Frequently asked questions

The Brady Solicitors team provides bite-sized answers to your property management and leasehold questions.

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The role of a mediator is to work with both parties, on an independent basis, to reach a compromise that everyone can work with and move on from.

A good mediator can be incredibly valuable in resolving service charge disputes. It can save time and costs for both parties as it is generally much cheaper and faster than going to court.

Mediation gives both sides the opportunity to speak openly and discuss all the circumstances, allowing them to better understand each other when emotions get in the way.

Recent case law shows that even when a party is successful at a hearing, they may be refused payment of their legal costs if they had refused to mediate without good reason to do so.

On the other hand, a losing party who is already obliged to pay legal costs, can be ordered to pay additional costs on top by way of a penalty if they refused to mediate without good reason.

However, it goes without saying that mediation is only suitable where both sides of the service charge dispute are willing to communicate and compromise.

Here are some key terms that should be included as standard in any Terms of Appointment:

Set out the charging structure- what is included in the basic fee and can your fee be reviewed?
Set out what extra services you will need to charge for
Ensure you have permission to serve demands and issue proceedings on behalf of the freeholder
Consider whether or not the Terms of Appointment will be for more than a year, as this will likely make it a Qualifying Long Term Agreement
Protect yourself with an indemnity clause- this could protect you from being out of pocket during your appointment and after, if it is terminated
Set out your service standards so your client knows what they can expect from you- what works will you carry out at the site? What won’t you do?
Make it clear that any action you take is taken in the name of the client and not in your own name
Clarify what steps must be taken to terminate your appointment and how much notice must be given

Remember, your Terms of Appointment can be used as evidence of what is, or is not, a reasonable management fee if a dispute arises.

You don’t want to think about losing the block before you’ve even officially taken over but there is some value in being prepared for the worst case scenario. If your appointment is terminated, your terms and conditions should set out the point to which your fees will be paid and that you will be indemnified for any costs you have incurred to date in managing the property.

There are three main notices that must be served on the leaseholders:

The first notice is the Notice of Intention and must be given to each leaseholder, describing the works, or saying where and when a description of the works may be inspected, stating the reasons for the works and specifying when and where observations and nominations for contractors should be sent. The expiry date for this is 30 days from the date of the notice. It should also inform the leaseholders of their right to nominate a contractor.

The second notice is the Notice of Estimates where the landlord must issue a statement to the leaseholders with two or more estimates, any responses and a summary of the observations. Any nominees’ estimate has to be included. As with the Notice of Intention, it must also state where and when the estimates can be inspected and where and when the observations must be sent, allowing 30 days.

The third notice, is the Notice of Award of Contract. This notice must be given within 21 days of entering into any contract but only if the chosen contractor did not provide the lowest estimate. It must state the reasons for awarding the contract. Although if a nominee contractor is chosen to carry out the works it might be prudent to serve a Notice of Award of Contract as it can still be objected to on the grounds of reasonableness.

If the strict procedure is not followed as above the freeholder will only be able to recover £250 per leaseholder in respect of the major works.

The FTT is focused on residential property matters and covers a defined set of cases, including:

The price to be paid when a leaseholder wants to enfranchise, extend or renew the lease of their home, and the property value cannot be agreed with the freeholder.
The payability and reasonableness for the payment of service charges. NB: this is by far the most common leaseholder application!
Disputes over the landlord’s choice of insurer.
Applications on dispensation of service charge consultation requirements.
Payability and reasonableness of administration charges.
Disputes about the right to manage.
Appointment of a manager or receiver by order, if fault of the landlord is proven.
Applications for lease variations.
Determining estate rentcharges, if an estate management scheme is in place.
Disputes over the right of first refusal procedure (which gives leaseholders the right of first refusal to buy the freehold when the landlord wishes to sell it), and the compulsory acquisition of the landlord’s interest in blocks of flats.

At an FTT hearing you can give evidence and cross examine the other side on their evidence. The exact procedure and order in which the evidence is heard and issues are dealt with depends on each individual tribunal. There are however some elements that will always be the same across every FTT:

The hearing will be conducted ‘without unnecessary formality’.
There are no restrictions on rights of audience – surveyors and other experts often successfully combine the role of advocate and expert witness.
The FTT panel members will almost always inspect the property at the centre of the case.
Generally they will welcome opening submission to identify the issues.
They have no power to hear evidence on oath and formal rules of evidence do not apply.
Decisions may be given orally but are usually provided in writing, with reasons, within six weeks of the hearing.
If you’re not happy with the decision you have 28 days to appeal to the Upper Tribunal.

