Block Management FAQs
Welcome to Peninsula Management’s block management FAQs
Rupert Hambly introduces Service Charges
A charge service charge is the method of recovering the costs of providing services to a building. What is covered is set out in the lease and the basis of the mechanism. This normally covers the cost of services such as general maintenance and repairs, buildings insurance and, if these are provided, lifts, lighting and cleaning of shared common areas and more. The costs of management services provided by a professional managing agent are included in a service charge and very important are contributions made to a reserve fund for future planning.
Your lease states what the landlord can and cannot charge for and the proportion of the charge that you will have to pay. The landlord generally delivers the services before recovering their costs from leaseholders.
Section 20 in 20 seconds (nearly)!
Leaseholders will generally have to pay Service Charges to a company who maintains the communal parts of the block or building.
These parts of a building are identified in the lease and may well be the roof and overall structure of the building. Legislation requires that leaseholders are served notices in a prescribed format and procedure informing them when the company who maintains their building is about to incur an expense more than £250 per unit.
A Section 20 Consultation is part of a three-stage procedure informing all leaseholders that they are going to incura sum greater than £250 (known as the Major Works”) for their portion of the maintenance of the building.
Stage One- Notice of Intention
The legislation requires that the first notice is sent to all leaseholders with a general description of the proposed Major Works, inviting the leaseholders to make observations.
Stage Two- Summary of Estimates
The leaseholders then receive a second notice providing information of the quotes obtained from contractors for the works.
Stage Three- Notice of Reasons
This notice explains that if the cheapest quote is not selected by the company who collects the service charges, and details the reasons why another quote is preferred.
If an apartment owner engages in the procedure and submits observations, nominations of alternative contractors and/or quotes, then fair consideration should be given to these suggestions.
- Is the work proposed allowed for in the lease?
- Is the work actually needed?
- Has a “reasonable” quote been received?
- Has appropriate time been allowed between each stage of the notices?
- Are the full appropriate documents available for inspection?
Is the work needed to be done?
Work should only be done where needed and it will be essential to consider the lease terms to decide how the building should be repaired.
Is there a reasonable quote?
In addition to complying with the prescribed procedure, the chosen quote has to be reasonable, but this doesn’t necessarily mean the cheapest. Has sufficient time been given between each of the notices?
Each notice has to give a specified time before the next notice is served. It is important to consider matters such as postage and how long the notices take to get to the leaseholders, in order to calculate the relevant dates. Reasonableness in the circumstances are key.
Inspection of documents?
The leaseholders can request sight of that the supporting quotes and detail of works.
What happens if the process and procedures aren’t followed?
The legislation gives the Tribunal power to restrict an individual leaseholder’s contribution to a maximum of £250 if the Section 20 consultation procedure has not been followed.
If the Section 20 consultation procedure is not followed and dispensation is not awarded by the Tribunal, this can create major financial issues when Major Works are required.
A Residents’ Management company is like any other limited company and must comply with the appropriate legislation.
Ensure you follow the process for the setting up a private limited company.
It is important that those leaseholder who are directors understand their legal responsibilities.
Details must be sent to Companies House of:
- details of changes within the company when you make them, like adding / removing directors.
- the annual accounts.
- A confirmation statement.
The Company Tax Return must be sent to HM Revenue & Customs (HMRC) within 12 months of the end of the company’s financial year.
It is possible that HM Revenue & Customs (HMRC) could possibly treat your company as ‘dormant’ which means that they wouldn’t expect your company to send Company Tax Returns thereafter.
HM Revenue & Customs (HMRC) may decide to do this if the company does none of the following:
- allow directors who aren’t residents or leaseholders to be appointed.
- does more than manage the property to the benefit of shareholders
- make any profit
- need to pay more than £100 in Corporation Tax for one year
- receive any income from land
- pay dividends from profits to the company’s shareholders
- own any assets which it may dispose of which would create a gain
- make any payments that are taxable
The company will be notified in writing if the HM Revenue & Customs (HMRC) decide to treat it as dormant.
However, if this notification is not received from the HM Revenue & Customs (HMRC) the company must continue to send a Company Tax Return every year if:
We advise that professional advice be sought in all corporate and taxation matters.
The Right to Manage allows owners of long-leaseholds to take over the responsibility of the management of their property.
The Commonhold and Leasehold Reform Act 2002 introduced the The Right to Manage (RTM). IThrough a statutory right, the leaseholders can take over the management of their building by setting up a special company – this is a right to manage company.
To exercise this right the leaseholders do not need the landlord’s permission, prove any mismanagement or obtain authority from a court. With the right to manage come significant responsibility so it essential that leaseholders know what they are doing and that the correct process and procedures are followed. Requiring a cooperative approach from the leaseholders, professional advice should be sought.
The LPE1 form refers to the Leasehold Property Enquiry form, used to obtain information about the leasehold property that is for sale. This really important information notifies a buyer if any potential issues exist in the running and management of the leasehold building. It clarifies the level of Service Charge and any Ground rent. Part of it is the budget for the current year and for future expenditure and potential liabilities.
