Question 1

Options to deal with problem freeholders

Accepted Answer

As a Tenants’ Association, we have been battling with the freeholder-managing agent (it is the same company) over a lack of maintenance, questionable services charges, and a failure to respond to our queries or show us supporting invoices. Rather than continuing to battle with him on the details and getting nowhere, we are considering changing strategy and looking at the fundamentals, such as whether we could wrest control away from the freeholder/managing agent. What options are open to us? The FPRA replies: There are a number of options open to the association and/or individual leaseholders:- 1. Proceedings for Breach of Landlord’s Lease Covenants: Depending on the works that need to be undertaken and their seriousness, the association / leaseholders may wish to initiate proceedings against the landlord for breach of his duties under the terms of the lease. This application could include an application for an injunction for specific performance, requiring the landlord under the works / rectify his breach of lease covenant. Generally speaking however injunction applications are notoriously expensive. 2. Appointment of Manager: The leaseholders may wish to make an application to the Leasehold Valuation Tribunal (LVT) for the Appointment of a Manager. For such applications to be successful, a tenant must show that it would be just and convenient in all the circumstances for a manager to be appointed. The tenant must also show one of the following:

the landlord is in breach of a management obligations under the lease;
unreasonable service charge or variable administration charge demands have been made, are proposed or are likely to be made;
there have been breaches of the relevant codes of practice;
any other circumstance exist which make it just and covenant for the order to be made.

The LVT regards the appointment of a manager as a draconian step and will usually require a preliminary notice be served on the landlord allowing him reasonable time to remedy the breaches of complained of. In certain circumstances the LVT may be willing to waive compliance with the service of the preliminary notice. Generally speaking, there is no requirement for a professional manager to be appointed, however the LVT will prefer this particularly as the LVT will be appointing the manager to oversee a scheme of manager and acts independently to the parties and is more the servant of the LVT. 3. Purchase of Freehold: Have the leaseholders thought about purchasing the freehold from the landlord? The right to collective enfranchisement (purchase of the freeholder) is the right of a group of qualifying tenant to have the freehold and certain other interests conveyed to them, at a price determined by a formula contained in the legislation. In general terms, the broad qualifying criteria for collective enfranchisement are :

there must be a self-contained building or part of a building
not more than 25% of the building must be non-residential
two or more flats must be held by qualifying tenants
the total number of flats held by those tenant must be not less than 2/3rd of the total number of flats
the participating tenant mist be those flats comprising not less than 50% of the total number of flats at the date the initial notice is served.

The procedure is similar to the Right to Manage process described below in that the leaseholders trigger the formal procedure by serving an initial notice upon the freeholder and any other landlords, stating their intention to purchase the freeholder. The landlord then has the opportunity to serve Counter-Notices stating which the terms he agrees with and those which he disagrees with. If after the Counter Notice(s) has been served, terms cannot be agreed, an application made to the Leasehold Valuation Tribunal. Purchasing the freehold has many advantages, namely:-

tenants that participate can grant themselves very long leases without payment of further premiums
there is no residence qualification or minimum period of ownership
there is no need to invite all qualifying tenants to participate (unlike the right to manage procedure – see below)
management of the building will also be acquired
there is, or at least is perceived to be, an enhanced saleability of flats in the building

4. Right to Manage Company or RTM Company: The leaseholders also have the option of setting up a right to manage company. The right was created by Commonhold and Leasehold Reform Act 2002 and generally speaking, leaseholders can now force landlords to transfer his management functions the RTM company. Unlike the appointment of a manager application set out above, there is no need for leaseholders to prove fault in management on behalf of the landlord. The procedure is quite simply, although legal advisors should be consulted as there are many traps for the unwary. The acquisition of the right to manage begins with the creation of an RTM company. As soon as it is created, qualifying tenants are entitled to join the company. The RTM Company is then entitled to obtain various information from the freehold in order to take the next stage in the process. The RTM Company must then inform all qualifying tenants and invite them to join the RTM. Once the RTM company has sent out the notice of invitation to qualifying tenant, and more than half the tenants have become members of the company, it may then serve a notice of claim on the freeholder and any party to the lease. Anybody objecting can then serve counter notices and any dispute must be referred to the Leasehold Valuation Tribunal. There are certain criteria that must be fulfilled before the right to manage can be exercised and these are broadly similar to the criteria for collective enfranchisement (see above).

