Mark Chick

Serving notice under the 1993 Act – “It’s just filling in a few forms, right?”

Serving notice under the 1993 Act – “It’s just filling in a few forms, right?”

As I explained in my recent talk, “Take No Notice” with Andrew Pridell of APA Associates at the ALEP Autumn Conference on 18 October 20011, serving notice under the Leasehold Reform Housing and Urban Development Act 1993, is not as easy as it seems.

This was a talk to other professionals at the ALEP (Association of Leasehold Enfranchisement Practitioners) Autumn Conference and although that talk was aimed at professionals (a full set of notes appears at www.leaseholdreformnews.com) there are a few points that anyone looking to engage with this area should bear in mind.

• The notice must be signed personally by the qualifying flat owner. For instance, someone holding a power of attorney cannot sign on behalf of someone else.

• A UK company is going to need to execute the notice as a deed. An overseas company will present different issues.

• Any offer figure must be made in ‘good faith.’ This has a specific technical meaning and ideally therefore (although it is not mandatory) specialist valuation advice needs to be obtained.

• Allocating any offer figure must be done correctly. This will involve consideration of technical issues such as additional freeholds, or other leasehold areas to be included in the claim. If there are other leasehold interests or superior (head) leases then this too needs careful consideration. The valuation and legal advisor will need to liaise closely.

• The notice needs to be addressed to the correct parties. Once again this is technical and any slips will make the notice void. The list to be served may include other landlords and other parties. The right addresses for service are not always readily apparent.

• Multiple signatures of a single notice may present significant legal issues particularly, if this is done without proper advice and supervision. Using a solicitor will almost certainly assist in the event of a challenge.

Bear in mind that if the notice is not served correctly that you will be liable for the landlord’s costs of investigating your claim and serving counter notice (legal and valuation) and you will have to start all over again. If your lease has slipped below a critical point (e.g. below 80 years), then irreparable damage may be done.

Similarly, in a collective claim where a large number of people have to sign a notice, if there is an invalid notice, vital impetus will be lost and the claim may take a long time to start going again. This is to say nothing of the possible expense and inconvenience of a court case investigating the notice if invalidity is not conceded.

Likewise, without the benefit of specialist help, where difficulties have arisen, those qualifying may actually withdraw a perfectly good claim – leading to the position that they cannot bring a fresh claim for another year.

For all of these reasons (amongst others) specialist help should always be sought. As such you should always use a firm of legal or valuation advisors with a proven track record in this area, such as an ALEP member.

Mark Chick

20 October 2011

This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk

I have been offered a 'voluntary deal' for a lease extension with a ground rent. Is there anything I should look out for ?

Kelton Court - One Year On, is the deferment rate outside PCL now 6%?

Kelton Court - One Year On – Is the deferment rate outside PCL now 6%?

As I commented previously in Leasehold Reform News (see the article mentioned elsewhere on that site) http://bit.ly/eFGuK3 the decision in Kelton Court is of interest to any long leasehold flat owners with property outside of Prime Central London (PCL) who are looking to either purchase their freehold or extend their lease.

Why?

Essentially, because a 6 percent deferment rate was decided upon in a departure from the standard 5% rate in Sportelli. The Lands Tribunal came to this decision for three reasons; the enhanced risk of obsolescence, the percieved lesser rate of growth outside PCL and the enhanced 'management risk' associated with flats.

A higher deferment rate, of course reduces the amount that the flat owners will have to pay as part of the calculation.

Does this affect all property outside PCL?

Not necessarily. Whilst two of the factors, (obselescence and growth rate) are features of any property outside PCL the combined effect of which is to take the deferment rate to 5.25%, the enhanced management risk will only be a feature of properties where the landlord is directly responsible for the management. Where there is a head lease, or the leases are fully repairing the 'management issue' does not arise and the most the flat owners can argue for is therefore likely to be 5.25%.

Management issues

The focus on management as an issue is interesting as in reaching this decision the Lands Tribunal looked at evidence of the increased use of the LVT's service charge jurisdiction (411 cases in 2007 compared to 232 in 2005 and 27 in 2004). The interesting point is that is that the numbers mentioned relate to applications to the London LVT. Perhaps a better comparable might have been the regional LVT ?

Developments since Kelton Court

Since Kelton Court, we have the decision in Ashdown Hove, (Ashdown Hove Limited v Remstar Properties Limited [2010] 37 EG 138) in which 6% was achieved for a block in Hove, the enhanced risk of management being argued for successfully despite their being a management company that was a party to the leases.

