Maintenance and repair work are an inevitability when it comes to property. Without these works, our buildings would deteriorate, diminish in value and could potentially become hazardous. Not to mention the fact that if you fail to carry out certain works as the freeholder, you will likely be in breach of the terms of the lease and could potentially be taken to court, forced to carry out the works and even ordered to pay compensation to your leaseholders.
Evidently, this is not something that you should take lightly, particularly as leaseholders are becoming increasingly savvy and likely to scrutinise every action that their landlord takes. And who can blame them when it’s their home and oftentimes their money at stake. So, how do you successfully organise maintenance and repairs to your building? First, you need to have a clear understanding of exactly what you’re responsible for, assuming you don’t already know.
What maintenance and repairs are you responsible for as a freeholder?
Broadly speaking, freeholders are usually responsible for arranging repairs and maintenance to their building’s structure such as the roof, together with any communal areas inside the building such as stairs and lifts. Leaseholders on the other hand are usually responsible for anything inside their flat such as internal decoration, plastering, flooring, plumbing and wiring.
To ascertain your specific responsibilities and those of your leaseholders, you will need to refer to the lease document for your property. There will also be a number of statutory duties that you will be responsible for, predominantly relating to health and safety such as fire risk assessments.
Having a clear understanding of your responsibilities will enable you to carefully plan maintenance and repair work for your property. This will not only help to safeguard the future of your building but will also ensure that its value is maintained or even enhanced. Furthermore, you will be able to prepare suitable budgets and collect funds in preparation for the works.
It is advisable to complete a comprehensive survey of your building to determine any work that will need to be carried out as a priority and any works that are desirable but not urgent. You should then be able to assign accurate time scales to each of the works and prepare for these accordingly.
How do you recover the costs for maintenance and major works?
Although the lease will stipulate that you have a responsibility to arrange certain maintenance and repairs to your building, you will not have to foot the bill as any costs for such work will usually be payable by the leaseholders. These costs can be recovered in a number of ways depending on what the lease dictates.
Reserve Funds and Sinking Funds
These funds are ‘pots’ of money that have been obtained from leaseholders over a number of years to pay for repairs and maintenance. Although the terms are commonly used interchangeably, they actually serve slightly different purposes. A Reserve Fund is accumulated to cover the long-term cost of maintaining a building. For example, periodic external decoration to uphold the appearance of the building. Whereas a Sinking Fund is collected specifically to cover the cost of major works, which commonly occur less regularly.
To collect a Reserve Fund and/or a Sinking Fund for your building, it must be stated in the lease. These funds are typically obtained from leaseholders by landlords or management companies as part of their service charge but must be held in a separate bank account.
If the requirement for major works arose as a result of an accident, it may be possible to claim on your buildings insurance. The lease will dictate whether it is the responsibility of the freeholder or the leaseholder to insure the building. If anything isn’t covered by the insurance or if insurance funds fall short, you will need to refer to the lease terms in order to determine who is responsible for paying for the works.
Nevertheless, as the freeholder its good practice to ensure that you have the appropriate level of cover for your building.
Payments in advance of major works
In instances where there is no provision for a Reserve Fund or a Sinking Fund, or where any accumulated funds fall short, you may be able to request payment from your leaseholders in advance of the work being carried out. Again, you will need to refer to your lease to see if you have the ability to do this.
Where a leaseholder is unable to provide funds to cover their share of the total cost for major works, you could offer a payment scheme or extended payment terms to your leaseholder to help recover the funds. Alternatively, it may be possible to delay the works, but this will depend on health and safety, your legal obligations and insurance implications. It is imperative that you follow the Section 20 Consultation procedure when applicable as this will ensure that you can legally recover the costs from leaseholders.
Arranging maintenance and major works
Arranging maintenance and/or major works to a residential freehold property is not exactly a straightforward process. This is because as a freeholder, you are governed by the law when it comes to spending leaseholder money. Specifically, Section 20 of the Landlord and Tenant Act 1985 as amended by the Commonhold and Leasehold Reform Act 2002.
This law dictates that when the contribution for major works or “qualifying works” from any one leaseholder exceeds £250, and where the lease dictates that the cost for such works is recoverable from the leaseholders, you must follow a strict consultation procedure. This will still apply even if you have a Sinking Fund or Reserve Fund, as leaseholders must be consulted about how their money is spent.
So, if you only have a few flats in your building or if the cost for the works is in the thousands (which is more than likely for major works) it’s highly probable that you’ll have to conform. There are three stages to the Section 20 consultation procedure, each provided in a written format to leaseholders:
Stage 1 – Notice of intention to carry out works
Here you will provide details of the work that needs to be carried out and your reasons as to why you believe it to be necessary. Leaseholders will also be invited to comment on the proposed works and nominate a contractor to provide an estimate for the works. You must provide leaseholders with 30 days in which to respond.
Stage 2 – Statement of estimates
At this stage, you will need to provide leaseholders with a summary of the comments received in relation to the notice of intention. A summary of two estimates for each item of work will also need to be included together with details of where they may be inspected or obtained. Leaseholders must again be offered an opportunity to comment and provide any observations within 30 days.
Stage 3 – Notice of reasons
If the selected contractor is not a nominee provided by the leaseholders or is not the lowest estimate you must serve a notice of reasons. This must state your reasons for awarding the contractor or specifying where and when the statement can be inspected. If you received observations on the estimates, you must also summarise these and provide your response to them, demonstrating that you have ‘had regard’ to what the leaseholders have said. This statement must be served within 21 days of entering into the contract with the contractor.
Finally, you can advise that you will write further to confirm which contractor has been appointed and the date(s) that they will carry out the works, together with confirmation of the cost of the works and the contribution required from each leaseholder. We recommend that you provide this information to leaseholders even when you’re not required to serve the last Section 20 Notice.
Adhering to the Section 20 consultation procedure for major works can be a lengthy process, however, failure to comply in the prescribed format will result in freeholders only being able to recover £250 from each leaseholder, which can lead to a hefty shortfall and a huge burden to bear.
To make this process easier for you we’ve created free Section 20 Notice templates for each of the three stages, which you can download directly from our website.
If your building requires urgent repairs that cannot wait for the consultation procedure to complete, you may be able to apply to the First Tier Tribunal for dispensation from consultation. The tribunal will weigh up the leaseholder’s potential financial loss from the lack of consultation versus the nature of the required works in order to make their decision.
The key to successfully organising repairs and maintenance to your freehold property is undoubtedly all in the preparation. If you do the leg work with surveys and maintenance plans, you’ll be able to create more accurate budgets and spread the cost for the works over time so as not to provide leaseholders with any nasty surprises. Furthermore, you’ll keep your property in good nick which gives it the potential to increase in value.
We also provide a free template for Section 166 – Ground Rent Demand