Why use a managing agent? Because we’re worth it!

The cost involved in employing a managing agent is often questioned by leaseholders. We understand where they are coming from because for many flat owners and tenants, if we’re getting it right, the job we do is largely invisible. So it can be hard for residents to tell whether they are getting good value for money.

If more than 50% of leaseholders in a block are not happy with their current set up, under the rules set out by the Commonhold and Leasehold Reform Act 2002, they are legally entitled to exercise their legal ‘Right to Manage’ and set up a Right to Manage Company (RTMCo).  This is a kind of ‘Brexit for blocks’, putting control back in the hands of the leaseholders, with the RTMCo taking on responsibility for managing the building. Leaseholders are free to choose whether or not they continue to employ a property manager to run the building on their behalf.

But – as with Brexit – be careful what you wish for. If you are going down this route – or considering it as a future option – you may be wondering if you could save yourselves a whole lot of money if you ditch your property manager and self-manage instead. So here are a few words of caution. There is a reason why professional property managers spend years gaining qualifications and ensure that their skills are kept up to date. A block manager is a specialist with detailed knowledge of all aspects of building management. He or she will have a good understanding of leasehold property law and compliance with statutory regulations, as well as the ability to communicate effectively with residents and industry suppliers. Taking on his or her role is no walk in the park.

RTMWhere blocks do opt to self-manage, the duties of the RTMCo directors as they relate to block management are complex. Maintenance is more than making sure the gutters are cleared and light bulbs replaced on a regular basis. Resident directors must decide on a programme of works to ensure the block is kept in good repair, cost it, collect the service charge in accordance with both the lease and statutory requirements and deal with any issues or disputes arising around arrears and non-payment.  This in itself can be a minefield – and the bigger the block, the greater the potential for something to go wrong. Then there is buildings insurance and those all-important periodic reinstatement cost assessments which will need to be arranged and paid for. All aspects of compliance with health & safety, fire safety and other relevant regulations must also be taken into account.

RTMCo directors also take on the obligations of any other company director and not only do they have to ensure accounts are filed on time and company law adhered to, but they may find themselves personally liable for negligence should they fail to carry out their role safely and effectively.

Having said all that, for many blocks right to manage works really well. Landlords can be very remote from their tenants and may have little interest in the way a block is operated and maintained. Bringing the management responsibilities back into the hands of leaseholders – whether they self-manage or appoint their own property manager – puts them back in control of both decision-making and block finances.

At Ringley we have dedicated enfranchisement specialists to help you should you choose to go down this route. So if this is something you and your fellow residents are considering, talk to us at an early stage to ensure you fully understand all the implications. There is also a really useful step-by-step guide on our website which you can find by clicking here that takes you through every stage of the process.

Don’t forget, our property experts are always here to help you get the best out of your block, so get in touch today.

 

Enfranchisement made easy – maybe!

If you’re thinking of buying your freehold or extending your lease you will have worked out by now that enfranchisement isn’t a simple process. If the whole system seems skewed towards your landlord or freeholder, that’s because it is. But all that may be about to change, with a set of proposals from the Law Commission which aim to simplify the process and put more power in the hands of leaseholders. The proposals are now out for consultation and a final report will be published in 2019, providing the government with recommendations for next steps.

Proposals now being consulted on include:

  • The enfranchisement process to be simplified with standard forms used by all parties and the current complex legal framework to be replaced by a single enfranchisement regime.
  • Existing rights to take out a new lease to be retained but the length of the possible lease to be increased to 125 or 250 years (currently 50 years for houses and 90 years for flats).
  • Existing rights to acquire the freehold of a property to be retained but those rights to be extended to let multiple buildings on an estate acquire the freehold of the whole estate, rather than just one building, with a new ‘enfranchisement company’ to be set up by leaseholders for that purpose.
  • A new ‘right to participate’ to be introduced so that leaseholders who do not take part in an original freehold purchase can join the enfranchisement company at a later stage by paying a specified sum of money.
  • All enfranchisement disputes to be dealt with by the First-Tier Tribunal (Property Chamber) in England or the Leasehold Valuation Tribunal in Wales.

 

Calculating the cost to flat owners of either extending a lease or buying their freehold is really complicated – even for most of us the property industry! A simpler version may now be on the cards with the Law Commission asking valuation experts for new ideas.

