The freehold is owned separately and when a lease expires, ownership of the flat reverts to the freeholder or landlord.
The landlord has a duty to maintain the common parts of the property and carry out essential repairs. In return, he exacts a service charge, as well as an annual ground rent. Many leaseholders are surprised at how costly it can be to pay these charges.
Take Michael Buurman, of west London. He has been handed a pounds 2,500 estimate for maintenance work to the exterior and common parts of his block. In total, the bill for all the flats will come to about pounds 18,000 with the costs split between the leaseholders for a five-year maintenance review.
Separately, Mr Buurman is in dispute with his landlord over service charges. He alleges he has been incorrectly charged. The view from the landlord, Tony Tillbrook, is somewhat different, which is why the two are due to appear at a county court hearing in August. Disputes such as this often crop up between landlords and the leaseholders.
But new legislation contained in the Housing Act 1996 and due to come into force by late summer should change the perennial problem of landlord-leaseholder disputes. For the first time, a tribunal system will adjudicate in landlord and lessee rows over service and maintenance charges. The tribunals will be drawn from the existing rent appeals tribunals. Gerry Fox, the managing director of chartered surveyors, Fineman Lever, based in London's West End, said disputes usually occur when there is an element of poor communication. "For example, a landlord who gives a year's notification of major repairs is likely to have a better response, than one who gives very little notice."
Under the law, landlords must give leaseholders a one-month period to consult. The leaseholders can question the extent of the repairs and work proposed by the landlord, and if they are all in agreement they can ask that some of the repairs be dropped. However, the landlord will have a strong case, if the work is deemed essential to preserve the value of the properties.
So what can you do to avoid getting into such situations?
The best action is before you even buy a flat. Make sure you obtain a copy of the lease, and read it carefully to check the landlord's obligations and rights as set out in the lease. This will cover ground rent, insurance costs, service charges and maintenance costs. Service charges, broadly speaking, cover routine repair work in the communal areas including smashed window panes, broken light bulbs, or plumbing repairs. The landlord may also require a handling charge.
Maintenance charges are usually the most costly item, however. These are major repairs such as repointing the exterior brickwork, sealing window sills, and painting all the interior areas and window frames.
A lease may give lessees the right to request the landlord be replaced by a managing agent, appointed by the tenants. You can ask that such a clause be inserted as a condition of your purchase, but this request may not be granted. Even if such a clause is inserted, it may not have much weight in law, if the other leases do not have the clause.
The lease should also stipulate how service charges are to be paid - in arrears, in advance, quarterly, or whatever. Most will have a fixed annual fee, of say pounds 200 a year. However, the bills for service charges can be far higher, and as much as pounds 1,000 a year where the property is dilapidated.
So you should also ask to see the service charges for the last five years. Fineman Lever points this out in a leaflet it has produced for prospective flat owners. However, be warned if the charges seem immoderately low. That may well suggest the next bill could be for a substantial sum
.What can you do if the landlord does not seem to be sticking to his side of the bargain? The best solution is through collective action. This is now provided for under law, where lessees can form a residents' association. A residents' association gives them some rights under law. They can obtain separate builder's quotes, and have some rights under legislation.
If residents believe bills are too high they can refuse to pay. That will lead to either the landlord pursuing court action to recover the debt, or an understanding where landlord and leaseholders come to some private arrangement. However, taking on this sort of court action is risky, as flat-owners could face the prospect of court costs being awarded against them. At the very least they should employ a chartered surveyor to advise them on how to defend an action.
Perhaps it would be more effective to bring an action against the landlord, asserting he has failed to meet his contractual obligations. Again, tenants will need a well-prepared case, and a chartered surveyor could prove invaluable. Under this course of action, the tenants can ask the court to appoint a receiver. The receiver will act as a managing agent on behalf of the landlord, and can be a firm proposed by the tenants. If the tenants believe they have the expertise, and sufficient goodwill between them, they can even seek to form their own company to act as the managing agents.
Tenants who go down this route can also seek to buy the freehold after two years, if the receiver is still in place. If that happens, they can make a substantial profit; when they marry their leaseholds and freeholds - say by granting themselves 999-year leases - the value of their properties can be boosted substantially.
For a leaflet on avoiding landlord-leaseholder problems, contact Fineman Lever (tel: 0171-258 3425)Reuse content