When any leasehold property is sold the there is a requirement for information. Generally the Managing Agent or the Management Company Director completes the replies to the Leasehold Property Enquiry form (LPE1) for the prospective purchaser and their advisers.
The buyer relies on the information so it is essential that it is thorough and accurate.
- Ensure it is clear who you are completing the replies on behalf of. Often enquiries go to the Management Company regarding the Service Charge and possibly a separate landlord in respect of the ground rent but it is essential that clarification is made for which the replies relate to and whether these are comprehensive or if separate enquires should be made.
- Useful key documentation which should be provided includes
- The building insurance policy.
- Service Charge accounts, ideally for the previous 3 years
- Minutes of the management company meetings.
- Details of any Right to Manage activity.
- Key information is often requested which may include planned repairs and capital projects and details of any Reserves.
Extending The Term of A Long Residential Lease.
Leaseholds have the right to extend their lease by 90 years at a nil rent. This is the right of apartment owners if they fulfil certain criteria.
Alternatively, there is nothing to stop a mutual agreement for the various apartment owners to buy the freehold of the building (this is called the right to collective enfranchisement).
The key piece of legislation is the Leasehold Reform, Housing and Urban Development Act 1993 (the Act).
The main criteria which must be complied with are the following but I there are exceptions:
- the apartment must be held under a long lease (meaning that the original term was for longer than 21 years
- the applicant must have been owned the leasehold apartment for over two years. (From when you are registered with the Land Registry).
Ownership is the key and residency is not required.
Be aware of any exemptions before proceeding you should contact Rupert Hamby to check and advise on the individual situation.
A lease generally reduces in value over time. Consider:
- the lease will cost more to extend if the term has less than 80 years remaining. This could be material and significant and therefore it may be prudent to extend before reaching this term.
- the length of a residential lease will affect whether or not it is mortgageable and will significantly affect the chances of selling. Be aware of the lending criteria set by banks, which do vary according to the market.
When extending an additional 90 years can be added to your existing lease term.
Contact us and we can give you an indication of likely amounts payable.
Professional advice is recommended and it is important to know that, if you do serve notice on your landlord under the Act, you will have to pay the landlord’s reasonable costs for:
- their investigation needed to carry out to check that the leaseholder does indeed qualify for the right to a new lease
- his valuation advice
- negotiation, preparation and dealing with the new lease
In addition, there may be additional costs of
- Stamp Duty Land Tax (SDLT) (depending on the price paid)
- Land Registry registration
- Any out of pocket expenses and disbursements such as search fees.
If it is required that the application has to go to the First Tier Tribunal (FTT) then your costs will rise. It is required to pay a statutory deposit, which is 10% of the amount inserted in the initial claim notice as being the tenant’s estimate of the premium which starts the process.
It is prudent to take appropriate specialist valuation advice, which we at Peninsula Management can provide, whether you are taking the formal or negotiation route. A price needs to be included in the Initial Notice, which if unrealistic could make your Notice being declared invalid or encourage the landlord towards litigation adding significantly to the costs and timing of things.
There is a timetable to follow, with disputes decided by the First Tier Tribunal. That application to the Tribunal must be made within a period of six months of the counter-notice being issued by the landlord, which if missed will mean your claim is withdrawn.
If you are looking to buy a long-leasehold apartment and the seller has owned the flat for more than two years, you can agree that they serve a claim notice, transferring the rights under that claim on to you upon completion.
It should be understood that this process takes time, probably no sooner than six to nine months. However, if the matter needs to go to the First Tier Tribunal, then this will take longer.
Negotiating with the landlord outside the defined statutory procedure may be the route to take, especially if you don’t qualify under the Act. You might end up paying more money than if you bring a formal claim and there is no control over timing, whereas a formal claim brings a defined timetable and sanctions for any non-compliance.
What about the terms of the extended lease – are these the same as the existing lease or can they be varied?
The Act states that the new lease is to be on the same terms as the existing lease, with some limited exceptions:
- if the existing lease includes property which is to be excluded in the new lease
- where there have been physical alterations to the property since that lease was first granted
- where the service charge provisions are defective so that the landlord cannot recover from the long leaseholder the cost of repairs or insurance.
If the landlord cannot be found then an application will need to be made to the court for a “Vesting Order”. The right to acquire a new lease has to be proven and all reasonable enquiries have been made to locate the landlord but these have drawn a blank.
If a notice is received by a freeholder/landlord this cannot be ignored. Failure to respond with a formal counter-notice within the specified time, normally two months from receipt of the tenant’s notice, will generally mean the landlord will be forced to grant the new lease at the price stated notice from the tenant.
Peninsula Management will be happy to advise leaseholders on their position in respect of the lease extension.
- details of your ownership of your leasehold apartment; ideally a Land Registry title
- your lease
- information of your landlord; again, a Land Registry title is ideal. Alternatively, your rent/service charge demand which should have your landlord’s information.
- our standard procedure is that we will need your personal ID, ideally your passport and a recent utilities invoice to prove residence.