All of this must be good news for Ringley customers. The consultation closes in November with results expected next year. Change takes time but in future the whole system may be a little easier to negotiate.

At Ringley we have a legal department that is dedicated to helping our customers deal with a whole range of property issues. If your lease is nearing the pinch point of 80-years and you’d like to extend it, or you have a question about buying your freehold, our specialist solicitors should always be your first port of call.

 

Step by step guide to lease extensions

The concept

Whilst your lease is probably the most valuable asset you own, worth whatever you could sell it for in the market place, the freeholder holds a stake in its value too. Why, because a) he receives investment income from it (the ground rent), b) has the hope value of a premium from you (for buying a lease extension) and c) holds the reversionary interest (the value of it vacant flat in X years time when your lease runs out).

Step 1 – establish if you qualify to claim a lease extension

In 1993 leaseholders were given statutory rights under Section 56 of the 1993 Act to claim a 90 year lease extension at a reduced ground rent of £1.00/peppercorn if demanded. Increasingly legislation has changed making it easier for leaseholders, for example, you now only need to own the lease for 2 years, do not need to live in the property and can own it through a company.

Step 2 – get your papers together

The lease – this is likely to be required by the valuer to calculate your future ground rent commitments and the lawyer to confirm title searches prior to serving a Section 42 Notice to claim your rights. Find your last ground rent demand to be sure who you are currently paying ground rent too. Don’t worry if your Freeholder has long disappeared, there is a procedure called a “vesting order” which ensures that you can still get your lease extended.

Step 3 – get advice on a “reasonable premium”

Fees will be well spent if a valuer with appropriate expertise is selected. Speak to the person that might take on your case, ask them some difficult questions! Check the report will include the calculations to show you how the premium is made up, a commentary/explanation of the methodology and comparable market transactions/caselaw evidence on which your valuer is to rely. This level of detail will deliver you confidence to make key decisions and an understanding of which parameters affect the end figure, else how can you decide your opening negotiation position.

Step 4 – Serve a Notice or open informal discussions?

A difficult question! There is no downside to asking whether your landlord will entertain informal discussions. However, don’t give up if the answer is “serve your notice” as it is the notice that secures the Freeholder’s “reasonable” costs in dealing with your claim, even if you give up. If you are proceeding informally you will need to ensure that the Freeholder is quite clear that it is your Section 56 rights you are negotiating about *see step 1 above. A claim notice fixes the valuation date (at date of notice) and establishes that you are claiming your Section 56 rights.

Step 5 – Agree the “premium” to be paid for the lease extension

Our research suggests that about half of premiums are agreed informally, and of the half negotiated after service of a claim notice only about five percent end up at the Leasehold Valuation Tribunal. There are 13 valuation variables to be agreed and three components of the valuation to be established. Some variables are fact, for example the ground rent, others are based on property and financial market evidence or caselaw such as the long and short lease values and yield rates.

Step 6 – Prepare the “Supplemental Lease and Deed of Variation”

This is the legal instrument that extends your lease. The lessee’s rights are to vary two terms of the lease, the ground rent and the term, the Freeholder cannot force you to agree to changes to other clauses, albeit many try, and your old lease does not get ripped up. It is sometimes here that leaseholders who went down the informal route become unstuck when the Freeholder suggests that whilst the premium is agreed, they do not agree to the ground rent being reduced to £1.00/peppercorn. If you have a mortgage it is necessary to obtaining your mortgagees consent to the lease extension as they too have an interest in your leasehold title. This is just a formality as we cannot imagine a situation where a mortgage company would refuse to approve a deed that increases the value of their security.

Step 7 – register your lease extension to increase the value of your flat

The Supplemental Lease and Deed of Variation is a document that is usually executed by deed. It needs to be registered at HM Land Registry to become part of your properties title. There is a nominal registration fee and stamp duty land tax form to be filled in.

