Solicitors Specialising in Disagreements Between Freeholders and Leaseholders
Owning your freehold. If you own the buildings and land of your property, you are a freeholder. Freeholders are responsible for the property they own, including matters such as maintenance, noise, and boundary disputes. The freeholder is ultimately responsible for the land on which your property is located.
However the costs for management are typically shared by payment of a service charge.
Owning a leasehold property. Leaseholders, on the other hand, do not own the land on which their property resides. Lease periods vary, and may start off as short as 21 years, or up to 999 years. As a result, in one sense, leaseholders don’t actually own anything – they merely pay for the right to use the property in question for a set period. At the end of that set period or lease, the rights the property will revert to the freeholder. And the costs for management maintenance of shared areas (such as the roof, stairs and any gardens) are typically shared by payment of a service charge.
However, in most cases, leaseholders have an individual right to force their freeholder to extend their lease by an additional 90 years, or can join with other leaseholders to buy the freehold together (see below).
[N.B. For the purpose of this article, when referring to leases we mean “long leasehold” i.e. all leases that were originally granted for a minimum of 21 years – in contrast to a weekly or monthly ‘lease’ when you simply rent a flat under a short term tenancy.]
Looking for specialist legal advice on your Freeholder/Leaseholder dispute? Call our Solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice.
Here at Bonallack and Bishop we are specialists in leasehold disputes.
• Firstly, we have a five strong leasehold team. Leasehold issues, and in particular lease extension, freehold purchase and right to manage are all they do – and that includes First-Tier Property Tribunal applications
• Secondly, we have a very strong litigation team with plenty of experience of property litigation.
• Lastly, no other law firm is recommended by The HomeOwners Alliance for lease extensions, freehold purchase and right to manage. The HOA is the UK’s leading organisation campaigning for the UK’s homeowners
Your Freeholder Leaseholder Dispute Step #1 – Read Your Lease
The first and very simple bit of advice for anyone who is having any sort of dispute with their leasehold or their freeholder is to check the lease.
There is no standard form for long leases – and as result their contents vary significantly.
Whenever you buy leasehold property, make sure you understand your lease. If not – make sure your solicitor explains anything you don’t understand.
Click here to read more about leasehold terms to look out for and which could cause you problems when buying a leasehold flat
Can I buy my freehold?
Yes – provided you satisfy the various requirements. An individual leaseholder will normally have the right to buy the freehold of a leasehold house – and when it comes to blocks of flats, multiple leaseholders are able to come together to jointly buy the freehold – in a process known as collective freehold or leasehold enfranchisement.
However there are certain requirements – including the fact that over 50% of qualifying leaseholders need to participate in the enfranchisement (see below).
What is the First-Tier Tribunal (Property Chamber)?
The First-Tier Property Tribunal deals with disputes regarding leasehold properties as well as private sector landlord and tenant disputes. There are five offices throughout England.
Click here to learn more about how the First-tier Property Tribunal works.
What are the most common Freeholder Leaseholder Disputes?
Leasehold property disputes typically erupt over the following matters:
1. Service charge disputes – the most common of freeholder leaseholder disputes
2. Lease forfeiture and possession
3. Ground rent arrears
4. Nuisance actions
5. Lease extensions
6. Leasehold enfranchisement
It’s also not unusual for disputes to arise between joint freeholders – after a number of leaseholders have come together to buy the freehold of their block.
More details of these most common freeholder/leaseholder disputes are found below
1. Service charge disputes
Service charges can cause bitter disputes between freeholders and leaseholders.
Service charges are used by freeholders to recover the cost of providing services such as general maintenance, security, lighting, and the cleaning of general areas. The service charge amount and what the charge covers will be set out in the lease itself.
The freeholder can only recover reasonable costs concerning work done or a service provided.
Both freeholders and leaseholders have the legal right to apply to the First-Tier Property Tribunal to establish what is ‘reasonable’. As part of the decision-making process, the Tribunal will consider:
· Is the work of a reasonable standard, and
· What procedures are/were in place for managing costs?
If a leaseholder is late paying their service charge, the freeholder can treat the non-payment as a breach of the lease. Most leases allow a freeholder to claim a late payment charge – but do check yours.
However, the Commonhold and Leasehold Reform Act 2002 allows the freeholder to issue variable administration charges for breaches of a lease, including late payment of service charges, even if the lease does not specify this.
Our team can help both freeholders and leaseholders in resolving service charge disputes swiftly and, in most cases, without the need to go to the Tribunal.
2. Lease forfeiture and possession
One of the most distressing disputes, both for a freeholder and a leaseholder, is where the lease is forfeited, and the freeholder takes possession of the property. This type of situation normally arises when the leaseholder breaches the terms of their lease.