Disruptive leaseholders (or even those just unaware of their responsibilities) make life difficult for their fellow residents and give landlords and managing agents a headache.

The first step is to remind your leaseholders of their duties under the terms of their lease and give them the chance to correct their behaviour.

If however you have a leaseholder who is persistently in breach of their lease and isn’t responding to a friendly word, you may need to take action through the court system.

For determined disruptors there is of course the ultimate sanction of forfeiture of the lease, further to proceedings involving injunctions or merely declarations/determinations.

More often than not, a disruptive leaseholder will react quite quickly to communication from a solicitor and court action isn’t necessary in order for calm to be restored.

Whilst there is no legislation that sets out the time limit for section 20 consultations, case law suggests that delays in the consultation process CAN be viewed as a breach, leading to problems with securing the leaseholder contributions.

In Jastrzembski v Westminster City Council [2013] there had been a delay of two years from consultation to work commencing and a change in the nature of the works before they were carried out. The Tribunal accepted that whilst there is no specified time limit for the service of a section 20 notice, the relevant time periods for the work to be undertaken is months rather than years. The Tribunal found that this delay amounted to a breach of the consultation requirements and Westminster City Council was unable to recover more than the statutory £250 per leaseholder.

In essence, if there is a delay between the consultation process and the commencement of the major works, there is a risk that changes may have taken place that could amount to a breach of the consultation requirements, as in the above case. For example:

The leaseholders might have changed
The quotes might have gone up
The raw materials might be more expensive
The original tradespeople may be no longer available
The nature of the works might have evolved and be different

All of which would mean that the original consultation process is invalid and you could be limited to securing no more than £250 per leaseholder.

We recommend that you request – as a minimum – the following documentation to cover at least the last six years, or from the date that the block was built, if it is relatively new.

Service charge demands
Service charge debtor lists
All documentation relating to the service charge accounts
Contractor and subcontractor invoices
Section 20 Notices that have been served
Details of any planned major works expenditure

It’s then important to take the time to review this suite of documents, and to establish whether or not there are any ongoing or recent disputes with leaseholders that could come back to bite you as the new property managers. A member of the Brady Solicitors service charge team can help you with the document review if need be.

Leases are publicly available documents and can be downloaded from the Land Registry website for a small fee (currently £6 for both documents).

Visit the Land Registry website here

You should also have been given a copy of your lease by your solicitors when you purchased your leasehold property, so it may be worth a dig through those old papers! Equally, your mortgage lenders will hold your lease – some will charge you for providing you with a copy.

Check your lease to see if there are any restrictions on subletting. The clause should refer to subletting or may state you cannot ‘part with possession’ of the property without the freeholder’s consent.

This does not mean you are forbidden to sublet, you may just need to get permission from the freeholder first. The freeholder may refuse this request, or they may grant permission – but could charge you for subletting the property.

You have permission – what else do you need to do?

Before you start listing your property online, you may need to check the terms of your mortgage to see if you need permission from your lender to sublet.

Providing both your lender and freeholder have agreed to let you sublet the property, you will also need to notify your insurance provider. This is because the possessions of guests may not be covered under your current insurance agreement.

What if you don’t have a mortgage?

If you own the leasehold property outright, the lease may still prohibit you from subletting so you will still need permission from the freeholder.

If you do have permission from the freeholder to sublet you will only need to ensure you have the correct insurance in place before listing your property online.

Leaseholders in London also need to be aware that they cannot let out their property for more than 90 days a year under the Greater London Council Act 1973.

Consequences of breaching the lease

If you let your property in breach of your lease you ultimately run the risk of forfeiture. This means the freeholder can bring forfeiture to proceedings under section 146 against you. Forfeiting the lease means you lose your leasehold interest in the property.

In order to protect yourself from forfeiting the lease you may seek to retrospectively obtain the freeholder’s consent to sublet. Consent from the freeholder should not be unreasonably withheld.

Failure to make the breach right may also result in forfeiting the lease, so it is wise to make sure you seek permission from the freeholder.

