What are tripartite leases?

Flats in England and Wales are usually owned on a “leasehold” basis. “Leasehold property” ownership in simple terms means that a lease owner or lease-holder has a right to use and enjoy the property for a definite period of time. The terms by which the leaseholder may use the property are governed by a legal contract called a “lease”. A lease is therefore a written agreement between two or more parties  recording the basis on which the bargain between those parties has been agreed.

Prior to the mid-1980’s it was standard practice for there to be only two parties to the lease: the leaseholder (or lessee) and the landlord (or lessor).

Prior to the laws of leasehold enfranchisement being introduced during the mid1980’s, Landlords  to flat leases  would in most situations  have carte blanche to deal  with property as they wished.

Thus, landlords Could impose unreasonable prices for lease extensions or freehold interests or impose other

Unreasonable requirements when leaseholders came to sell their leasehold flats.

Other common complaints of leaseholders prior to the mid-1980’s concerned the mismanagement of buildings by landlords and/or the imposition of unreasonably high service charges etc.

Commentators at the time, realising that the circumstances that prevailed were inherently unfair towards tenants, advocated and lobbied the government into imposing a statutory regime to redress the imbalance.

Those efforts resulted in the enactment of the Landlord and Tenant Acts 1985 and 1987 and more later, The Leasehold Reform, Housing and Urban Development Act 1993 and the Commonhold and Leasehold Reform Act 2002, which all attempted to redress the imbalance of power between landlord and leaseholder.

Developers realising this shift became nervous and thus started to change the way in which their leases were drafted. Consequently, the concept of “tripartite leases” was born.

What is a  “TRIPARTITE LEASE”?

A tripartite or tri-party lease is, quite simply, a lease made between three parties: (i) the landlord (ii) the leaseholder and (iii) a management company.

Under tripartite leases, historically, management companies are companies limited by shares with its main objective is to manage and maintain the common parts (entrances, lifts, car- parks, gardens as well as the main structure of the building itself) for the general benefit of the leaseholders. The full responsibilities of any management company will be set out in its Memorandum and Articles of Association, as well as being contained within the tripartite leases themselves. Tripartite leases are now commonly used by developers in new-build blocks. It is also now more usual for leaseholders, by virtue of being a lessee in the block, to have a share or membership in the management  company – more commonly known as “resident management companies” or “RMC’s”. By creating RMC’s, in theory, leaseholders were effectively. “put in charge of their estate”. But did this happen in practice?

RMC’S IN PRACTICE
In practice RMC’s are seen as the vehicle by which developers/landlords “off-load” the unprofitable loss making obligations under the lease onto another party.
For example, under tripartite leases landlord’s obligations are now generally limited in scope and usually often only extend
to the collection of ground rents (landlord’s investment income) and the placing of insurance (and often the receipt
ii.  litigating against bad debts
iii. dealing with nuisance leaseholders i.e. the erection of rouge satellite dishes, unauthorised pets, sub- lettings and alteration works
iv. leaseholder parties / washing machines / pneumatic drills being heard at unsociable house
v. car parking issues etc. Power to the Leaseholders!
 

Health Warning!
Whilst legislative provisions were being enacted in an attempt to shift the balance of power to leaseholders (right
to manage concept, collective enfranchisement provisions for flats etc.), tripartite leases and RMC’s in practice means it is sometimes more difficult for leaseholders dissatisfied with the management of the building to change management / evoke the legislative procedures that were intended to benefit them.
Furthermore very few leaseholders realise, even today, that RMC’s are properly constituted companies and running a RMC is not a straight-forward matter at all. RMC’s need to be run in compliance with the Companies Acts, otherwise it runs the risk of being struck of the Register of Companies. The consequences of this happening can be potentially disastrous in that, depending on the wording of the lease, no-party could end up with responsibility for management and up-keep of the building. This could mean that the building if left to rack and ruin and/or possibly directors of the RMC being personally liable for such management breaches.

In addition, for RMC’s to be successful, leaseholders need to realise that RMC’s need lessee from amongst their number to volunteer to stand as officers of the RMC which may involve taking on extensive duties/ obligations for which they are often unpaid.
Did the legislation really make the difference it intended? Did the balance of power really shift towards leaseholders? Do tripartite leases really put leaseholders in charge of their estates? And have leaseholders finally realised entering into a tripartite lease in theory requires them to play a part in their own blocks destiny?

For further information regarding this article, contact Roger Hardwick, Head of Leasehold Enfranchisement, Brethertons Solicitors.