The point being made (successfully) that where the lease contains an obligation on the landlord to take on the management company's obligations in the event of its failure, there is still a risk to the landlord that it may have to be involved in the 'day to day' management of the property and that this will therefore 'taint' the amount that an investor would pay for the landlord's interest.

Conclusions

We are now at the point where outside PCL valuers will normally be arguing for 5.25% and if possible, more based on the arguments concerning management. The decision in Ashdown Hove is an LVT decision and arguably slightly unique for a number of reasons. Therefore it may be that the Upper Tribunal will need to comment further before there is any greater certainty in this area.

Mark Chick 

17.11.2010 

This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk

Service Charge Disputes - and how to avoid them

Service Charge Disputes (and how to avoid them)

This article looks at some points to consider if you are involved in (or are trying to avoid) a service charge dispute.

How of often do I hear the words, “I think we have a service charge dispute…. what should we do about this?” A dispute about service charge, if not handled correctly can be the route to quite a lot of misery.

The first thing to realise about service charges is that they are not an inequity but rather, something of a necessity!

Any property with a shared ownership structure needs to be maintained and what flat owners often do not realise is that taking proactive steps to either buy the freehold or to take over the management of the building under the Right to Manage (RTM) legislation does not necessarily lead to lower service charges in the short term. In fact, sometimes quite the reverse is true. Often their service charges will increase because of the quality of the materials or frequency of services being provided.

Avoiding a dispute

The first piece of guidance is of course, to avoid any kind of dispute at all costs. How can this be done?

Well, in a small block where everyone is a shareholder in a company owning the freehold having the service charge budget approved by the company in a general meeting might help.

Whilst the consultation requirements under the service charge legislation are myriad (see the various requirements for s.20 notices etc,) the tribunal does have a power to dispense with consultation requirements in certain circumstances. In particular, this applies in the case of an emergency, but there is also nothing to say that a ‘one off’ error in the consultation process (although this would depend on the exact circumstances) made by a well-intentioned, self-managed group of residents might not also be excused.

Additionally, if the company has approved the budget and the member in question was present and ratified it (or indeed was perhaps even a director of the company a the time) it is going to be very hard for them to argue (whatever a strict interpretation of the service charge legislation might say) that they did not know what was going on. There might even be a legal argument that they would be prevented from bringing a later challenge as to do so would be unfair.

Preparation is key

The best piece of guidance is to take all possible steps to ensure that any budget is properly prepared. This may well involve a fairly detailed consideration of what work is proposed and how it will be done (in case this is also subject to challenge).

The next sensible thing to do is probably to get professional advice. A good managing agent makes all the difference to the relationship between flat owners and also to the relationship between the freeholder and the flat owners when it comes to the ‘day to day’ aspects of running a building. Additionally, a good managing agent will also be able to provide effective advice on the service charge consultation procedures. Whilst some people resent the suggestion of the imposition of an additional layer of cost in a small building, experience tends to show that if there is likely to be any friction at all, then having a managing agent in place provides a significant advantage and longer term cost saving.

So, why are service charge disputes often the route to a lot of misery?

One of the main reasons is that the LVT has no costs jurisdiction (other than £500 for frivolous or vexatious behaviour and this is quite rarely used).

Therefore a key issue in taking a case to the LVT on the question of service charges is not only ‘what is it going to cost?’ but also ‘where are these costs going to end up?’

If no-one is going to be awarded costs (win, lose or draw) then who is going to pay? the answer is, sadly that unless the lease is strongly in the landlord’s favour that the most likely outcome is that ‘everyone’ is going to pay, via the service charge budget.

A clear cost/benefit analysis therefore needs to be done at each step in the process. With a trip to the LVT with legal representation likely to cost a good few thousand pounds, a dispute about relatively minor sums may be might be ripe for mediation, or may have to be left until the sums are more substantial to make the economics of pursuing it stack up.

Sadly from the landlord’s point of view – particularly with a freehold company owned by the residents, if one person will not pay, the company has little option but to pursue the arrears and if necessary take the budget to the LVT as it can hardly be fair to the other members that one person is not paying when everyone else is.

The second issue affecting the question of costs is what the lease itself says about the right to recover costs. Some modern leases may permit the recovery of costs outside the court process (e.g. LVT costs) from the individual non-paying flat owner. However, a lot of leases do not. This means (that provided that there is an appropriate clause in place) that the costs of any service charge action taken or defended by the landlord will probably end up on the general service charge budget, in other words, paid for by everyone and not just the defaulting party.

There is also another hurdle. Any flat owner who is party to LVT proceedings brought about the service charge also has a right to make an application requesting that the landlord’s costs are not to be added to the service charge budget. This is only likely to be granted where, for instance the lease itself does not permit the costs to be collected via the service charge, or where there is inappropriate behaviour on the part of the landlord.

