the individual or the small group who have now lost the right to seek comprehensive determination on an objective basis where the AA or Assessment are changed and set by a majority decision. This can not only change obligations, but shares and apportionment of expenses, and in a significant departure from leaseholds, unilaterally change the terms that affect the individual unit agreement. While the alteration of leases is possible, the leaseholder has significantly more rights to seek changes, and protect themselves from change, while under CH, the presumption is that the CHA can make changes.

An owner or CHA is therefore presented with a title, the UA, and an AA that can be as good or as bad as any lease, and a controlling group as bad or good as any other, and floundering in an undeveloped area of law. All Ch dies is shift many of the same problems in FH to a new arena.

Control - The Myth of Costs

n the furore over landlords recovering their legal fees, it is often forgotten that costs fall on the landlord, in this case it would be the CHA or RG, and/or on an owner, whether unit holder or leaseholder. While RG ownership might preclude disproportionate or opportunistic actions, it would be reckless to assume that the CHA, RG or owners will not find themselves “in Court” and therefore costs, in any situation, are a sting in the tail. As costs have to be paid, as an owner you may have to pay costs or seek costs in the judgement, and, as rule of thumb, County Court actions rarely award generous costs. You may therefore win but be out of pocket, and, as a member of the CHA, you meet a share of the resulting losses or costs, or the CHA or RG faces insolvency. In the worst cases owners might find themselves in higher courts seeking removal and prosecution of directors, at enormous cost, rather then the comparatively cheaper and more focused venue of the FTT, seeking appointment of a manager.

The CHA is not limited by the protections of CLRA or Section 20c, which could lead to costs at the same scale or level where higher courts award them in full on leasehold matters. While few find themselves in that scale of costs, they do encounter low level fees. Even a simple arrears case can cost £1000 with the prospect of £200 or £300 being recovered in the judgement. In CH this cost can be charged to the owner, even if they win and if the agreement allows, or the company bears the cost. Neither they nor the owner has the ability to bar or restrict recovery under section 20C or determine a reasonable amount under CLRA via the FTT. There is therefore no real difference offered by commonhold which removes rights while retaining a cost burden that still has to be apportioned. The gravy train for the lawyers might be on new tracks, but it “keeps on rollin’”.

 I would therefore argue that for a home owner, a “P-1” lease out of a jointly owned freehold, reformed as above, even under current arrangements and law, is a far better solution than a two track system of flat ownership. Moreover it retains rights and remedies, many of them individual, which commonhold removes and precludes in favour of majority rule on a commercial basis. This is all predicated on handing the developer a P45 on completion; is that possible?

Mainstreaming Commonhold

As the developer has to leave on completion that will require legislation, however that can be achieved by requiring that on a freehold scheme, making commonhold unnecessary. Is it therefore desirable necessary or effective?

There are two broad areas of difficulty, the effect on tenure and management, and the financial implications.

Mainstreaming Commonhold - Managing the managing

The transfer can be effected in the example of a simple uncomplicated scheme but the mandatory use of commonhold would lead to exemptions. Landed estates and the Crown will often be exempt due to statutory rights and the existing complicated structures and restrictions on their land. Social housing landlords (SHL) and their partners, common in London and elsewhere, could have been adopters of commonhold granting shared ownership leases of units and conversion to commonhold unit on staircasing to 100%. The fact is that despite being an important housing provider, and often retaining freehold ownership rather than selling it on to an asset manager/owner, they have failed to do so.

There is real risk that flat ownership will deteriorate into 3 classes, commonhold, leases, and the social housing leaseholder. Mixed sites with houses or bungalows are still outside the legislation and buildings with staff of accommodation and offices, commercial parts or hotel apartment blocks, as well as social housing, parking structures, and recreation areas can lead to schemes with multiple interests and management roles.

As much development involves brownfield sites and planning requires mixed use and ownership, the simple standalone blocks are few in number. If you consider a scheme of two blocks and houses, with parking and unadopted areas you could have block A commonhold, block B freehold with social housing tenants and leaseholders, and freehold houses. The developer will be able to retain control of, or sell, the unadopted areas and all will be required to contribute to the upkeep outside of Landlord and Tenant law.