3 top tips every leaseholder should know:

If you have a short lease, have owned the flat for two years and want to sell up, you can serve a claim notice and sell your flat with your lease extension rights so the new purchaser does not have to wait two years to qualify, during which time invariably the price of a lease extension will be rising.
Since July 2003, if your lease has more than 80 years unexpired you do not have to pay marriage value. Marriage value is the difference between the freeholder’s interest prior to the lease extension and his interest after which otherwise is shared 50:50.
Your claim notice could be invalid if the price served does not pass two key tests: (a) the bonafides test, (b) the realistic test. The principle of bonafides can be established if you have sought professional valuation advice. The principle of realistic accepts that the notice might not need to reflect your best offer, as it is accepted that valuations and the eventual premium agreed are a matter for negotiation. In this test the Court’s approach would be to review the variables of the valuation and for example to exclude marriage value or development potential could invalidate your initial notice.

How long is your lease?

With leases continuing to get shorter, for example some areas of London leases of 40-60 years are common, leaseholders should also be aware of their legal right to extend their lease. Since 1993 when the right to extend your lease was passed, legislation has been changing to benefit the leaseholder. For example qualification criteria have been relaxed and it is no longer necessary to live in the flat or own the lease for 2 years first. The prospect of extending your lease may seen like a daunting task but it can be achieved by serving a formal legal notice on the freeholder and intermediate landlords. Your statutory right is an additional 90 years to add to what ever unexpired term you currently hold with ground rent reduced to a peppercorn.

To get the ball rolling make sure you have all the essential paperwork. The valuer will require a copy of the lease to calculate your future ground rent commitments.  A copy of the lease is also needed to confirm title searches prior to serving a Section 42 ‘Notice to claim your rights’. It is also important to have at the ready your last ground rent demand to clarify who you are currently paying ground rent to.  In situations where your Freeholder has long disappeared, there is a procedure called a ‘Vesting Order’ which ensures that you can still get your lease extended.

The next stage is to serve Notice but you may opt to open informal discussions with your landlord first.  Opening informal discussions with your landlord won’t put you at a disadvantage and they can only say no. Some landlords will simply refuse to enter any discussions without a formal notice as this protects their position as to any costs they may incur in getting advice on whether your offer is reasonable.  Especially, if the freeholder lives in the block it could be advantageous to both parties to have a chat first.

Some landlords need educating that it is a leaseholders right to claim a statutory lease extension. If you are proceeding informally you will need to ensure that the Freeholder is quite clear that it is your Section 42 rights you are negotiating about. A claim notice fixes the valuation date (at date of notice) and establishes that you are claiming your Section 42 rights.

To serve your notice the lessee needs to state details of their lease and the premium that they would like to pay for the lease extension.  To know what premium you should quote on your notice requires specialist valuation advice as your notice could be invalid if you do not pass certain legal tests, one of which is satisfied by you having taken valuation advice. A lease extension valuation requires more elements than a typical mortgage valuation, in fact there are 13 input factors. A good valuation report should include calculations to show you how the premium is made up, an explanation of the methodology and comparable market transactions or case law evidence on which your valuer has relied.

Be careful when employing the services of a valuer as there are many unqualified surveyors dabbling in this type of work. By doing your homework and selecting a valuer with the appropriate expertise you will get the best return on your expenditure. It is advisable to check the experience, qualifications and competency of a valuer before employing their services.

The Ringley Group which carries out around 300 such cases a year suggests that about half of premiums are agreed informally, and of the half negotiated after service of a claim notice only about five percent end up at the Leasehold Valuation Tribunal. There are 13 valuation variables to be agreed and three components of the valuation to be established. Some variables are fact, for example, the ground rent, others are based on property and financial market evidence or caselaw such as the long and short lease values and yield rates.

A ‘Supplemental Lease and Deed of Variation’ is the legal instrument that extends your lease.  The lessee’s rights are to vary two terms of the lease, the ground rent and the term. The Freeholder cannot force you to agree to changes to other clauses, albeit many try, and your old lease does not get ripped up.  It is sometimes here that leaseholders who went down the informal route become unstuck when the Freeholder suggests that whilst the premium is agreed, they do not agree to the ground rent being reduced to £1.00/peppercorn.

If you have a mortgage it is necessary to obtain your mortgagees consent to the lease extension as they too have an interest in your leasehold title.  This is just a formality, as we cannot imagine a situation where a mortgage company would refuse to approve a deed that increases the value of their security.
The Supplemental Lease and Deed of Variation is a document that is usually executed by deed.  It needs to be registered at HM Land Registry to become part of your properties title.  There is a nominal registration fee and stamp duty land tax form to be filled in.