In 2018, a leaseholder had his £600,000 northwest London flat seized by his freeholder following a redecorating dispute. The freeholder lived in the flat downstairs from the leaseholder. Shortly after moving in, the leaseholder fitted a new bathroom, kitchen, and central heating system without telling the freeholder, as required under his lease agreement. After the leaseholder refused to pay costs issued by the Tribunal, the freeholder obtained an order for forfeiture and possession from the County Court.
Forfeiture proceedings cannot be brought by the freeholder if no forfeiture clause is included in the lease agreement. If the freeholder is legally entitled to begin forfeiture proceedings, for breach of a clause in the lease (apart from non-payment of rent or service charges or a breachcannot be remedied), they must issue a section 146 notice of forfeiture on the leaseholder – essentially a warning to rectify the breach. Upon receipt, the leaseholder must remedy the breach and pay any compensation set out in the section 146 notice.
Is a court order needed for repossession?
Yes. Repossession of an occupied property cannot occur without a Court order.
Fortunately for leaseholders, the vast majority of such cases are settled. Lease forfeiture is a very powerful tool for the freeholder to remedy any breach – but rarely is forfeiture itself actually ordered.
3. Ground rent arrears
The freeholder has the right to charge the leaseholder ground rent a rate set by the lease.
Ground rent can vary hugely – it can be as little as what is called a “peppercorn” rent, which could be as little as £1. But it can be more – much more. And part of the current controversy about ground rents rates to the level of increase in some leases. Particularly in the 1970s, when inflation was high, it wasn’t unusual to have ground rent doubling every 10 years. But with very low inflation rates now, that rate of increase can cause a ground rent to start looking very expensive indeed – which can put off future purchasers.
If you are struggling with a high rate of ground rent, then the answer may be joining together with other leaseholders to buy the freehold. Our team can assist you and other homeowners in your development with enfranchisement.
But what happens if a leaseholder simply doesn’t pay ground rent or the service charge?
If the freeholder wants to claim forfeiture due to non-payment of ground rent or service charges, they do not need to issue a section 146 notice. They simply need to notify the leaseholder that payment is due and then provide a grace period (the length will be determined by the lease).
But, as indicated above, the ultimate threat is forfeiture – the legal process which allows a freeholder to re-enter their property following a breach by the leaseholder, and by doing so, terminate the lease entirely.
Such is the power of forfeiture, there are significant restrictions on it – in particular courts are able to grant relief from forfeiture. For example, relief will be granted for non-rent payments if all monies are paid at least five days before the hearing. If, however, you are involved in a forfeiture claim, make sure you speak to one of our specialist solicitors immediately.
4. Nuisance disputes
When you buy a leasehold flat, much of your happiness will depend on your neighbours. They can become your best friend, providing help when you need it, or your worst enemy, completely ruining your home life. And neighbour disputes can sometimes be particularly tough to settle.
Most long lease contracts include a clause stating the leaseholder is entitled to the quiet enjoyment of their property. Generally, where a freeholder authorises the leaseholder to do something which may cause a nuisance, the freeholder may be liable but only if that freeholder actively or directly participates in the nuisance.
Excessive noise is one of the most common causes for complaint in nuisance actions
A recent example of a freeholder not being found liable in nuisance was the case of Fouladi v Darout. The Claimant owned the leasehold of her flat. Her neighbours above embarked on a project of removing the carpet and re-laying flooring. In doing so, they did not comply with the terms in the lease relating to noise reduction and installing floor coverings to minimise sound.
The neighbours had obtained the freeholder’s consent for the work. However, although the Court found the neighbours liable in nuisance, the freeholder had not participated in the noise, and therefore the claim against the freeholder failed. The Court repeated the point established in the case of Malzy v Eicholz that “a landlord is not liable in nuisance caused by his tenant merely because he does not take steps (which are available to him) to prevent what is being done, even where he knows his tenant is causing a nuisance”.
Will an ongoing dispute with the freeholder affect your ability to sell your leasehold property?
A common reason for the sale of a leasehold property to stall is the discovery of an existing dispute between the current leaseholder and the freeholder.
Forget about staying silent regarding any disputes relating to service charges or repairs. As part of the transaction, you must fill in an Information Form which will ask if you or the freeholder have made or received any complaints from each other or any neighbours. If you leave this blank, the buyer’s Solicitor will sense a red flag and want to know why. If you don’t tell the truth, you could face a claim for misrepresentation.
If you’re thinking of selling your flat but there is an existing ongoing dispute, ensure that you speak to one of our Solicitors. It’s really important that wherever possible, any disputes are properly resolved before putting your flat/house on the market.
Can a freeholder be in breach of the lease?
In short, yes. It’s worth noting that both freeholders and leaseholders can breach the lease – and it’s important to be aware of the action which can be taken if a lease is breached.
Leaseholders can take freeholders to court if they do not do what is required of them under the terms of the lease, such as carry out a repair.
However, it is usually freeholders who bring action against leaseholders for breach. The court will normally order a compensation payment and demand that the breach is corrected. It is also likely that the losing party will have to pay the winning party’s costs. But other outcomes are possible – such as forfeiture of the lease.