Common hold does not require that the estate be transferred to them as well. If it did, it would affect many schemes with social housing and shared ownership units as those SHL will not wish to surrender or share control. In many cases planning law requires their integration door to door, not block by block, so isolating the SHL with a head lease for their block is not always possible. They are then required to be involved in a CHA which would ill fit their organisations resources and priorities, and owners, used to making quick decisions, will rapidly tire of the SHL’s inertia, fractured decision making, and lack of a single senior contact with the experience and authority to participate. These landlords control considerable amount of land and this is a key issue for the trend of redeveloping urban spaces.

The CHA would be faced with confusing obligations with SHL commonhold units subject to long shared ownership leases. The service charges, raised by the CHA, are in many cases outside landlord and tenant, but the leasehold flat owner, who will reimburse the SHL unit holder, enjoys that protection. In the case of qualifying works and agreements, the leaseholder has the right to be consulted but the CHA does not always have to consult.

 It puts the intermediate landlord, the SHL, in a pickle. For example, if

 • the SHL has a head lease and we say that the road needs relaying or the play area new swings and surfaces or

• the exterior of the SHL block, held in the common hold estate, needs redecorating,

the CHA acts like a company and are not always required to follow “section 20”.

The owners of the SHL units have no rights to be consulted but the owners of the shared ownership leasehold flats still have that right. They could claim that many charges are capped at £250 or £100.

If the CHA chooses or is required to consult under existing or new legislation, what then is the point of CH!? They might as well be freeholders who have granted leases and operate within those rights. Those familiar with Daejan and Phillips vs Francis can see the potential for litigation on costs and recovery. On existing decisions on appurtenant premises, the Courts have been less than authoritative on directing landlords on how to cooperate on management and costs after division of such unadopted areas.

Freehold houses could be included in commonhold title, but that would be a further confusion for the house buyer choosing freehold, leasehold or commonhold and three different schemes for service charge contributions to unadopted and shared areas.

It presents the CHA with more obligations under estate rent charges transfer deeds and or a deed of covenant. If the estate is freehold, it can be transferred to the freeholder and be subject to P-1 leases for all units. Houses are therefore included in the scheme with the attendant rights and participation for the scheme as a whole, as well as having leases which are seen as outright ownership documents. The blocks can either combine their resources or follow separate courses with either carefully structured service charge matrices or head leases for either block.

The same can be extended to commercial and other areas. If we persist with CH, freehold in commonhold estate, it is pointless to confuse this by granting some residential units as commonhold units, others on lease, and houses as transfers of part! Most importantly the developer is free to grant themselves a lease to their areas defeating the principal expectation of commonhold being the means to exclude them.

The central problem is the CH or FH requires verticality, the separation of units on a vertical basis, and where individual units or rights interfere with that, a relationship comes into existence. As leaseholders and unit holders, and non residential and commercial unit owners, have different legislative rights controls and obligations that makes for a confusing mix. Freehold ownership, subject to leases, can comprehensively address that and structure and assign responsibility. Therefore in a Commonhold world, it fractures what might be necessarily complicated arrangements under a freehold, into a jigsaw with missing pieces. Putting aside the above problems, it has further consequences for community and social cohesion when SHL leaseholders and tenants already feel “second class”.

Mainstreaming Commonhold Unhooking the developer

These issues are of particular relevance when it comes to sacking the builder, as we need to look at the developer’s investment above and beyond the sale of flats. Existing commonhold legislation allows for a leaseback or unit ownership of their interests which would be inconsistent with the desire behind CH to expunge the developer. They are entitled to compensation and that creates two problems. Firstly, for the new scheme, the developer may provide areas such as an office flat parking and leisure facilities which can be income producing.

Commonhold does not preclude that, he merely takes a lease back out of the CH before any units are sold and the lease dictates payment terms. New legislation is therefore required and owners might find themselves paying a premium in addition to, or part of, the flat price in order to make it viable for the developer to release ownership of those areas. In simple terms if he can sell 100 flats, or 99 and house manager’s flat, then he will want to be paid for the flat. Otherwise he just sticks a desk in the hall and employs 4 staff, 24/7, on the service charge, and sells the flat. This also applies to the choice of providing common lounges and leisure areas, pools and gyms, and not flats, or not renting car spaces and including them in flat titles.

 For other income streams such as ground rents and future reversions these are due as a consequence of the history of leasehold and its purpose to lease land over time. I am of the view that, in the context of a home, they are lawful but contrived.

Leases of 999 years at a peppercorn rent with the FH handed over to residents had become common practice until the late 90’s in new builds until the trend was reversed. In part, this was not simply the players in the market, but a reaction to protections such as section 81 on forfeiture and the developing taste for litigation, making freehold ownership a dangerous prospect.