The FTT is focused on residential property matters and covers a defined set of cases, including:

The price to be paid when a leaseholder wants to enfranchise, extend or renew the lease of their home, and the property value cannot be agreed with the freeholder.
The payability and reasonableness for the payment of service charges. NB: this is by far the most common leaseholder application!
Disputes over the landlord’s choice of insurer.
Applications on dispensation of service charge consultation requirements.
Payability and reasonableness of administration charges.
Disputes about the right to manage.
Appointment of a manager or receiver by order, if fault of the landlord is proven.
Applications for lease variations.
Determining estate rentcharges, if an estate management scheme is in place.
Disputes over the right of first refusal procedure (which gives leaseholders the right of first refusal to buy the freehold when the landlord wishes to sell it), and the compulsory acquisition of the landlord’s interest in blocks of flats.

The hearing will be conducted ‘without unnecessary formality’.
There are no restrictions on rights of audience – surveyors and other experts often successfully combine the role of advocate and expert witness.
The FTT panel members will almost always inspect the property at the centre of the case.
Generally they will welcome opening submission to identify the issues.
They have no power to hear evidence on oath and formal rules of evidence do not apply.
Decisions may be given orally but are usually provided in writing, with reasons, within six weeks of the hearing.
If you’re not happy with the decision you have 28 days to appeal to the Upper Tribunal.

Is your block or development self-contained?

To qualify for RTM, your block must be structurally detached. You need to consider not just theparts above ground but also aspects such as an underground car park or gym facilities that might be shared with other buildings.

Do you have enough ‘qualifying tenants’?

To be eligible for right to manage, two or more of the flats must be held by qualifying tenants and the total number of flats held by those tenants must not be less than two thirds of the total number of flats. So, in a block of eight flats, at least six must be held by qualifying tenants. A qualifying tenant is a leaseholder whose lease was originally granted for a term of more than 21 years.

Is your block at least 75% residential?

This is a key criteria for RTM and one that isn’t always easy to assess. If the commercial / residential split isn’t clear, you may need to get expert opinion on the internal floor area. Whilst the burden of proof rests with the freeholder, if he can provide evidence that there is at least 26% commercial tenancy, the RTM will not be possible.

As leaseholders applying for the right to manage, you will be liable for the costs incurred by the landlord as well as your own legal costs.

This makes it crucial to do your ‘due diligence’ to ensure that your block qualifies for RTM before you start to incur any significant costs.

Appointment of a manager is a ‘fault-based’ right. This means that leaseholders can exercise the right to apply to the First-tier Tribunal to appoint a manager if they consider the management of the block to be unsatisfactory.

The FTT has the power to appoint a manager in place of the landlord, so long as the statutory grounds can be established and it is “just and convenient” to do so.

Any individual leaseholder is entitled to make an application to the FTT and you do not need to secure the support of a minimum number of leaseholders – but you must be able to demonstrate that the current management of the property is unsatisfactory.

To apply to the FTT for appointment of a manager, leaseholders need to show at least one of the following ‘statutory breaches’:

The “relevant person” (usually the landlord or RTM company) is in breach of their obligations under the lease relating to the management of the building;
Unreasonable service charges have been made or are proposed to be made;
Unreasonable variable administration charges have been or are proposed to be made;
Any relevant person has failed to comply with a code of management practice.

Plus, in all cases, it must be ‘just and convenient’ to appoint a manager.

Can a freeholder demand service charges from a leaseholder when it is likely that a third party will ultimately pay?

A recent case has shown that the First-tier Tribunal will take into account likely future payments when deciding on the reasonableness of service charge contributions.

So, if you are expecting the costs of works to be paid either in full or in part by an insurer, warranty provider or other third party then you should reduce the service charge contributions accordingly.

For more detail on the case in question please click here.

In a ideal world, management companies and freeholders take a proactive approach to financing the costs of both routine and emergency major works projects, through the use of a sinking and/or reserve fund.

Securing the funds upfront helps leaseholders to spread the costs and can also help to avoid expensive borrowing costs.

For specific projects, such as replacing the windows or repairing the roof, a sinking fund can be used. For example, an extra £50 could be collected from each leaseholder every year and then put into the sinking fund and ring-fenced for the specific purpose.

