OK, freeholders have got a bad reputation. There are some unsavoury individuals and companies out there who have sought to rip leaseholders off for their own personal gain; it’s true. So, why would you want to speak to any freeholder, let alone trust them? We’re all the same, right? Well, as the old saying goes, you can’t tar everyone with the same brush, and it couldn’t be more relevant when it comes to freeholders. Yet, while many people adhere to this adage, it’s understandable that some leaseholders would be sceptical of their freeholder’s intentions.
How did freeholders get such a bad reputation?
The most significant reason for freeholders having a bad reputation is the ground rent scandal. In 2017, several developers sold new leasehold homes with onerous lease terms, namely, doubling ground rent. This was an incredibly attractive prospect for some freeholders who would make a small fortune generating mouth-watering returns on their investment. Requested to use the developer’s own solicitors to complete the sale of the property, unsuspecting leaseholders were unaware of what they were really signing up to. And so with ground rents set to double every 5-10 years, leaseholders would be left unable to meet these astronomical payments and trapped in unsaleable homes.
While the blame doesn’t lie solely with the freeholders, if they had experience in the industry they would have read and understood the lease terms and thus known just how appalling they were. Having worked in the property industry for the past few decades, and as a freeholder for many of those years, I was taken aback to learn of such greed and so too were my peers. Evidently, the greed of a few who found legal loopholes to exploit has caused years of untold grief on so many. Though leaseholders are the ones who are really suffering in all manner of ways, the scandal has caused irrefutable damage to the reputation of freeholders across the country.
Fortunately, many of the guilty parties are now being brought to justice and over 40 leading property developers and freeholders, including Taylor Wimpey and Barratt Homes, have signed a pledge committing to free existing leaseholders who are trapped by toxic leases. Furthermore, all freeholders who have signed up to the pledge have committed to amending onerous doubling ground rent lease terms, while developers have committed to never using these clauses again.
Yet, the ground rent scandal isn’t the only wrong-doing in the leasehold sector. Some freeholders have been found demanding excessive and unreasonable service and administration charges. They have also purposefully denied or delayed requests for information, permission for alterations, and lease extension requests. Fortunately, leaseholders are becoming increasingly savvy of Landlord and Tenant laws and therefore aware that these practices are not allowed. Consequently, many leaseholders are proceeding to take their freeholders to the First-Tier Tribunal for judgment and penalty.
With consumer awareness rising and positive changes to legislation implemented as a result of the ground rent scandal, the leasehold sector is slowly being reformed. The Law Commission is also playing a part in its transformation by reviewing existing legislation for some of the major activities for leaseholders. These consist of Enfranchisement (buying the freehold), claiming the Right to Manage, and converting to Commonhold. Each of these is currently fraught with problems that the Law Commission intends to resolve in order to make things easier, cheaper, and clearer for leaseholders. Restrictions on certain fees that freeholders are allowed to charge have also been introduced along with time restrictions for the delivery of certain information.
All-in-all, it is becoming increasingly difficult for greedy, callous freeholders to get away with taking advantage of leaseholders. But while these people will soon be a thing of the past, there are and have always been some very decent freeholders out there. The nice guys want to be helpful to their leaseholders and aren’t out to bleed them dry of money or make a quick buck wherever they can. They want to provide a good service and for everyone to live harmoniously for years to come in a building that’s well maintained.
However, in order for leaseholders and freeholders to have a good relationship from the outset, they must both abide by the terms of their lease together with relevant landlord and tenant laws. This mutual respect will ensure that unnecessary, costly, and stressful disputes do not arise. It is therefore crucial that you both read the lease in order to understand your rights and obligations. It may be prudent to seek assistance from a solicitor if you are unsure of any of the terms. While the scope of responsibilities varies depending on the lease, there is a number of commonalities, which I will outline below.
Typical freeholder and leaseholder rights and responsibilities
In the most basic of terms, freeholders are typically responsible for organising maintenance, repairs, utilities, and insurance for the common parts of their building. These are what are known as ‘positive covenants’. The costs involved must always be reasonable and are usually collected as part of the service charge, which leaseholders must pay whenever their lease dictates. Freeholders are also entitled to collect ground rent in accordance with the lease and charge for reasonable management, administration, and legal costs. If the freeholder fails to comply with the terms of the lease, they may in breach, which would facilitate tribunal action initiated by the leaseholders in order to attain a judgment and penalties.
Leaseholders will also be subject to positive covenants, namely, maintaining their own personal demise (flat/apartment) and paying the service charge. However, leaseholders must also comply with a range of ‘restrictive covenants’, which essentially dictate what you must not do. These can include, not making alterations to the property without consent; not keeping pets; not making excessive noise, and not installing hard floors. Leaseholders who breach covenants in their lease can face forfeiture of their property. This means that the courts could grant the freeholder permission to regain possession of your home.