Question 2

Options to deal with problem freeholders

Accepted Answer

As a Tenants’ Association, we have been battling with the freeholder-managing agent (it is the same company) over a lack of maintenance, questionable services charges, and a failure to respond to our queries or show us supporting invoices. Rather than continuing to battle with him on the details and getting nowhere, we are considering changing strategy and looking at the fundamentals, such as whether we could wrest control away from the freeholder/managing agent. What options are open to us? The FPRA replies: There are a number of options open to the association and/or individual leaseholders:- 1. Proceedings for Breach of Landlord’s Lease Covenants: Depending on the works that need to be undertaken and their seriousness, the association / leaseholders may wish to initiate proceedings against the landlord for breach of his duties under the terms of the lease. This application could include an application for an injunction for specific performance, requiring the landlord under the works / rectify his breach of lease covenant. Generally speaking however injunction applications are notoriously expensive. 2. Appointment of Manager: The leaseholders may wish to make an application to the Leasehold Valuation Tribunal (LVT) for the Appointment of a Manager. For such applications to be successful, a tenant must show that it would be just and convenient in all the circumstances for a manager to be appointed. The tenant must also show one of the following:

the landlord is in breach of a management obligations under the lease;
unreasonable service charge or variable administration charge demands have been made, are proposed or are likely to be made;
there have been breaches of the relevant codes of practice;
any other circumstance exist which make it just and covenant for the order to be made.

The LVT regards the appointment of a manager as a draconian step and will usually require a preliminary notice be served on the landlord allowing him reasonable time to remedy the breaches of complained of. In certain circumstances the LVT may be willing to waive compliance with the service of the preliminary notice. Generally speaking, there is no requirement for a professional manager to be appointed, however the LVT will prefer this particularly as the LVT will be appointing the manager to oversee a scheme of manager and acts independently to the parties and is more the servant of the LVT. 3. Purchase of Freehold: Have the leaseholders thought about purchasing the freehold from the landlord? The right to collective enfranchisement (purchase of the freeholder) is the right of a group of qualifying tenant to have the freehold and certain other interests conveyed to them, at a price determined by a formula contained in the legislation. In general terms, the broad qualifying criteria for collective enfranchisement are :

there must be a self-contained building or part of a building
not more than 25% of the building must be non-residential
two or more flats must be held by qualifying tenants
the total number of flats held by those tenant must be not less than 2/3rd of the total number of flats
the participating tenant mist be those flats comprising not less than 50% of the total number of flats at the date the initial notice is served.

The procedure is similar to the Right to Manage process described below in that the leaseholders trigger the formal procedure by serving an initial notice upon the freeholder and any other landlords, stating their intention to purchase the freeholder. The landlord then has the opportunity to serve Counter-Notices stating which the terms he agrees with and those which he disagrees with. If after the Counter Notice(s) has been served, terms cannot be agreed, an application made to the Leasehold Valuation Tribunal. Purchasing the freehold has many advantages, namely:-

tenants that participate can grant themselves very long leases without payment of further premiums
there is no residence qualification or minimum period of ownership
there is no need to invite all qualifying tenants to participate (unlike the right to manage procedure – see below)
management of the building will also be acquired
there is, or at least is perceived to be, an enhanced saleability of flats in the building

4. Right to Manage Company or RTM Company: The leaseholders also have the option of setting up a right to manage company. The right was created by Commonhold and Leasehold Reform Act 2002 and generally speaking, leaseholders can now force landlords to transfer his management functions the RTM company. Unlike the appointment of a manager application set out above, there is no need for leaseholders to prove fault in management on behalf of the landlord. The procedure is quite simply, although legal advisors should be consulted as there are many traps for the unwary. The acquisition of the right to manage begins with the creation of an RTM company. As soon as it is created, qualifying tenants are entitled to join the company. The RTM Company is then entitled to obtain various information from the freehold in order to take the next stage in the process. The RTM Company must then inform all qualifying tenants and invite them to join the RTM. Once the RTM company has sent out the notice of invitation to qualifying tenant, and more than half the tenants have become members of the company, it may then serve a notice of claim on the freeholder and any party to the lease. Anybody objecting can then serve counter notices and any dispute must be referred to the Leasehold Valuation Tribunal. There are certain criteria that must be fulfilled before the right to manage can be exercised and these are broadly similar to the criteria for collective enfranchisement (see above).

Options to deal with problem freeholders

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