As a freeholder, you own a plot of land and any property or structures that sit upon it. This property may be divided into flats which are occupied by leaseholders and there may be a car park, access road and gardens, all of which require regular maintenance. So, what are your freeholder responsibilities?
Having leaseholders live in your property can make the lines of responsibility for maintenance less distinct. Who should be mowing the lawn? Who should be painting the interior and exterior walls? Who should be fixing broken lights? With a plethora of management tasks and of course legal obligations for both freeholders and leaseholders to uphold, it’s important to know exactly where the lines of responsibility divide.
Both freeholder and leaseholder responsibilities are determined by the terms of the lease for the property. Each leaseholder will have a unique lease pertaining to their flat, which contains the legal terms and obligations that must be adhered to. Therefore, it is imperative that you read the lease carefully, obtaining assistance from a legal professional if required.
A copy of the lease for each property can be obtained from Land Registry.
Though leases vary, leaseholders are typically accountable for the maintenance and upkeep of their individual demise or ‘flat’. This covers paintwork and redecoration, carpets, floorboards, plasterwork, appliances, plumbing and wiring. So, in other words, all items inside their property. Some leases may even specify that a flat must be repainted within a certain period of time, i.e. every five years.
Furthermore, the lease will almost certainly require the leaseholder to seek consent from the freeholder in order to make any alterations. This will include loft conversions, extensions and replacement windows, for which the freeholder may require the leaseholder to pay a premium in order to grant consent for the works. This premium is to cover the cost of administration, inspections and surveyors’ fees (if any), together with providing compensation to the freeholder for any uplift in the property’s value
Freeholders should, therefore, expect to receive correspondence from leaseholders regarding such works and should also be aware of what is permitted and what isn’t as per the terms of the lease. It is also highly advisable to carry out inspections and surveys of the completed works to ensure that they were completed to specification, building regulations and safety standards.
Beyond what is required from the lease, there are also many statutory requirements that a freeholder must comply with. So, it is advisable to thoroughly review both the Landlord & Tenant Act 1985 and the Landlord & Tenant Act 1987 to understand current legislation that freeholders must adhere to.
If you’re a new freeholder, you’ll also need to make sure that you’ve disclosed your name and address to all rent-paying leaseholders using a Section 3 Notice. This is a legal obligation for anyone who has purchased a freehold property, and you’ll have just two months to do it from the date of transfer.
Typical freeholder responsibilities
A freeholders’ responsibilities can include all or a combination of the following activities:
- Repairs and maintenance to the structure of the building (including the roof and guttering) and any communal areas
- Arranging internal and external cleaning, painting and decorating
- Managing utility supplies, plumbing, heating for communal areas
- Arranging communal garden maintenance and pest control
- Preparing for and arranging major works following Section 20
- Arranging adequate buildings insurance
- Communicating with contractors and arranging payments
- Overseeing maintenance and repair works and general site visits
- Collecting ground rent & service charges from leaseholders
- Preparation of budgets and management accounts
- Ensuring that the building meets strict health and safety regulations
The above activities require a good understanding of Landlord and Tenant laws, health and safety legislation and a range of other leasehold matters. Without such crucial knowledge, the building would be left vulnerable to deterioration and residents could find themselves living in an unpleasant or even dangerous environment.
Failing to adhere to the relevant legislation and legal obligations can also have serious implications for the freeholder. This can include criminal prosecution, a hefty fine or even a term of imprisonment. It is therefore strongly advised to not attempt to manage all aspects of a building unless you possess the required knowledge and skills.
One of the most important obligations for a freeholder is arranging and renewing buildings and other required insurances. Leaseholders, on the other hand, will be responsible for paying for these policies in accordance with their lease. Leaseholders may also wish to purchase their own contents insurance policy as anything inside their flat is not usually covered by buildings insurance. Although this is not a legal requirement, it is highly advisable.
The lease may state that as the freeholder, you must obtain comprehensive buildings cover. This is in everyone’s best interests, of course, as any damage which occurs can be rectified far less painfully. If the responsibility to insure does sit with the freeholder and you fail to fulfil this obligation, you run the risk of having to personally pay for any damage to be rectified should it occur.
It is important to ensure that you specifically take out landlord’s building insurance and not simply residential. Residential buildings insurance will not cover a residential freehold building. If you are at all in doubt, it’s worth giving your chosen insurer a call. They should then be able to help you choose cover which is most appropriate but remember that the cheapest policy is not always the best.
Service charges and management reports
A service charge is a regular payment made by leaseholders in respect of management services, maintenance, and repair work for their building. While you are responsible for setting, collecting, and spending these service charges, the amount levied must be ‘reasonable’ or your leaseholders could challenge you at a tribunal. Apportionment of service charges between leaseholders is dictated by the lease. The lease also states what services can and cannot be charged for by the freeholder and the payment terms.
Devolve it to a property management firm
As many of the repair and management responsibilities for a block of flats sit with the freeholder, it can be an extremely tough job. This is particularly apparent for freeholders who do not live within easy reach of their property. So, it’s no wonder that so many freeholders pass these responsibilities on to a third-party managing agent. The agent acts as a middleman, collecting and disbursing the ground rent and service charges, scheduling contractors, liaising with leaseholders, providing management accounts, and generally running the building.
Naturally, employing any company to manage your property can pose a risk. For example, there is a possibility that they could provide a terrible service, leaving your leaseholders riled and your building in a poor state of repair. In these circumstances, there is a greater chance that leaseholders will wish to form a Residents Management Company and take on the management of the building themselves under their ‘Right to Manage’.
Furthermore, your leaseholders may decide to Collectively Enfranchise and legally force you to sell them the freehold of the building. In which case, you would no longer have any claim on the property and would, therefore, lose any income that this provided. So, it’s not only good practice but incredibly wise to ensure that leaseholders are provided with a satisfactory service from their freeholder.
Of course, delivering on these responsibilities and complying with legal obligations to an acceptable standard can be simply too difficult and time-consuming for many freeholders. Consequently, many people decide that it’s all too much hassle and decide to sell the freehold to relinquish themselves of the freeholder responsibilities.
Owning a residential freehold has the potential to be a great investment, where you can collect a little ground rent money every year. However, it’s also fraught with legal responsibilities, which can result in dire consequences if you’re not fully aware of your obligations.
If you’re thinking about selling your freehold, speak with a Freehold Sale expert, who can give you all the facts, provide a professional valuation appraisal and answer any other questions you might have.
This resource was originally published on 24th August 2015 and updated on 19th March 2020.