Landlord and Tenant Laws provide leaseholders with a number of ‘rights’ which they can exercise when required. These include:
- The right to information – leaseholders can request to see information regarding the property such as insurance documents and service charge accounts.
- The right to consent – if the lease permits, the freeholder must provide their consent to the leaseholder for alterations to their property and sub-letting. The freeholder is entitled to charge a premium for granting permission for certain activities.
- The right for quiet enjoyment – leaseholders are entitled to live in their home peacefully without interference from the freeholder.
- The Right to Manage – qualifying leaseholders can take over control of the management of the building from the freeholder. Leaseholders can claim the Right to Manage regardless of whether the existing management has been good or bad.
- Enfranchisement – qualifying leaseholders can purchase the freehold of their building. In a block of flats, this process is known as Collective Enfranchisement. Leaseholders must pay a premium to the freeholder for the acquisition.
- The right to a lease extension – qualifying leaseholders can extend the number of years remaining on their lease for a premium payable to the freeholder.
- The right to be consulted – the freeholder must consult leaseholders on any major works where the contribution from any one leaseholder will exceed £250. This provides leaseholders with an opportunity to decide how their money is spent.
- The Right of First Refusal – when a freeholder wishes to dispose of their interest, qualifying leaseholders must be given an opportunity to buy the freehold before another party. The freeholder is legally obliged to offer the Right of First Refusal by way of a Section 5 Notice.
Many leaseholders believe that the only way to exercise these rights is to follow the formal, statutory procedure. However, it can be much cheaper, faster, and more fruitful to speak to your freeholder in the first instance.
What should you speak to your freeholder about?
First and foremost, if you have any concerns with how your building is being managed or if you need to report repair or maintenance issues, you should speak to either your freeholder or the acting management company. If the management company is not managing the building effectively, it is advisable to inform your freeholder as they may be unaware of their shortcomings. Freeholders have a vested interest in their properties and will therefore want to make sure that they are properly maintained in order to preserve their value, safety, and comfort for the leaseholders. Furthermore, they will want to ensure that they are compliant with the terms of the lease to prevent expensive and time-consuming litigation.
If you’re thinking about making alterations to your home, it’s crucial to read your lease to understand whether or not you’re allowed or whether you need permission in order to do so. If consent is required, contact your freeholder in writing to explain the alterations or improvements that you would like to make and request their consent. In order for the works to be agreed upon by your freeholder, you may need to provide professional plans drawn up by a surveyor. This is a prudent approach for protecting the building and all the leaseholders within.
Under Section 19 of the Landlord and Tenant Act 1927, a freeholder cannot unreasonably withhold their consent, furthermore, they’re likely to welcome any high standard improvements to their property. Of course, the freeholder may incur legal or other expenses as a result of granting consent, which they are entitled to pass on to the leaseholder. These can include the surveyor’s costs for checking the plans and inspecting the site, solicitor’s costs for drawing up the consent document, and administration costs. What’s important to remember here is that you can deal directly with your freeholder and therefore you can save time and a great deal of money compared to using costly solicitors.
The same applies to obtaining a lease extension, where there is the potential to benefit greatly from dealing directly with your freeholder. Although leaseholders are led to believe that they have to take the formal statutory route to obtain a lease extension, this binds you to very basic statutory terms of a 90-year extension and peppercorn ground rent. However, you’d also face significantly high legal costs as you’ll be responsible for paying for your own solicitor together with the freeholder’s legal costs. Conversely, by entering into informal negotiations directly with your freeholder, you could achieve a more advantageous outcome.
For example, your freeholder may agree to a lower lease extension premium with a small increase in your ground rent. Essentially, this would enable you to spread the cost of the lease extension over the lease term, which is even more beneficial if you plan to sell your property in the near future. It may also be possible to negotiate the number of years you would like to extend by. You may find this incredibly valuable if you plan to pass the property onto your children or grandchildren, as it would help to secure the future of the property for longer.
To save time, money, and hassle, it’s always best to approach your freeholder first to discuss your query and ask for associated costs, time scales, and processes. Solicitors will usually advise you to follow statutory routes and serve formal notices on your freeholder, which aren’t always necessary but will always end up costing you more. Freeholders are often more than happy to engage in talks with their leaseholders to secure the best possible outcome for you both.
What if you can’t locate your freeholder?
Unfortunately, some freeholders do tend to go missing, which can leave leaseholders in a very difficult position. The best course of action is to try to locate the freeholder using reasonable means, such as contacting solicitors who may have dealt with the property or using a people location agency. If they still can’t be found, you may be able to apply to a Country Court for a Vesting Order, which will enable the court to grant you a lease extension or provide you with consent for alterations, etc. in the freeholder’s absence.