There are significant legal protections for apartment holders in relation to problems and abuses that arise in apartment developments. Significant additional protections took effect in 2007. There is no equivalent to most of this legislation in Ireland as of yet.
A landlord or management company is only able to recover service charges for costs and expenses to the extent that they have been “reasonably incurred” and only where the services are of a “reasonable standard”.
The Leasehold Valuation Tribunal determines disputes in relation to service charges. It is possible for an apartment owner to apply to the Tribunal on the basis that they have been overcharged. The Tribunal determines whether the costs incurred for services, repairs, maintenance, improvements, insurance, management etc were reasonably incurred.
It is possible for the landlord or tenant to obtain a determination before the relevant costs are incurred. There is a Code of Best Practice in relation to managing residential property to which the Leasehold Valuation Tribunal will have regard.
Consultation Re Works
A landlord, managing agent or management company may be required to consult with apartment owners, before going ahead with certain works, services and long-term agreements, if the expenses are to be borne by the apartment owners. Consultation is required where the contribution to be borne per tenant is more than £250. Where the consultation is not undertaken, the landlord will not be able to recover the full costs. The Leasehold Valuation Tribunal has the power to dispense with the consultation.
The consultation procedure requires the landlord to give notice of the proposed works or matters to the apartment owners or their representatives. The landlord is then obliged to obtain estimates and the tenants or their association are entitled to make a nomination. The landlord is entitled to rank estimates on a scale of preference. Estimates must be made available for inspection by the apartment owners or their representative bodies.
Thirty days after the landlord has considered the apartment owners’ observations, a contract may be entered. Certain further notices must be given where the contract chosen was neither nominated by the apartment owners nor is the lowest tender.
A landlord must send apartment owners a summary of apartment owner’s rights and obligations in relation to the service charge, with every service charge demand. The apartment owner may require the landlord or management company to supply a written summary of costs incurred. This must set out and summarise certain items in detail.
It must specify the amount standing to the credit of the apartment owners and the amounts received on account of service charge. The apartment owner or their association is entitled within 6 months of receiving a report, to require the landlord to afford facilities for inspecting the accounts, receipts and other supporting documentation.
The apartment owner may withhold payment of service charge if the landlord does not supply the required documentation on time or if the form or content do not conform substantially with the legal requirements. There is a maximum which can be withheld. The payment cannot be withheld once correct documentation has been furnished. Costs must be included in the service charge within 18 months of being incurred. Otherwise, they cannot be charged for.
Sums paid for service charges must be held on trust. Provisions have recently been made whereby service charge funds must be held in a designated account. These have not yet commenced but they will require that monies be held in a designated account with an approved financial institution. The contributing apartment owner or the secretary of the recognised owner’s association is entitled to inspect and receive copies of all statements and documents which explain the monies being held in the designated account.
Management / Associations
Owners are entitled to appoint a recognised association for the purpose of exercising their legal rights. This can usually be achieved by obtaining a letter of recognition from the landlord. The recognition will usually last for a 4 year period. The apartment owners association is entitled to appoint a surveyor to exercise certain of its functions on its behalf.
Owners are entitled to require a management audit to be carried out on their behalf. The purpose is to ascertain the extent to which the obligations of the landlord/management company are being discharged in an efficient manner and the extent to which service charges are being applied in an efficient and effective manner. The auditor must be a qualified accountant.
The recognised owners’ association may require the landlord to consult on matters relating to the employment of managing agents. Owners who believe the landlord is not managing the building satisfactorily may apply to the Leasehold Valuation Tribunal for an order appointing a manager.
The Tribunal may appoint a manager to carry out such functions in relation to the management of the premises as it sees fit. The Tribunal may appoint the manager if it is satisfied that the landlord is in breach of obligations, where unreasonable service charges have been made or proposed, where the codes of practice have not been followed or where it is just and convenient.
