Question 1

Loft Space

Accepted Answer

Q: I am one of the directors for our Management Company. We have recently been asked by a resident to consider the potential purchase of loft space (owned by the company on a lease of 125 years and managed by it) for a top floor flat in which he lives. It involves a payment to both the freeholder (administrative fee) and the management company (to purchase the loft space). The management company is run independently of the freeholder, however it makes the decision on whether or not to let the sale be progressed. We have reason to believe that the freeholder would be content with the sale. The blocks of flats comprise 116 leaseholders who each pay an annual variable service charge to the management company. The annual variable service charge comprises an estate service charge (which all 173 shareholders, including the houses, contribute to equally), a block service charge and a lift service charge for those blocks that have one. The payments for the block service charge and the lift service charge are determined by fixed percentages in the lease which are based on the number of bedrooms in the flat. The key questions I have are as follows; - if the sale of loft space is approved and as a result an additional room is built in this flat, what would be the 'normal' way to address this - would the leaseholder for this flat then be expected to pay a proportionally larger share of the service charge, and/or would that usually increase the absolute service charge amount to be collected by the management company from all 116 flats in total? - in the case of an amendment to the lease payment for this leaseholder, the proportional amounts detailed in all leaseholder's contracts would then be incorrect; what is the process involved in documenting this properly, would it require all leases to be amended individually or is there a way to enact a change to all leases in one go? Also assuming that this was approved, is there a way to ensure future similar requests can be dealt with in a similar way? - have you got any other thoughts on how best to approach this given other experiences of management companies in a similar position, and any other considerations that we may be missing? - can you recommend any solicitors who specialise in this type of area that we could approach? Thanks for your time and assistance and please let me know if any further information would be useful in providing a response. Stuart Merrison of Bishop & Sewell replies: The grant of any further additional residential leasehold space may or may not increase the total service charge payable by all leaseholders. I am not sure that that matters here unless the number of bedrooms in the flat in question increases. In such a situation the percentage applied to the block service charge and lift service charge will not add up to 100 per cent. I assume that before the re-designation of the flat in question then the relevant percentage did act up to 100 per cent. This is likely to result in a surplus arising from the service charge. In such a situation it may be that amendments could be made to the leases by agreement. If that is not possible then it may be that Section 35(4) Landlord and Tenant Act (1987) could be utilised by way of application to the First Tier Tribunal on the basis that the service charge provision under the leases is ‘unsatisfactory’. The act requires that a logical method of determining service charge must be used. That method will of course be different when applied to different situations. If there are likely to be further requests of this nature from other leaseholders then the Tribunal should be alerted to that likelihood so that it can consider any order it makes in light off that eventuality. The adviser also recommended that you get a solicitor who is familiar with this sort of issue to assist you and to give you an idea of the sort of costs that might be involved his firm would charge £300.00 per hour for this type of specialist work. As you know FRPA does not recommend any particular firm for work but would recommend you choose a firm with the relevant specialist knowledge, as this usually results in a better outcome at lower overall cost. [Submitted April 2016]

Question 2

Loft Space

Accepted Answer

Q: I am one of the directors for our Management Company. We have recently been asked by a resident to consider the potential purchase of loft space (owned by the company on a lease of 125 years and managed by it) for a top floor flat in which he lives. It involves a payment to both the freeholder (administrative fee) and the management company (to purchase the loft space). The management company is run independently of the freeholder, however it makes the decision on whether or not to let the sale be progressed. We have reason to believe that the freeholder would be content with the sale. The blocks of flats comprise 116 leaseholders who each pay an annual variable service charge to the management company. The annual variable service charge comprises an estate service charge (which all 173 shareholders, including the houses, contribute to equally), a block service charge and a lift service charge for those blocks that have one. The payments for the block service charge and the lift service charge are determined by fixed percentages in the lease which are based on the number of bedrooms in the flat. The key questions I have are as follows; - if the sale of loft space is approved and as a result an additional room is built in this flat, what would be the 'normal' way to address this - would the leaseholder for this flat then be expected to pay a proportionally larger share of the service charge, and/or would that usually increase the absolute service charge amount to be collected by the management company from all 116 flats in total? - in the case of an amendment to the lease payment for this leaseholder, the proportional amounts detailed in all leaseholder's contracts would then be incorrect; what is the process involved in documenting this properly, would it require all leases to be amended individually or is there a way to enact a change to all leases in one go? Also assuming that this was approved, is there a way to ensure future similar requests can be dealt with in a similar way? - have you got any other thoughts on how best to approach this given other experiences of management companies in a similar position, and any other considerations that we may be missing? - can you recommend any solicitors who specialise in this type of area that we could approach? Thanks for your time and assistance and please let me know if any further information would be useful in providing a response. Stuart Merrison of Bishop & Sewell replies: The grant of any further additional residential leasehold space may or may not increase the total service charge payable by all leaseholders. I am not sure that that matters here unless the number of bedrooms in the flat in question increases. In such a situation the percentage applied to the block service charge and lift service charge will not add up to 100 per cent. I assume that before the re-designation of the flat in question then the relevant percentage did act up to 100 per cent. This is likely to result in a surplus arising from the service charge. In such a situation it may be that amendments could be made to the leases by agreement. If that is not possible then it may be that Section 35(4) Landlord and Tenant Act (1987) could be utilised by way of application to the First Tier Tribunal on the basis that the service charge provision under the leases is ‘unsatisfactory’. The act requires that a logical method of determining service charge must be used. That method will of course be different when applied to different situations. If there are likely to be further requests of this nature from other leaseholders then the Tribunal should be alerted to that likelihood so that it can consider any order it makes in light off that eventuality. The adviser also recommended that you get a solicitor who is familiar with this sort of issue to assist you and to give you an idea of the sort of costs that might be involved his firm would charge £300.00 per hour for this type of specialist work. As you know FRPA does not recommend any particular firm for work but would recommend you choose a firm with the relevant specialist knowledge, as this usually results in a better outcome at lower overall cost. [Submitted April 2016]

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