Whilst generally a voluntary role in the case of a Residents’ Management Company, which may be established for the ownership and / or management of a apartment block, the role of director is more than a vanity title. The responsabilites are the same as for any other company director. Ensure that you are informed, before accepting such a position, visit the Companies House website to see what is involved. Your eyes may be opened!
So who is the The Responsible Person?
The owner, employer or occupier of the premises is in most circumstances responsible for ensuring and maintaining correct fire safety and procedures – this is the “responsible person”.
If unsure who is the “responsible person” ask the person in charge of to ensure that adequate and correct fire safety measures are in place.
The Responsible Person is required under the Regulatory Reform (Fire Safety) Order 2005, there is a need for a Fire Risk Assessment, to ensure the appropriate guidance and advice is followed and implemented and ensure ongoing that this assessment up to date.
Our experience is that often the actual Responsible Person is not aware of this role and their responsibility. Ignorance is no defence; the obligation is real and potentially far reaching and expensive. A Fire Risk Assessment is the start and rarely the company has the expertise or time to deal with this themselves, which must be carried out by The Competent Person (who should be competent with appropriate experience, knowledge and clear understanding, equal to the complexity of problems to be tackled.).
We advise anyone in this position to talk with Peninsula Fire Safety; we can provide the right advice covering all the relevant aspects, ensure best practice and create reassurance. Starting with our Fire Safety Management Audit (or whatever it is called) our advice is comprehensive, identifying potential risks, hazards and threats. We can then advise on solutions for what needs to be done, ranging from your potential fire equipment requirements through to creating appropriate policies and procedures and more. Ensure that you adopt best practice.
Companies need to recognise their significant responsibilities to their staff and visitors to their buildings; this is a key consideration of any Risk Register.
The cost of this professional advice is low; a small investment, certainly in relation to the potential outcome of non-compliance. However, the real value is to take every precaution to avoid a fire which is always disruptive but considerably more serious and extremely costly, potentially in more than monetary terms. Be a responsible employer, your staff and visitors expect it. Take your responsibilities seriously.
Contact Jon Limer www.peninsulafiresafety.co.uk
If you are considering sub-letting your property you should consider the terms of your Lease to check what requirements you are obliged to comply with.
Leases will regulate and control sub-letting and as with many Leases.
This might include (indicative only).
Not to sub-let part only of the Flat as distinguished from its entirety.
During the last seven years of the term of the Lease not to sub-let without the previous consent in writing of the Landlord.
To provide a copy of the Tenancy Agreement to the Landlord and / or the Management Company together with any registration fee payable.
It is also important that sub-tenants enter into a Deed of Covenant to abide by the covenants and regulations of the Lease or ensure that their performance of these covenants and regulations are written into any Tenancy Agreement – failure to do so could leave you liable.
As ever, ignorance is no defence so before any subletting speak with the person (Manager / Directors) responsible for the building.
Ground Rent refers to the rent payable to the freeholder. In the case of a flat or apartment is for the use of the space, and is not for the provision of any services. The amount of the ground rent payable is set out in the Lease and often increases over time, so it is important to look at this calculation formula to assess future payments.
Leasehold Valuation Tribunal (LVT) is a statutory tribunal, which provides a forum for residential disputes, between private sector landlords and tenants without the need to go to court and the LVT decision is legally binding. The LVT hears disputes on numerous matters which would include Service Charges, appointment of a Manager, building insurance, lease extensions are considerably more.
Residential service charge demands must comply with both the lease and with various statutory requirements. There are prescribed procedures which are compulsory. If a demand is incorrectly presented, the service charge may not be payable by the lessee until the landlord or the managing agent fulfils his obligations. In fact there are situations where it may not be payable.
Things to consider.
Does the lease provide for the service change demand and are there any requirements or limitations?
Is the landlord’s address in England or Wales quoted, where notices may be served?
Is a summary of the tenant’s rights and obligations enclosed with the Service Charge demand?.
Is the demand being served within eighteen months of the relevant costs actually being incurred? This can have major consequences.
Relevant statues include Landlord and Tenant Act 1985 and the Landlord and Tenant Act 1987
The term tenure are the ways property can be owned, which dictates whether someone is an owner or a tenant. Freehold is ownership in perpetuity and leasehold gives the property to the leasee for a stated period number of years, generally for a Ground Rent.
Block management FAQs gives an insight into the often used phrases use in apartment block management, being the management of communal areas of larger buildings on long-leasehold residential properties. A highly regulated sector, managing a block of long-leasehold flats requires a professional approach, time and dedication.
Block management includes organising various contractors to effect maintenance and repairs, building insurance of the building and the provision of services to allow the efficient operation internal and external common areas, by regular inspections.
Knowledge of the legislation and leases, ability to prepare and manage the annual budget and company accounts.
Ensuring value for money is a key agents’ responsibility and that the building is maintained in accordance with the terms of the lease.
A long-term savings which are generally built up over time, through service charges. This funds builds through the years such and has the effect of sharing the contributions if a property changes hands and avoids demands being made for foreseeable significant expenses, such as the painting of interior and exterior parts, lifts or replacement of a roof.