5. Lease extensions
The Leasehold Reform, Housing and Urban Development Act 1993 (LRHUDA 1993) provides leaseholders with the right to extend their lease. If you are a leaseholder, it is important not to allow the lease period to drop too low, or you risk your property losing value.
You really shouldn’t wait until your lease is expired or nearly expired to extend it; in fact, that’s a really bad idea. Ideally you want to start the lease extension process for your lease term drops below 80 years. Why? The very day the lease drops below 80 years entitles the freeholder to charge an increased premium – this is known as ‘marriage value’ (the added amount of property value created by extending the lease).
You can extend the lease on a flat by 90 years; houses for 50 years, provided you meet the legal requirements. Specifically, this means you must have owned the property for at least two years.
However if you’re looking to buy a flat with a short lease and don’t want to wait two years for applying for lease extension, there is a way around that. In short you need to arrange for the vendors to put in a formal application for a lease extension of its (by means of what is known as a Section 42 notice) and then you can arrange to have the benefit of this application transferred across to you on completion. Our specialist lease extension team do this as a matter of routine. there is, however, an alternative to the formal route of leasehold extension – that’s extending your lease on an informal private or voluntary basis. There are quite a few differences between these 2 routes.
Click here to read more about the differences between private and statutory lease extensions
In return for extending the lease, your freeholder is entitled to be paid compensation – referred to as a premium. If you use the formal or statutory route to extend your lease (as distinct to coming to a private arrangement with your freeholder, then you will also need to pay your freeholder’s own reasonable legal and valuation fees
The cost of the extension depend on number of factors including the value of the property, the remaining lease length and the current and future value of any ground rent or obliged to pound the lease.
Disputes relating to lease extensions can occur when the parties cannot agree on the value of the premium – or in relation to the freeholders reasonable legal and valuation costs. If any of these are disputed, either party can apply to the Tribunal for a decision. However, thankfully the vast majority of lease extensions are agreed without the need to involve tribunal – not least because of the costs involved.
It’s worth noting that if you do have to apply to the Tribunal to force your freeholder to extend your lease, you must ensure that all charges on the existing lease, such as money owed for the service charges, insurance, and maintenance are paid. Otherwise, the Tribunal cannot grant an extension. In the case of disputed sums, we advise leaseholders to offer the freeholder ‘reasonable security’ for the outstanding sum whilst the Tribunal decides as to the disputed amount.
Click here to read more about Lease Extension
6. Leasehold enfranchisement disputes
Under the Leasehold Reform Housing & Urban Development Act 1993, collective enfranchisement enables several owners of leasehold flats within a building to seek to collectively buy the freehold from the landlord. Leasehold enfranchisement differs from obtaining a Right to Manage. The latter does not grant you the freehold of the property – but it does enable tenants to manage the maintenance of the building themselves.
There are strict qualifying criteria for leasehold enfranchisement. The two most important are:
1. The building must be self-contained or part of a self-contained building.
2. More than 50% of the leaseholders must agree to take part in buying freehold. Typically, the dissipating leaseholders form a Company to apply for enfranchisement.
If the freeholder disputes your right to collective enfranchisement, the matter can be referred to the County Court for consideration, or to the Tribunal if the price cannot be agreed.
In terms of professional costs, as with lease extension, you should expect to pay for a specialist valuation of the enfranchisement premium drone legal fees – as well as the legal and valuation costs of the freeholder. Again if there is a dispute on the level of freeholder’s fees, that issue can be referred to the Tribunal.
Click to read more about Lease Enfranchisement
Problems with block management? Here are the solutions
If you, with or without your fellow leaseholders feel that your freeholder has been failing to manage your block properly, then there are 3 alternatives available to you.
1. To buy your freehold as detailed above
2. To exercise the right to manage with your fellow leaseholders.
3. To apply to court for what is known as “a Court-Appointed Manager”.
Differences between Right to Manage and a Court-Appointed Manager
This is noticeably different from exercising your right to manage (often referred to as RTM) in 3 particular ways:
• Firstly unlike RTM, a successful application for a Court-Appointed Manager requires you to prove some level of fault on behalf of the freeholder.
• Secondly, also unlike RTM, you don’t need to make a joint application with other leaseholders – you can apply for the appointment of a Court-Appointed Manager on your own.
• Thirdly, whilst RTM involves you and your fellow leaseholders taking over the right to manage yourself – appointing a “court-appointed manager” is exactly that. The Court appoints a new manager (usually an experienced residential management company) to look after the block, so you don’t have to.
Looking for Specialist Legal Advice With Your Freeholder Leaseholder Dispute? Call Us Now
To discuss your case, call our specialist team, and we’ll see what we can do to help defend your interests and ensure that you receive what you are due.
• Call our our team of specialist disputes solicitors today on FREEPHONE 0800 1404544 or Salisbury [01722 ] 422300 OR
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