While commonhold removes reversions and ground rents, this can be achieved by legalisation as above on P-1 leases. When there are other areas are offices hotels etc the CHA finds itself the reversioner and party to a head lease of those areas granted as a lease out of the commonhold. While that might transfer obligations to the head lessor, compliance and cooperation becomes a heavy burden for the CHA, especially, as explained in the residential context above, the CHA retains obligations for shared areas or expenses. Commercial landlords and their agents can be as hardnosed well funded and litigious as any of the “landlord in Luton” ilk. Secondly it is of little assistance to established schemes, even in the simplest, whether it is about amending leases or forced conversion to commonhold.

 If legislation enabled that, there is the argument for compensation. Many will take comfort in the idea of the assets underpinning loans by some landlords being wiped out. However in mixed use schemes that is not always possible (or might give rise to the complications outlined earlier). It has to be borne in mind that these income streams and reversionary interests underpin the balance sheets of more than “the villains”. This includes even handed landlords and landed estates not to mention SHLs.

That asset value is often the difference in liquidity and insolvency. Some may be able to absorb the change if they have a diverse portfolio, or through government subsidy, however it also applies to RGs with freeholds. Members often have loaned the company money to purchase the freehold and expect repayment having made up for non participants who will eventually buy lease extensions. In many cases these companies, where not all leases are amended or extended, require ground rent income to pay basic company expenses which the older leases were never prepared to anticipate as part of service charge.

Unhooking them would be disastrous and plainly unfair, and for the other players I cannot see how legislation can differentiate between the good bad and indifferent landlords.

Conclusion

CH has existed since 2002, however buyers owners developers and lenders have not flocked to it. While vested interests have been quoted as the principal cause, they do not form the majority of new builds, and only a small proportion of leasehold properties. ]

Of those that have enfranchised, few have embraced it as their new management and ownership model. Even if it is compulsory, buyers struggle to understand the principles of community living costs and rules without having to first compare leasehold and commonhold, and how their scheme is owned and managed, when buying a home, especially if houses are to be included.

Readers will want to break down what I have said and comment, however that rather makes my underlying point that we have an imperfect system of freehold and leases which can be made to work, rather than starting over with what, in the market, will be a parallel “third way” which is ill suited to many schemes and developments.

Commonhold is therefore deceptive and appears to address the desire for ownership and independence within a shared structure without doing so. All it does is grant eternal ownership of the flat, which can be achieved by the P-1 lease. Owners and block ownership are still bound by a contract that operates in a legal framework. The potential for disputes or disagreement does not disappear. Developers can still retain an interest in flats and shared areas via leasebacks.

The answer is that having looked at and changed leases, we need to look at first principles by shredding the current code of practice, and the 3rd edition draft. It needs to be far more comprehensive on conduct, fairness and transparency, and address specific issues e.g. tendering, costs and relationships to third parties, commissions and commercial arrangements, to what can be reasonably expected on consents and notices. This must apply to any landlord be they a FH or and RG, agent or owner and would significantly improve the context in which these disputes and disagreements arise.

Opinion- Not happy, so not paying the Bill

 Owners regularly struggle with the ideas that common practise in most leases is that

1 You pay in advice the estimated costs of services “what they think they will spend”

2 The actual expenditure is not totalled until the end of the year “what they actually spend”

3 The difference Profit or loss known as surplus or deficit is then distributed.

Distribution may mean a repayment or a credit against the current service charges, rolled into the current year’s budget or transferred to reserves.

The logic of “I don’t pay for meal until I am happy and eaten it, do I?” doesn’t apply it is a canteen.

 I am omitting some leases where the interim is small often for historic reasons or where they are charged for in arrears.

The single tow biggest misconceptions are

1 It’s a one off inclusive fee to the landlord or their  agent who in turn employ sub contactors and have to provide service no matter what and accept the cost and risk on non-payment just like anyone elks.

2 That the monies are held on trust separate from the landlord or their agent own corporate money, and therefore any expenses are deducted from this for the block/estate whether its cleaners or the landlords costs or agents fee.

This is the only money they have to drawn upon and non-payment only leads to further diminution in services.

Most modern lease are service subject to payment of service charge and while in simple terms this is not entirely true or enforceable, it means that in practice the LL or agent will reduce service quality and frequency to  a level  not expected by anyone  and ensure there is enough to pay utilities and insurance.

In such cases if services are reduced then the actual costs is compared to the amount estimated and distributed as earlier stated.