For emergency or unspecified major works projects then a reserve fund should be used, again with a small additional contribution from each leaseholder on an annual basis. Think of a reserve fund as ‘saving for a rainy day’.

As with all demands for expenditure, leaseholder communication is key to securing commitment and support.

The Section 20 consultation process involves three main notices that must be served on the leaseholders:

The third notice, is the Notice of Award of Contract. This notice must be given within 21 days of entering into any contract but only if the chosen contractor did not provide the lowest estimate. It must state the reasons for awarding the contract. Although if a nominee contractor is chosen to carry out the works it might be prudent to serve a Notice of Award of Contract as it can still be objected to on the grounds of reasonableness.

If the strict procedure is not followed as above, you may only be able to recover £250 per leaseholder.

In addition to the prescribed notices; open dialogue and communication with leaseholders during the section 20 consultation procedure is vital to securing the necessary contributions to your planned projects.

This is a question that we are regularly asked by management companies and managing agents.

The strict ‘legislative’ answer is no.. but there are practical solutions for smaller blocks with good leaseholder relations.

In such circumstances you can seek written admissions from leaseholders that they can’t challenge the major works at the FTT. This gives you some protection when it comes to recovering the major works contributions.

This solution works when there is trust between leaseholders and the management company and, ideally, a well planned major works programme that minimises surprise expenditure.

Section 20 of the Landlord and Tenant Act 1985 states that where leaseholders are required to contribute more than £250 towards the cost of a set of works, or more than £100 for service contracts of more than 12 months, the Section 20 consultation procedure must be followed.

Failure to consult can mean that each leaseholder’s contribution is capped at either £250 or £100, as set out above, and the remainder cannot be recovered.

So what happens when works are so urgent there is no time to follow the consultation procedures?

In this instance you can apply to the First-tier Tribunal to dispense with the requirements to consult.

The Tribunal will look favourably on any attempts to consult – even if these had to begin when the works were underway. Importantly, the Tribunal will want to understand if lack of consultation caused the leaseholders to suffer any financial prejudice.

Can a freeholder demand service charges from a leaseholder when it is likely that a third party will ultimately pay?

A recent case has shown that the First-tier Tribunal will take into account likely future payments when deciding on the reasonableness of service charge contributions.

For more detail on the case in question please click here.

Seeing the same leaseholder in arrears after each service charge demand period is frustrating and unfortunately you will no doubt see familiar names on your debtors list time and time again.

Don’t allow the arrears to build up

If leaseholders quickly realise they won’t be chased beyond a reminder, where’s the incentive to pay? In our experience, the quicker you take action, the more likely they are to consider making payment in order to avoid the administration and legal costs.

Tighten up the reminder process

For serial service charge debtors however we recommend that you shorten this to one reminder, giving a maximum of 14 days to settle the arrears before taking legal action.

Don’t delay sending out your demands to repeat debtors

With quarterly and half-yearly service charge periods, the fear of waiving the right to forfeit means you can end up with a delay in issuing the service charge demand when a leaseholder is in arrears from the previous period. Make sure you have a system in place so that as soon as you receive settlement of the arrears, you issue the next service charge demand immediately. We would suggest allowing 21 days to pay – assuming this doesn’t contravene any terms in the lease.

Serial service charge debtors can be uncommunicative and don’t respond to attempts at contact. By having a separate, more ‘robust’ procedure for repeat offenders you can speed up service charge arrears recovery to the benefit of the rest of the block.

The First-tier Tribunal can determine whether service charges are reasonable, to ensure leaseholders are getting value for money and transparency about how their money is spent.

The points below set out some of the factors the FTT considers when determining the reasonableness of service charges:

The frequency of works carried out
Use of independent contractors
Collective benefit of works for leaseholders
Proportion of property size to maintenance required
Quality of works carried out
Maintenance history of building

We recommend you review the service charge budget against the above points and, on an ongoing basis, you should:

Maintain detailed records: this includes documenting interactions with leaseholders to keeping a digital/paper trail of all quotes, bills and correspondence with suppliers
Get comparable quotes from third party, reputable suppliers
Maintain service standards, this also includes internal policies such as responding to leaseholders queries in a timely manner
Provide documentation to leaseholders on how you select service providers and conduct regular spot checks to ensure work is being done to a high standard

There are three main notices that must be served on the leaseholders:

If the strict procedure is not followed as above the freeholder will only be able to recover £250 per leaseholder in respect of the major works.

