If you’re the sort of person that has little patience with an instruction manual, you probably ought to grit your teeth and keep reading. Long residential leases demand a deep breath and a clear head – but you need to be familiar with them if you wish to be able to collect service charge monies without dispute.
We often see clients hitting problems because they haven’t read or understood the lease for a given development. It’s quite common for a managing agent to adopt the same demand structure of the previous agent and/or freeholder, only to find that it is not compliant with the lease and, as a consequence, the service charges are not yet payable.
Key lease clauses that RMCs and their managing agents need to understand:
- Dates for payment/demanding of service charges;
- Dates for payment of ground rent;
- The sum of ground rent and if and how this periodically increases;
- Service charge year-end and budgeting;
- Whether service charges are payable in arrears or in advance;
- Who is responsible for various aspects of maintenance;
- Whether or not the service charge is reserved as rent;
- Any provision for one-off charges such as major works demands, or if these should be demanded within the general service charge structure;
- Any obligation or option to keep a reserve or sinking fund;
- How the service charge accounts should be presented.
Non-compliance with the lease can result in service charges not being payable, until such time as they are correctly demanded. This can cause major cash-flow issues for developments, especially where service charges are managed and collected by an RMC with no other source of income.
Major implications for major works projects
Familiarity with your lease is especially essential when considering major works.
Delays due to having to re-demand or as a result of defaulting leaseholders can have significant impacts. Substantial delay can also lead to the consultation becoming invalid due to lapse of time, resulting in the necessity for a fresh consultation.
Some modern leases are quite user-friendly and easy to read, and so most professional management agents will be able to review a lease themselves to confirm such issues as the payment/demand dates for service charges and ground rent, the financial year-end, whether payment is on account or in arrears etc.
Nevertheless, an expert eye is often still required to fully understand the terms of the lease.
On the other hand, many older leases are not straightforward and need a more detailed or in-depth review in order to establish the structure for service charge demands, the extent of the maintenance obligations on the freeholder or managing agent; who is responsible for what maintenance and so forth.
Expert lease review advice
This is where Brady Solicitors can help. We offer a comprehensive lease review to our clients, covering all aspects from demand dates through to forfeiture, permitted usage of the property and more.
Following a lease review, you will receive a detailed report setting out the key information from the lease, set out in plain English and understandable terms, avoiding the use of ‘legal jargon’.
Lease reviews can be particularly valuable when you take over a new development. Understanding the lease from the outset will ensure you get off on the right footing and help you avoid the consequences of getting it wrong!