Owners can discuss or formally challenge whether 1 above is fair and reasonable at the Tribunal, but must remember that it is an estimate and that they are unlikely to have the detailed understanding of  complex services.

The most common source of dispute is what s actually being done for that estimate and costs and what an owner thinks is  or should be done.

It is key to establishing that and gaining an understanding of complex services and in some cases that may need professional advice.

At the end of the year landlords, should they choose not to do so, should be compelled to certify the costs as the lease requires or  under Section 21 and 22 landlord and tenant Act 1985.

Now  note many companies are set up for residents to run and in some cases the owner are told that under company law as a shareholder or member they have no right to see the bills which form the accounts etc. Now that is correct, however the service charges are demanded and under the control of the leases and under the control of the above act and therefore the right does exist as a leaseholder if the rights under the Act are exercised.

Now key to dealing with disputes during the year and at year end is, bearing in mind what has been said, to keep a detailed record of issues and evidence  while trying to effect changes in service or ultimately asking the tribunal to reduce the amount.

It is important that it is recorded and presented in such a way that an independent person can quickly assimilate the information and see the issues as they will be unfamiliar with the block.

All this is counter intuitive and seen as a rip off. What is not understood is that if landlords and agents did operate on all risks basis the fees which form part of the service charge would vastly increase as in general the rate of return on block management fees is around 4% to 6%. That’s why some try and take the money elsewhere and doing the least they can.

But its also a huge opportunity- a sensible residents group that takes a mature approach to work with an agent can vastly increase the performance of the blocks services and the home environment and therefore make it better for both the agent and the owner residents and owner investors.

Where situations do deteriorate, an agent may in fact be quite open to an approach to turn to it all around.

You should agree  to

- a list of priorities

- stage payments to fund those

- encourage non payers that the standard to be set and delivered is being monitored by your group

This will build confidence  and resolves most situations.

Typical roadblocks are

-          agents or LL’s refusing to budge “until its all paid up”, so try and agree to this process  rather than resorting to litigation and right to manage or similar. nb  staff often don’t have that authority and you may need senior level approval especially where automatic processes are in place to pay insurance old bills or fees first

-          - owners wanting to extract revenge or compensation, bit while some cases do merit a good kicking, the immediate well being of your home and investment is far more important

-          Legacy issues  where it is important to agree to settle these separately under mediation arbitration or tribunal determination, as the later is now often expensive, don’t overlook arbitration as a cheaper alternative

-          Major project and a lack of trust which may require owners paying into an independent solicitors client account ( held on trust) and paid on certification by the projects contract administrator

These steps might avert a long and expensive battle if both sides take a realistic view and the issues are not insurmountable- nor need formal determination or the removal of the landlords role as a manager.

Opinion-Landlord bashing

LANDLORD BASHING

This is a popular support and  while it has focused on one group in particular its nothing  new to long established landlords in London.

A key issues is that residents complaints and withholding payment  is seen as and end in itself  on the misplaced belief that  it costs the LL money and profit  they wont pay their subcontractors  and he will have to sort it .

Thats wrong, yes it is- its an area full of misunderstanding.

1 Service charges are not the LL’s or Agents Money from which they

- take a profit and

- pay subcontractors

- and accept the costs and risks of non payment

The SC money is held on trust separate to the landlords money and payments made out of it  are to the various trades and services inc the Agents Fees or landlords costs .

2 Leases state in most cases that the provision of services are conditional on  payment on account by the leaseholder. Not as some would like “ I don’t pay for the meal until I have eaten it”

3 Non payment is not simply the LL/Agents fault or problem as bad debt are apart of every companies cash flow. Its important to understand that skulduggery aside  there is no profit or contingency element in SC or Fees to do so because the of the limitation on those costs  both contractually and under section 19 “fair and reasonable”.

While the landlord does still have  the responsibility to provide services where there is non payment then the standard and frequency of services is adjusted often far short of what is expected.

Funds are used to pay for insurance and utilities and gardening and cleaning less frequent and repairs on Health and Safety basis only..

The inevitable effect of a stand off is that the cycle of falling standards and trust arises to the detriment of all, as it is usually resolved with punitive legal costs visited on those that haven’t paid and DCA contact with your mortgagee.

Having understood this it is vital to understand that both owner and LL have a role to play in dealing with the cycle.