Firstly, what does the lease say? We would always advise our clients to make service charge demands in accordance with the lease to avoid potential disputes.

Secondly, are payments by instalments suitable for the development? Consider whether smaller, more regular payments will support or hinder your ability to manage the property.

And, thirdly, can you resource it? At Brady Solicitors we have seen a number of clients come to us because they are struggling to deal with increasing arrears from leaseholders who are making service charge payments by instalments, but the amount is not sufficient to cover costs at the end of the financial year. It’s essential to have the correct systems (and enough people) to manage payments by instalments so that payments are allocated correctly, and any shortfalls or missed payments are picked up and dealt with quickly and efficiently.

When properties are sold at auction, often for a lower price than market value, rigorous pre-sale enquiries are not undertaken and the issue of service charge arrears is often not identified and addressed until after completion.

The first step is to obtain a determination that the debt is due either by obtaining a judgment from the County Court or a decision of the First Tier Tribunal (Property Chamber). In either case proceedings should be commenced against the seller of the flat, not the buyer.

Practical problems may arise when trying to sue the seller if the managing agent no longer has the relevant address details. In these situations, tracing agents can be very helpful.

Once you have the determination, a S.146 notice then needs to be served on the seller and thereafter forfeiture proceedings may be commenced, once again against the seller.

Note that although the buyer has no legal liability to pay the arrears, the threat of impending forfeiture proceedings (or indeed an order for possession) is often enough to compel the buyer to settle the debt.

For more help or advice contact the property management specialists at Brady Solicitors.

Leasehold enfranchisement entitles the leaseholders of a block of flats to collectively purchase the freehold of the property. This right was established in the Leasehold Reform and Urban Development Act 1993 and is commonly known as ‘collective enfranchisement’.

Collective enfranchisement is usually the most expensive option for taking control of your block, as you will need to pay the freeholder for the value of the freehold you are acquiring. Leaseholders can also be liable for the costs incurred by the freeholder.

By ‘buying out the freeholder’ and securing the freehold, leaseholders gain control over issues such as maintenance, ground rent and service charges, repairs, and so forth.

There are qualifying criteria that must be met before a collective enfranchisement application can be made, and the process can take some time to finalise if you are dealing with a difficult freeholder.

On the flip-side, collective enfranchisement can enhance the value of your property and improve its future saleability.

For more detail on what is involved in collective enfranchisement and how Brady Solicitors can help, please click here.

For leaseholders wanting to take control of the management of their block, there is a range of options, including Right to Manage, Appointment of a Manager and Collective Enfranchisement.

In some cases you may have another, more practical, option to allow you to take control of the management of your block, by obtaining an expert view on your management agreement to see if there is an option to terminate.

This is not always clear on first view and there may be certain caveats that need exploring. Brady Solicitors can provide a fast and effective review of your management agreement and establish if you have the right to give the managing agent notice.

A written hearing will be in the region of £3,000. A full hearing in the First-tier Tribunal, with the chance to present arguments and interview the new Manager in the Tribunal will cost around £5,000, depending on the complexity and amount of evidence.

Appointment of a Manager is a fault-based process and does not need a minimum number of leaseholders, but it does need to specify the areas of discontent.

The first step in Appointment of a Manager is to issue the freeholder with a ‘preliminary notice’ (also referred to as a section 22 notice), detailing the areas of concern over the management of the property, and giving them the chance to put them right.

If the freeholder fails to remedy the matters set out in the preliminary notice, the leaseholders can then proceed with an application to the First-tier Tribunal. At this point, leaseholders should also put forward a potential candidate for the manager role.

The FTT has the power to appoint a manager in place of the landlord or RTM company, so long as the statutory grounds can be established, and it is “just and convenient” to do so.

Find out more here

There is generally a minimum cost for small blocks and a set-up fee for the RTM company itself.

The cost will vary depending on the number of flats, but participating leaseholders should expect to pay upwards of £200 each.

We would also recommend creating a fund for further costs and the freeholder’s legal expenses.

Should the freeholder oppose the RTM application on the grounds of a technicality in the qualification or process, then costs can be £3,000 to £5,000. If you are considering Right to Manage, Brady Solicitors can steer you through and help you to keep costs low.