Commonhold and Leasehold Reform Act 2002
The Commonhold and Leasehold Reform Act 2002 was the jewel in the (then) Governments crown and 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 not only give consumers a third choice of housing tenure but a change of the management of blocks of flats. Sadly, although it was placed on the statute books, it never took off.
The second major right was granted to leaseholders and was that of the Right to Manage, introduced in s71 (Part 2 Chapter 1) of the Act in September 2003 was hailed as a great right as it was the most radical attempt at addressing the problems caused by negligent and incompetent managing agents. It’s sa ‘no-fault’ process allowing leaseholders to either replace their own managing agent with one of their own choosing or self manage.
The Act also created administration charges (which are neither ground rent or service charges).
Key elements of the Act are:
s126 now fixes the valuation date for collective enfranchisement of flats at the date the initial notice is served.
s131 (qualifying leases) extends the rules in terms of the lease requirements to include the following:
- A lease of a term of years absolute in excess of 21 years – the present unexpired term is irrelevant because qualification is governed by the original term of the lease when it was first granted;
- A shorter lease containing a clause providing a right of perpetual renewal;
- A lease terminable on death or marriage or an unknown date (including the so-called ‘Prince of Wales’ clauses);
- The continuation of a long lease under the Local Government Housing Act 1989 following the expiry of the original term;
- A shared ownership lease where the leaseholder’s share is 100%.
s134 (valuation date) for collective enfranchisement of flats is now set at the date that the initial notice is served;
s135 (landlord’s share of marriage value) is now split 50/50 because the potential ‘profit’ only arose from the freeholder’s obligation to sell, the legislation now requires that it be shared equally between the parties.
s136 (disregard of marriage value in the case of very long leases) i.e. leases with over 80 years remaining.
s139 – Reduces the qualifying period as a tenant;
s140 – Exclusion of certain business tenancies;
s141 – Tenancies not at a low rent;
s142 – Personal representatives;
s143 – Abolition of limits on rights after lease extension;
s144 – Exclusion of shared ownership leases;
s145 – Tenants share of marriage value;
s147 – Purchase price for enfranchisement during lease extension
The following sections of 150 to 157 make important amendments to the Landlord and Tenant Act 1985 related to service charges although note that two of those sections have yet to be enacted.
s150 (extending the meaning of service charge and management)
s151 (consultation about service charges) replacing s20 of the Landlord and Tenant Act 1985 and splitting it into two parts: qualifying works for works to the building and qualifying long term agreements. s20ZA (consultation requirements; supplementary) was also introduced in this Act but the existing sections of 20A, 20B and 20C of the 1985 Act were not affected.
s152 (statement of account): Not yet enacted.
On the 29th July 2005 the former ODPM (Office of the Deputy Prime Minister) announced that it would not be possible to introduce some of the new proposed accounting measures contained within this section without imposing considerable extra costs on social landlords and their leaseholders. Subsequently it would not be commenced pending further consultation which might include new primary legislation. It was accepted that the provision, as drafted, was not fully workable although the Government remained committed to the principle of the annual statement. Commencement was not anticipated before 2007 and the proposals that were being developed to amend the legislation were to ensure that both private and public sector leaseholders received appropriate information that did not incur a disproportionate cost to them. If this section had been brought into law then leaseholders would have got the right to receive detailed summaries of their service charges within a six month deadline of the end of the service charge billing year.
s153 (notice to accompany demands for service charges) amends that of s21a of the Landlord and Tenant Act 1985 (withholding service charge payments) with a new section, s21b (notice to accompany demands for service charges) 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.
s155 (liability to pay service charges: jurisdiction)
s156 (service charges to be held in a separate designated account): Not yet enacted. As a result this remains as per s42 of the Landlord and Tenant Act 1987 (service charge contributions to be held in trust).
In December 2008, Leasehold Life contacted the CLG asking about the implementation of both s152 and s156 and received this in response:
‘Difficulties were encountered in implementing these sections as they stood in the 2002 Act which meant that the primary legislation had to be amended. A consultation paper dealing with these sections was published in July 2007 ‘A Consultation Paper On Regular Statements Of Accounts And Designated Clients Accounts’ (s152 and 156) with a summary of responses being published in January 2008. Changes to the primary legislation have now been amended using the Housing and Regeneration Act 2008. Rather than the clauses relating to ‘a regular statement of account’ they now refer to the ‘provision of information’ and the ‘accountant’s report’ has now been replaced with that of a report by a ‘qualified person’. These amendments are necessary to ensure that the regular statement of account and designated client accounts provisions can work both effectively and efficiently in providing the intended transparency about service charge monies. The detailed requirements for these provision, which are still being worked on, will be introduced through regulations, although at this stage it is not possible to give a date as to when these will come into force.
s157 (Service Charges; minor and consequential amendments) now means that ‘improvements’ are now classed as a service charge for the first time and therefore subject to the same rules and regulations as works of ‘repair’ and ‘maintenance’. Landlords also are legally obliged to consult when entering into long term agreements with companies that provide services for which a service charge is payable.
s158 (administration charges) which are neither service charges or ground rent, more on which can be read here
s159 (charges under Estate Management Schemes) gives anyone who pays variable Service Charges under an ‘Estate Management Scheme’ the right to apply to a First Tier Tribunal for a decision on whether the charges are payable and the right to apply for Order varying the charges which are made under such a Scheme.
s164 (insurance otherwise than with landlord’s insurer) prevents freeholders of houses from insisting that leaseholders use a particular insurance company nominated or approved by them to insure their house. Instead leaseholders of house can choose their own insurance, subject to certain conditions.
s166 (requirement to notify leaseholders that ground rent is due). Since the 28th February 2005 any demand for ground rent by a freeholder, (or their managing agents), must be made in a ‘prescribed form’ and which ‘may’ be sent by post to the address on which the ground rent is payable. If the leaseholder has notified the landlord in writing of a different address in England & Wales at which he wishes to be given notices, then they must be sent there.
If this is not adhered to then the leaseholder is not liable to make payment until it is. Again, under this section, whilst the ability to demand ground rent has not been lost if the the freeholder attempts to add legal or administrative charges for non payment based on incorrect demand notices, then these charges will also not be payable.
The payment date in the notice cannot be earlier than 30 days from the date notice is given, nor can it be more than 60 days after that date. What will override this however is that the date for payment cannot be earlier than the date set out in the lease itself.
s167 (failure to pay small amount for short period) means the freeholder cannot cannot use the forfeiture procedure under the lease unless the amount owed for ground rent, service charge or administration charges (or a combination of them) is more than £350. However, the forfeiture procedure can be used (even if the amount is less than £350), providing it has been outstanding for more than 3 years. Ground rent can be recovered for up to 6 years in arrears. The section also states that freeholders may only apply for forfeiture in respect of non payment of a service charge.
s168 (no forfeiture notice until determination of breach)
s170 (forfeiture for failure to pay service charge etc). This amends s81 of the Housing Act 1996), and once it is finally determined that the amount of the service charge or administration charge is payable by the leaseholder by a) the FTT at the time, b) on appeal, or c) by an arbitral tribunal (in proceedings pursuant to a post-dispute arbitration agreement), or c) the leaseholder agrees it is payable only then can the forfeiture notice be served.
s172 (Service Charges and Crown Land) makes leases to Crown Land subject to the same laws as other leases. It means Leaseholders of Crown Land have protection under Sections 18 to 30B of the Landlord and Tenant Act 1985, as well as other important parts of many other Acts of Parliament.