Many leaseholders are unhappy with the management of their block, but too few understand the solutions that are available to them.
Leaseholders find themselves at their wits end, believing there is no option bar withholding their service charges, and then get caught up in debt recovery action. But there is another way.
Section 21 of the Landlord and Tenant Act 1987 allows leaseholders to apply to the tribunal for the Appointment of a Manager. This is a little-used mechanism, which provides a remedy for those disgruntled with the management of their block, in circumstances where other remedies may not be available.
Where the premises comprise two or more flats, an application can be made in respect of part of a building, or the whole of it. It can be exercised by a single tenant, but of course the more tenants on board, the better.
There are other requirements to meet; pivotally, this is a fault-based remedy, so leaseholders must satisfy the Tribunal that there is a need to appoint a Manager.
The grounds that the Tribunal look for are a breach of obligation owed under the lease, or a breach of the RICS Code, or unreasonable service charge demands, or other circumstances which make it just and convenient for a Manager to be appointed. As far as remedies go, these are pretty far-reaching grounds, but the onus is on the leaseholder to prove that they are made out.
If leaseholders are successful, the result is an Order appointing a Manager in place of the existing Management Company or Landlord.
Leaseholders can nominate a Manager of their choosing, and tend to select a Manager that they have had more positive experiences with. The Order replaces the lease for a specified term, meaning that the management of the property is governed by it, and not the lease.
So, it is for you? Have a think about what you are unhappy with at your block; if you cannot put your finger on it, then the chances are this is not the solution you are looking for. But if your landlord has failed to decorate the hallways for the last 10 years, hasn’t installed fire detectors, or has removed that bicycle store that you are entitled to use, then perhaps an appointed Manager could do a better job.
Acquisition Orders
Freehold purchases by leaseholders are often considered under the heading of either a Collective Enfranchisement under the Leasehold Reform Housing and Urban Development Act 1993, or the Right to First Refusal under Part I of the Landlord and Tenant Act 1987. There is in fact another beneficial option available to leaseholders entitling them to collectively purchase the freehold of their building, known as an Acquisition Order.
Under Part III of the Landlord and Tenant Act 1987 leaseholders have the right to force the sale of their landlord’s interest in the freehold where their landlord has failed to carry out its management obligations contained in their long leases.
This process is essentially a remedy claim by the leaseholders, based wholly on the fault of the landlord for not managing the premises or a part of the premises accordingly.
The most common ground used to purchase the freehold interest in this way is to have first been granted an order to appoint a Manager and then waiting two years to apply for the Acquisition Order.
This is, however, not the only ground available. If your landlord routinely breaches the terms of your lease which require management functions to be carried out by him/her, you are not obliged to apply to appoint a Manager in the first instance. A claim for an Acquisition Order can be made at any time where the breaches continue up to and including the date the Order is made and also where it is ‘appropriate’ to make the order in the particular circumstances.
The process for the Order to be granted is initiated by service of a Notice on the landlord. Eligibility of qualifying tenants and qualification requirements of the premises are similar to the alternatives. This course of action entitles the County Court to grant the Order, with the terms and valuation determined by the First Tier Tribunal (Property Chamber); qualified to consider such elements in detail.
This underused process to purchase the freehold interest of a mismanaged or neglected building should be at the forefront of both leaseholders and landlords’ minds.
Appointment of a Manager vs Right to Manage
The Right to Manage and the right to Appoint a Manager coexist, but the latter is likely to be available in circumstances where the former is not. For instance, a single tenant can make the application, as opposed to the majority required for the RTM. An application can be made irrespective of the property including commercial units. If the block is being mismanaged by an RTM, a manager may still be appointed.
Consider also that, with an RTM, leaseholders are taking over the functions themselves, and may ultimately require the assistance of a specialist Property Manager in any event; appointing a Manager cuts out the middle stages and puts a Manager is place from the outset, with far less of the messy handover process associated with the RTM, and potentially less expense.
Acquisition Order vs Collective Enfranchisement
So, what are the benefits of applying for an Acquisition Order in comparison to a Collective Enfranchisement? Valuation is an important consideration for leaseholders. Do you pay any less? Well, where there are leases at the building with an unexpired term of less than 80 years, marriage value can significantly increase the purchase price payable under a Collective Enfranchisement. The purchase price for an Acquisition
Order does not include marriage value, a favourable element of the process for leaseholders.
Even more favourable to leaseholders is the realm of the Court process. Leaseholders can be awarded a costs order for the claim, which is applied to reduce the purchase price payable for the freehold interest.
In particular, where a landlord is missing or his/her identity cannot be established the costs of the process can be an important factor together with the additional benefit of the ability to dispense with the requirement to serve a Notice initiating the claim.
If you are a landlord of a building containing two or more flats, what should you be doing now?
Have your leaseholders been chasing you to fix the roof, clear the guttering or hoover the staircases? Go and refer to your lease terms. Are you neglecting the repair, maintenance and insurance obligations? Otherwise, your leaseholders may seize the moment and benefit from your lack of action.
Leah Veasey and Gemma Hawthorne are solicitors in Bolt Burdon Solicitor’s Leasehold Reform team.
