As a freeholder, you own a plot of land and any property that sits on it. This property may be divided into flats which are occupied by leaseholders, and there may be a car park, access road and a garden – all of which require regular maintenance. So what are your freeholder responsibilities?
Having mortgage-paying 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 flats? Who should be fixing broken lights? As there are so many legal obligations, it’s good to know exactly where that line divides.
If you are a new freeholder and unsure of your freeholder responsibilities, then a good place to start is a thorough review of both the Landlord & Tenant Act 1985 and the Landlord & Tenant Act 1987. 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.
You are typically responsible for the following:
- Repairs and maintenance to the structure of the building (including the roof and guttering) and any communal areas
- The cleaning of the outer building
- Upkeep and maintenance of the communal areas
- Applying ground rent/service charges and providing management accounts to show how the money has been spent
This means you must engage and pay contractors to fix, clean and maintain the building and communal areas regularly.
Another important obligation is arranging and renewing buildings and other required insurances. As they don’t own the property itself, most leaseholders will only own contents insurance.
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.
Ensure that the policy you take out is specifically landlord’s building insurance and not simply residential. Your insurer should be able to help you choose cover which is most appropriate.
Service Charges and Management Reports
While you are responsible for setting, collecting and spending the service charges, the amount levied must be ‘reasonable’ or your leaseholders could challenge you at a tribunal. Calculations for the service charge must be set out in the lease. It should state that leaseholders pay an equal share of the costs towards maintenance and repairs, plus payment terms.
Additionally, you must send leaseholders a management report which clearly shows where the money has been spent. Costs for various services will fluctuate, but in the event that the total comes in under budget, it’s good to reimburse the leaseholders.
What’s in the Lease?
If in doubt, the lease should state who is responsible for what. Though leases vary, on average the leaseholder is accountable for the maintenance and upkeep of their individual unit. This covers paintwork and redecoration, carpets, floorboards, plasterwork, appliances, plumbing and wiring. Some leases may even specify that a flat must be repainted within a certain period of time, i.e. every five years.
Similarly, the lease might say that any major structural changes to the internal workings of a flat must be first reported to the freeholder, as a courtesy, really. This is usually the case if renovating the kitchen or bathroom. Hence you may receive calls from leaseholders checking whether their plans will be permitted.
Devolve it to a Property Management Firm
As you can see, a great many responsibilities sit with the freeholder and keeping up with it all can be a tough task – especially if you don’t live within easy reach of the property. No wonder so many freeholders pass these responsibilities on to a third party managing agent. The agent acts as a middle man, collecting and disbursing the ground rent and service charges, scheduling contractors, liaising with leaseholders, providing management accounts and generally running the building.
The downside is that service charges for your leaseholders will undoubtedly increase. Hence you must consult them about any proposed changes. They may wish to form a tenants’ association and take on the running of the building themselves under their ‘right to manage’.
Owning a freehold is a great investment – you have a property and can earn a little rent money. However, it’s also fraught with legal responsibilities and you must make sure that you’re fully aware of your obligations.
If you’re thinking about selling your freehold ground rents, speak with one of our experts, who can give you all the facts, provide an expert valuation appraisal and answer any other questions you might have.