Key Legislation for Leasehold Block Management
In the ongoing evolution of Landlord and tenant law there have been many new Acts of Parliament and Statutory Instruments (secondary legislation). Everyone involved in leasehold block management will need to be aware of the legislation that relates specifically to this area of property management.
1: LANDLORD & TENANT ACT 1985
The Landlord and Tenant Act 1985 is the first of the five main Acts of Parliament providing the framework for the rights of leaseholders under the terms of their leases:
- s18: (meaning of service charges and relevant costs);
- s19: (limitation of service charge costs and ‘reasonableness’);
- s20: (limitation of service charges: consultation and requirements);
- s20za: (consultation requirements: supplementary) deals with the power of the FTT to dispense with the above consultation requirement;
- s20c: (limitation of service charges; cost proceedings) has been expanded by preventing the freeholder from putting the costs of any legal proceedings through the service charges even of the lease allows it;
- s27a (liability to pay service charges: jurisdiction) deals with lessee applications to the FTT over the ‘reasonableness’ of service charges;
- s30a (rights of tenants with respect to insurance).
2: LANDLORD & TENANT ACT 1987
The Landlord and Tenant Act 1987 is not only the second principle Act relevant to leasehold management but is also the second of the two main statutory acts providing the framework for the rights of leaseholders.
- s21 (tenants right to apply to court to appoint a manager);
- s22 (preliminary notice by tenant);
- s23 (application to court for appointment of a manager);
- s24 (appointment of manager by the court);
- s35 (application by party to lease to vary a lease);
- s36 (application by respondent for variation of other leases);
- s37 (application by majority of parties for variation of leases);
- s42 (service charge contributions to be held in trust). Service charge monies are ‘trust money’ and should be held in ring-fenced designated bank accounts. Unless required by the lease, there’s no obligation to put reserve funds into separate bank accounts. However, the RICS Code states that such funds should be placed in an interest earning account.
- s48 (notification by landlord of address for service of notices).
LEASEHOLD REFORM, HOUSING and URBAN DEVELOPMENT ACT 1993
The Leasehold Reform, Housing & Urban Development Act 1993 is the third of the 5 main Acts of Parliament relating to the management of blocks of flats. Leaseholders of blocks of flats finally got the right to the following:
- They were able to collectively purchase their freehold;
- Leaseholders who pay variable service charges got the right to a management audit. Whilst qualification is by not less than two thirds of leaseholders acting together, individual leaseholders also have the right where theirs is either the only dwelling, or one of two.
- Leaseholders became legally entitled to a statutory lease extension of 90 years added onto the unexpired term (after owning the property after two years or more). This right was finally granted because leaseholders had been getting increasingly angry for decades that not only had they paid a large amount of money up front, and continued to pay for repairs, maintenance and buildings insurance but the freeholders were making yet more money by charging what they liked for granting consents and extending the lease.
HOUSING ACT 1996
The Housing Act 1996 is the fourth of the five main Acts of Parliament specifically concerned with leasehold management.
The extension of the enfranchisement rights created in 1993 had led to a number of anomalies in an Act that was widely considered to be poorly drafted Act. This was despite the fact it had made amendments to areas of both the 1985 and 1987 Acts.
So instead of getting a completely new Act, powerful lobbying and the prospect of another General Election resulted in considerable amendments being made to the Leasehold Reform Housing and Urban Development Act 1993. The result? The Housing Act 1996 came into force on the 24th September.
The Act made amendments to the 1985 and 1987 Acts by the following:
- Made it easier for leaseholders to challenge unreasonable service charges by taking their freeholders to the LVT.
- Whilst if they are ruled as fair then they are subsequently payable, if they remain in dispute then under s81 (restriction of termination of tenancy for failure to pay service charges), until it has been established that the charges are reasonable (by agreement, admission of the leaseholder or by the decision of a court or tribunal), the freeholder is prevented from forfeiting the lease. However, under s82 of the Act, by granting notice under s146 of the Law of Property Act 1925 the landlord would be indicating that whilst he has elected to forfeit the lease, such a notice has to contain certain information drawing to the attention of the tenant the effect and provisions of s81.