The third and final element of risk for the landlord is that the costs themselves will of course also be subject to the general test of ‘reasonableness’ applicable to any sum forming part of a residential service charge.

In other words, whilst the lease might permit the costs to be recovered and any application to prevent them being recharged to the budget may have failed the LVT can still decide that the actual amount of costs incurred is ‘unreasonable’ and then seek to reduce the amount added to the budget.

Whilst these principles were designed to ensure a degree of protection for the individual flat owner against an unscrupulous landlord, where the landlord is in fact a collective of flat owners and the behaviour of the non- paying party is clearly unreasonable, these provisions to put RMC companies to significant expense and a degree of risk.

So, having considered all of this, what is the answer? Of course, there is no simple solution, but the first conclusion must be to reduce the risk of disputes by careful consultation and preparation and, if a dispute has arisen to take particular care in the analysis, preparation and presentation of the case. As with all these things, having the access to the right professional advice early on in the process certainly does help.

Mark Chick

6^th October 2010

This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk 

Should we go for the freehold or exercise the Right to Manage ?

Should we go for the freehold or exercise the right to manage?

This can be a potentially confusing choice for a collective of flat owners and depends on what exactly the likely participants want to get out of the process. It is important to get this right at an early stage in a collective action so as to avoid a lot of wasted time and effort in the early part of the process.

In short, the answer depends on what you want to get out of the process and what the key motivating factor(s) for pursing some sort of collective action are.

Do you have only management issues?

If your main objective is to deal with only the issues arising out of the management of the block, then the ’Right to Manage’ may be more appropriate.

How long are your leases?

If some or all of the leases in your block are short then there is likely to be a higher capital cost to buying the freehold and also funding non-participating flat owners. This is can be a potential ‘deal breaker’ for a freehold purchase if those taking part cannot (or do not want to) fund the non-participating flat owners and outside funding cannot be found (or is not wanted).

If there are a variety of lease lengths then there may also be issues as those with shorter leases will have to pay more to take part and this disparity may be a barrier to getting a freehold purchase started.

In such a case, then Right to Manage, (possibly followed by lease extensions for those that are interested) could well be the best way forward.

Longer leases, but management an issue?

Normally, if the leases are ‘long’ then there may be less of an incentive to pursue the freehold. However, if the building’s management is an issue then provided that there is a good level of participation and that the capital cost per participant is not too high, then buying the freehold may well be the better option.

This is because the transactional process in terms of cost and timescale may well be similar for freehold purchase and the right to manage. As such, freehold may be a better result as the ownership (as well as control of the landlord functions under the leases will change).

As always these sorts of decisions need to be made on a ‘case by case’ basis however, the above may well prove a useful starting point for discussion. Appropriate advice from a suitably qualified professional should be sought when making any group decision about the relative merits of freehold purchase or right to manage.

Mark Chick

14.5.2010

This note (being very general in its nature) is not a complete statement of the law in this area.  It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk

I’m fed up with the building management – is there anything I can do?

My landlord has changed – shouldn’t I have had the right to buy the freehold?

Not necessarily. There are quite a few types of transfer that are exempt from the 1987 Act

There are several situations that do not trigger the 1987 Act1, a point that is not always well understood.

Certain types of transfers e.g. transfers between family members or transfers between related/ group companies do not trigger the first refusal mechanism under the 1987 Act.

Therefore if your landlord has changed this does not automatically mean that the provisions of the 1987 Act have been breached. 

Often landlords will write informing of any change of ownership and specifying the applicable exemption. After all they must legally give you notice of the address and name of the landlord under sections 47 and 48 of the 1987 Act. It is also a requirement that any change of landlord is notified.

In certain situations where there may be some debate about whether the 1987 Act applied or where the landlord (perhaps as purchaser) feels that there is a need to give ‘clearance’ for the change of ownership notice may be given telling the flat owners of the change and alerting them to their 1987 Act rights.

If you receive notification in this sort of situation and want to pursue the freehold you should consider taking advice promptly from an appropriately qualified advisor because of the relevant time limits.

 Mark Chick

 28.4.2010

I have been offered the freehold by the landlord serving me with an ‘offer notice’ – what does this mean?

Under the 1987 Act the landlord must (provided that the disposal is one to which the Act applies) offer the residents of the building the chance to purchase the freehold under the so-called ‘right of first refusal’ under that Act.

If the landlord does not do this he may well commit a criminal offence and there may be other avenues of redress – such as the chance to purchase the freehold on similar terms to the proposed transaction.

What does the fact that I have been served with an offer notice mean?