If you are contemplating buying a property with a short lease its possible to get the seller to serve a Section 42 Notice claiming a statutory lease extension, before you exchange contracts.   Under Section 56 of the 1993 Act the buyer can then take these rights forward and extend the lease themselves.

 

Leaseholders have rights!

Whether you are a first time buyer, downsizing or wanting a city pad, understanding the leasehold system can be confusing. Mary Anne Bowring, creator of www.leaseholdersupport.co.uk unravels the jargon and explains your rights.

  • With leases getting shorter, leaseholders should be aware of their legal right to extend their lease. To qualify, you now only need to own the lease for 2 years and don’t need to live in the property.  Your statutory right is an additional 90 years to add to whatever unexpired term you currently hold with ground rent reduced to a peppercorn.
  • The Commonhold and Leasehold Reform Act 2002 provides the owners of leasehold properties with the right to manage their own property.  It is no longer necessary to prove that the freeholder is at fault or managing the block badly to claim the right to manage. By setting up a Right to Manage (RTM) Company, leaseholders can take over the running of their block.
  • If you are concerned that the block is falling into disrepair and the freeholder isn’t managing the block effectively then you can apply to the Leasehold Valuation Tribunal to request they appoint a Manager that you propose. Requesting a Court Appointed Manager is different from claiming your right to self manage as there is a need to prove that the freeholder is at fault.
  • The right to buy the freehold was given to lessees in 1993. There is no requirement to reside in the flat and you can own the flat through a company. Provided two thirds of the flats have long leases and that 51% of the “qualifying lessees” participate you can force the Freeholder to sell you his title.

Understand your rights as a leaseholder and visit www.leaseholdersupport.co.uk for clear and simple guidelines.   Click on the “special offers” button for FREE step by step guides.

Legal right to extend lease

Since 1993 Leaseholders have been able to claim a 90-year lease extension at a reduced ground rent of £1.00/peppercorn if demanded.  Lessee’s rights have become more accessible.  For example, you now only need to own the lease for 2 years, do not need to live in the property and can own it through a company.

The prospect of extending your lease may seem like a daunting task especially if your Freeholder has disappeared. Don’t worry, as the County Court can grant a “vesting order” to get over this hurdle.

The first stage is to make sure you gather all the relevant paperwork.   The lease is likely to be required by the valuer to calculate your future ground rent commitments.  Also, check the last ground rent demand to see who your ground rent is being paid to.

To serve notice the lessee needs to state their lease details and the premium that they would like to pay for the lease extension.  To know what premium you should quote on your notice requires specialist valuation advice. Your notice could be invalid if you do not pass certain legal tests, one of which is satisfied by you having taken valuation advice.

A lease extension valuation requires more elements than a typical mortgage valuation as there are 13 input factors. A good valuation report should include calculations to show you how the premium is made up, an explanation of the methodology and comparable market transactions or case law evidence on which your valuer has relied.

Before serving Notice, many lessees commence informal discussions with the freeholder, especially if they live in the block. This can’t really put you at a disadvantage but some landlords will simply refuse to enter discussions without a formal notice as this protects their position as to costs.

If you are proceeding informally you will need to ensure that the Freeholder is quite clear that it is your Section 42 rights you are seeking.  A claim notice fixes the valuation date (date of notice) and establishes that it is a 90 year extension you are claiming.

Ringley advise that of their 300+ cases a year, premiums can still be agreed informally, and of the half negotiated after service of a claim notice, only about five percent end up at the Leasehold Valuation Tribunal.  There are 13 variables to be agreed and three components of the valuation to be established.  Some variables like ground rent are fact; others are based on property and financial market evidence or case law such as the long and short lease values.

A Supplementary Lease and Dead of Variation is the legal instrument that extends your lease. The lessee’s rights are to vary the ground rent and the term. The Freeholder cannot force you to agree to changes to other clauses. Your old lease does not get ripped up.  It is sometimes here that leaseholders who went down the informal route become unstuck when the Freeholder suggests that whilst the premium is agreed, they do not agree to the ground rent being reduced.

If you have a mortgage it is necessary to obtain your mortgagees consent and the Supplemental Lease and Deed of Variation will need to be registered at HM Land Registry to become part of your properties title. There is a nominal registration fee and stamp duty land tax form to be filled in.