- The Right of First Refusal (introduced in the Landlord and Tenant Act 1985) is strengthened by making it a summary offence to sell the freehold to a third party without having first offered it to the flat owners and the rights of leaseholders to collectively enfranchise (buy the freehold) are further extended.
- It provided a right for leaseholders to appoint a surveyor to require landlords to provide access to buildings, accounts and other documents, in turn enforceable by court order. This is a direct follow-on from the right of leaseholders to obtain a management audit in the 1993 Act.
COMMONHOLD and LEASEHOLD REFORM ACT 2002
The Commonhold and Leasehold Reform Act 2002 is the fifth of the five Acts relating to leasehold management. Although it took the provisions already contained in the Leasehold Reform Housing and Urban Development Act 1993 and extended them, it was a landmark act in two major areas.The first phase of the Act commenced on the 26th July 2002 and introduced a new way of purchasing residential property, that of Commonhold. This combined elements of freehold and leasehold and was set to no only give consumers a third choice of housing tenure but a change of the management of blocks of flats. Unfortunately for the consumer it never took off.
The second major right granted to leaseholders was that of Right to Manage, introduced in s71 (Part 2 Chapter 1) of this Act in September 2003 and hailed as a great right for leaseholders. Why? Because it allows them to replace current managing agents with one of their own choosing. Not only this, there is no premium payable and no need to go to court to prove ‘fault’ on the part of the freeholder. Smaller developments can choose to self manage.
This was the most radical attempt at addressing the problems caused by negligent and incompetent managing agents which has been inherent since the tenure of long leasehold was created.
s74: RTM companies: membership and regulations
s75: Qualifying tenants
s76: Long leases
s77: Long leases: further provisions
s81: Claim notice: supplementary
s85: Landlords etc, not traceable
s86: Withdrawal of claim notice
s87: Deemed withdrawal
s88: Costs: general
s89: Costs where claim ceases
s90: The acquisition date
s94: Duty to pay accrued uncommitted service charges
s96: Management function under leases
s97: Management functions: supplementary
s98: Functions relating to approvals
s99: Approvals: supplementary
s100: Enforcement of tenant covenants
s101: Tenant covenants: monitoring and reporting
s102: Statutory functions
s103: Landlords’ contribution to service charges
s105: Cessation of management
s106: Agreements excluding or modifying right
s107: Enforcement of obligations
s108: Application to crown
s109: Powers of trustees in relation to right
s110: Power to prescribe procedure
113: Index of defined expressions
SECTIONS NOT IMPLEMENTED
Not all of the sections contained within the Act were implemented for various reasons and they are as follows:
s152 (statement of Accounts) was not enacted due to the difficulty in its implementation.
s156 (service charges to be held in a separate designated account) also not enacted so it remains as per s42 of the Landlord and Tenant Act 1987 (service charge contributions to be held in trust).
s153 (notice to accompany demands for service charges) amends that of s21b of the Landlord and Tenant Act 1985 and requires that every demand made for service charges must be accompanied with information on leaseholders rights in relation to those charges and those of administration charges.
If a demand for service charge or administration charges is not accompanied by a summary of the rights and obligations of the leaseholder then leaseholders have the right to withhold payment, and any provisions in the lease relating to non payment or late payment do not have effect as long as the landlord remains in breach of these obligations.
s154 (inspection etc of documents) replaces the request to inspect documents supporting the summary of relevant costs under s22 of the Landlord and Tenant Act 1985. Leaseholders of a recognised tenants association (not individual leaseholders) have the right to inspect documents relating to the service charge as a follow-up to provide more detail on the summary. Within a period of six months from receipt of the summary, the service charge payer (or the secretary) may write to the landlord requiring him to allow access to and inspection of the accounts, receipts and any other documents relevant to the service charge information in the summary and to provide facilities for them to be copied.
Facilities for inspection must be provided within one month of the request, and must be available for a period of two months.
s158 Schedule 11 (administration charges): Landlords used to be able to arbitrarily charge for giving their consent in a number of areas that were not covered by statutory charges imposed by leasehold legislation. Leaseholders had been unable to challenge these payments as to their reasonableness, but such charges came under a new legal category, administration charges.
Note: Administration charges may be considered management fees but they are not defined in Landlord and Tenant law because they are neither service charges nor ground rent.