Strangely enough, your landlord wants to sell the freehold to your building. It may be that there is a potential buyer lined up or that he is proposing to sell at auction or simply that because he wants to sell and because the legislation applies and a notice has been served to see whether the flat owners will ‘bite’ and purchase the freehold.

There are 2 main types of notice encountered in practice: - Section 5A and Section 5B. These are mentioned briefly below:-

Section 5A

This is a ‘fixed price’ ‘take it or leave it’ offer. You cannot challenge the price in the notice. If you do want to purchase, but not at that the stated price consider the 1993 Act as an alternative.

The offer notice should state the key terms of the disposal and will stipulate a date – at least 2 months away – by which the qualifying tenants (basically long leaseholders but other tenancies also qualify for 1987 Act rights, so if in any doubt check) must serve an acceptance notice.

More than 50% (a majority) of the qualifying tenants are needed to serve the acceptance notice.

There are then other steps that must be taken (serving a nomination notice within a further 2 months and proceeding to exchange contracts within 2 months of receipt of the contract following nomination). You will need professional help to serve the relevant notices and proceed with the purchase.

You should also consider as a preliminary step getting some valuation advice to work out whether the proposed price is reasonable or not.

Section 5B

A section 5B notice tells you that the freehold is going to be sold at action. The notice will either state the date of the auction, or (provided that he complies with the relevant time limits) the landlord can serve a further notice closer to the auction date notifying you of the date and time of the auction.

Provided that the correct notices are served the flat owners will achieve a ‘right of first refusal’ against any successful bidder at the auction. They will then have 28 days to complete the contract in the same way that any eventual buyer would following an auction purchase.

Once again this is a collective right that must be exercised by a majority (more than 50%) of the qualifying tenants. 

In the case of a 5B notice acceptance and nomination notices must also be served together with notice of election. Likewise you will need professional help to achieve success in purchasing the freehold under this route.

Once again valuation advice early on is recommended as is considering carefully the tactics as to whether to attend the auction or to attempt to make a bid before the sale takes place.

If I want to accept one of these notices, what should I do?

As mentioned above, these are collective rights open to a majority and so you will need more than 50% of the qualifying flat owners. The rules on what makes a qualifying building and identifying a qualifying tenant can be complex in certain cases and advice may be required.

Secondly, assuming that there are sufficient flat owners to proceed, they need to consider funding / valuation – i.e. is the process affordable and is the price that is proposed reasonable? In the case of an auction sale, a sense of the likely sale price will also be essential to work out not only whether the price is right but also whether there will sufficient participating flat owners with funds to complete in the relatively short time frame if the purchase proceeds.

Thirdly, if no acceptance notice is served and the freehold is not sold to someone else there is nothing to stop one or more of the flat owners buying the freehold provided that the relevant offer period has expired without acceptance, or if the process has been started but then abandoned by the majority. 

Mark Chick

19.4.2010

I am a landlord and want to do a deal with my tenant – how do I do this?

If you are a freeholder and you want to sell either your freehold or a lease extension then read this note.

If you want to sell a lease extension, the first thing you need to know is that you are probably going to need valuation advice from a surveyor properly qualified in this area. 

The opinion on the price that should be charged for the lease extension needs to be agreeable to both parties. It may be possible to arrange for a joint instruction of one valuer who will provide an opinion on the  ‘fair’ price to be paid for the lease extension.

Alternatively, you may simply ask the Valuer to work for you as landlord. If this is done the report prepared does not need to be disclosed to the flat owner.

However, you are going to want the costs of this exercise paid for by the party requesting the extension. As such your surveyor’s or valuer’s fees should either be paid up front by the paying party or a solicitors’ undertaking should be obtained requiring them to pay these within a specified time frame.

You may also wish to consider the terms to be offered – ie. the mix of premium and ground rent – for instance, will you offer terms similar to that available under the 1993 Act or will you offer a lease extension back to 125 years or 99 years possibly retaining a ground rent ? You will require specialist advice to make this decision – and may need a suitably qualified solicitor to advise on the best way to achieve terms and the difference between them.

Mark Chick

5.4.2010

What is this site all about?

If you haven’t already guessed, this site contains various posts to do with buying your freehold or extending your lease and sets out some basic tips that may be of use if you are a flat owner or a freeholder affected by these sorts of issues.

Over the coming weeks and months I will be posting various articles and snippets of information to do with this area.

If you want to subscribe to the site by all means do so, you will then get updated when a new item is posted.

I hope you find the information here useful and if you have any comments or suggestions, by all means let me know.

Enjoy reading the site and welcome to www.leaseholdinfo.com

Mark Chick

30.3.2010