There are provisions have been introduced controlling administration charges. These are charges in relation to grant of approvals under the lease e.g. for subletting, sales etc. Administration charges must be reasonable. A demand for an administration charge must be accompanied by a summary of the apartment owners’ rights and obligations. An application may be made to the Leasehold Valuation Tribunal for a determination as to whether an administrative charge is payable, the amount payable and the manner payable.
Apartment owners have a right to compulsorily acquire the landlord’s interest in the building, if it is in serious and continuing breach of its duties to repair, maintain, and insure or manage.
The Leasehold Valuation Tribunal is entitled to vary leases where the scheme set up is not sufficient or satisfactory to carry out the management or maintenance functions.
Right to Manage
Separate from the right to appoint a manager, there is a right for apartment owners to set up a management company to exercise rights to manage their building. This is separate from the above-mentioned right which requires proof that the current management is at fault.
The right to manage may be exercised only if
- premises is a self-contained building or part of a building
- there are two or more flats held by qualifying tenants (lease more than 21 years)
- not a business tenancy.
There are exceptions including in particular
- non-residential exceeds 25% floor area
- self-contained parts owned by different freeholders
- no more than 4 units with a resident landlord
- there is an RTM company or has been within the last four years
Requirements apply in relation to the constitution and membership of the right to manage company. Any qualifying tenant is entitled to be a member. The landlord is also entitled to be a member.
A notice to participate must be served on all qualifying tenants who are not already members before a notice of claim is served on the landlord. There are strict conditions in relation to the claim notice. A counter notice may be served denying the entitlement to require a right to management company.
The grounds of objection include
- failure to meet 50% membership
- defects in constitution.
The matter may be referred to the first-tier Tribunal property chamber in the event of a dispute.
If the right to manage is acquired, it should be registered at HM Land Registry. All management functions performed by a landlord or management agent pursuant to the lease are transferred to the company. The company has the right to enforce tenant covenants.
The RTM company undertakes approvals under the lease provided that notice must be given to the landlord. The landlord may apply to the first-tier Tribunal in the event of a dispute as to consent.
The service charge will usually include an insurance contribution. The apartment owners may require the landlord to supply a written summary of the insurance. This can be made through a recognised owners’ association. Within 6 months of receiving the summary, the lessees may require the landlord to provide a facility to inspect the policy accounts, other receipts and documents in relation to the insurance.
Apartment owners have a direct right to notify insurers of possible claims. Where a lease requires the apartment owner to insure with an insurer nominated by the landlord, then the landlord or apartment owner may apply to the Leasehold Valuation Tribunal for determination whether the insurance available from the nominated insurer is satisfactory.
Rights to purchase ground rents
Apartment lease terms may typically vary from 50 to 999 years in length. For many years, there have been rights for leaseholders to purchase additional lease terms and in some circumstances to purchase out the landlord’s interest entirely. It is likely that these laws will continue and develop even further in favour of the leaseholder over time.
Where a landlord is transferring his interest in a building which consists of two or more flats and where flats are more than half the area, it must offer it for sale to the apartment holders /tenants. This can arise where there are shops on the ground floor with apartments overhead. The tenants have a two month period in which to decide to buy or not. The landlord may not sell the property for a lower price without re-offering.
There is another provision where certain apartment owners holding under long leases can apply to Court for an order to compulsorily acquire a neglectful landlord’s interest. A two-thirds majority of tenants is required. This can arise because of the landlord’s failure to manage or by reason the imposition of unreasonable service charge.
There is a collective right for certain long leaseholders to acquire the landlord’s interest. Under this right, qualifying leaseholders, subject to various conditions, are entitled to acquire the freehold of their flats or individually to acquire extended leases for 90 year periods. Generally, a company will be set up for the purpose of the acquisition. The purchase price is calculated based on the market value of the ground rent interest. Where the lease terms are over 80 years, the purchase terms are more favourable to the long leaseholders.
Separately, there is a right for certain apartment leaseholders to acquire a 90-year extension to their existing lease. This may happen where there is not enough of them qualifying to collectively purchase their freehold interest. The purchase price is calculated to the leaseholders’ advantage as it is assumed that the rights of extension of the lease exist.
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