Owners should avoid wallowing in the problems and feasting on outrage, diverting that instead to identifying and  resolving the issues. In the main agents and LL’s are realistic  about such matters and where the wheels have fallen off its important to look at whether nuclear options are need or a problems negotiated.

Negotiated settlements can include

- listing and prioritising matters to be done

-understanding how much is outstanding

-stage payments to allow funding for chasing the non payers and dealing with the list

Mediators are very useful in achieving this

Consider -separating some issues that need to be resolved and not creating road blocks at the cost of  immediate progress allowing those to be determined later or by mediation or Tribunal hearing.

Where this cannot work anger and frustration is better channelled into the nuclear options of independent managers RTM RTE or Compulsory Acquisition

Advice- Leasehold Logic

Much time is wasted in undoing owners opinions derived from

• a mish mash of common sense & logic
• applying irrelevant and inapplicable experience or  comparisons, often from entirely different business models,
• after hours of searching for opinions that match theirs and therefore must be right
• and finally choosing one of the above and asserting with complete confidence that the sun must therefore rise in the east.

It is therefore vital to understand that leasehold and residential property law has its own law logic and quirks, and you need to learn them and moreover be willing to accept them, like it or not, instead of substituting your own.

I am fine - I will just charge you the time to do so, but it will be quicker and cheaper not to.

Advice -Permission to Let or Alter-Why!?

The extent to which permission is required varies lease to lease, some are silent, some are generalised and some prescriptive.

In all cases of letting, there is the basic need for the landlord to know who you are and where you are, to communicate and of course get your money in, and to ensure that the occupant is familiar with and even bound by the rules and regulations in the leases.

Bog standard AST agreements are unlikely to mirror sufficiently the relevant terms of leases leaving the tenant and flat owner is a difficult position.

In the case of alterations. The broad argument is that the  property is to be handed back at the end of the lease in a comparable condition and standard, or of the owner stays on , they are a renting tenant and the landlord will become responsible for many items which formally the owners.

Converting a 3 bed 2 bath flat into a open plan studio will decrease the value significantly in most markets.

The compelling argument is that layout changes particularly those affecting the structure  need to be approved  as the landlord has a broader obligation to all the owners to ensure that, in simple terms your open plan studio roof, which is someone’s floor, doesn’t collapse, and in any event any and all  works are carried out with  due regard to other building users.

Its tempting to say “ what owner would do dangerous works in their home” well quite few, not least those who aren’t keeping on the medication. In general though  owners are very often unaware of ( and much less care about)   the scope and complexity of building work and can be duped by a inexperienced or conniving  contractor. They, not the contractor, bear the principal liability.

Even where consent is not required, the layout plan and description may need amending so that the lease shows what has been granted for the purposes of a future sale or loan.

A common mistake is altering that which is not yours eg removing a chimney breast or converting a window to a balcony door when the wall below is not yours.

And finally a word about timing. Consent is not available overnight or by return nor should the landlord be regarded as it being his problem.

In most cases 2 clear weeks will be needed for simple works and for more complicated issues at least 4 weeks.

Pressing ahead can be very expensive – the architect who rocked at 4.50 pm on Maundy Thursday to say here are several plans and an inch thick spec, we start on Tuesday was told to leave. He threatened to go ahead and in turn his client got instead a hand delivered letter from Solicitors that day threatening any work starts and we injunct with costs.

Advice- All our costs are in the Service charge, right?

WE BOUGHT THE FREEHOLD EXERCISED RIGHT TO MANAGE ALL OUR EXPENSES ARE COVERED BY SERVICE CHARGE, RIGHT?

Ignoring the recovery of service charges costs I am focusing on the operating expenses of these companies form the annual return fee to legal expenses or directors insurance. In most cases the leases were to drafted to anticipate this arrangement to the freeholder, or RTM must ensure that their agreement or articles  allow for those expenses to be met by the participants, until such day as all leases are amended to do so.

In may cases of complex ownership eg commercial units or freehold houses , they may never be amended.

When buying the freehold the default advice is to “ extend the leases to 999 years and a peppercorn rent” but spare a  thought about ground rents. They are a good source of income to meet these expenses and to build up a reserve in addition to or instead of a sinking fund.

In the long term they add value to the freehold, so at some future point if disaster strikes and funds are needed the freehold can be sold. In the meantime a group can resolve year to year not to collect the rents .

Take for example a roof replacement  of £40k, meaning say £10k each. Selling a freehold with leases at £250 GR per annum  could raise half that money, at the cost of future payments of ground rent of £250.