Freeholder Not Maintaining Property?

Solicitors Specialising in Solutions to Leasehold and Freehold Problems

If you own a flat, it’s highly likely to be a leasehold property and you will rely on the landlord, or more technically your freeholder, to look after the property. It is important that your freeholder fulfils their obligations. As well as making sure that your home or buy to let investment is in good repair, this ensures your flat does not lose value. But what happens if your freeholder isn’t maintaining the property?

Freeholders are not always good property managers themselves, and equally they don’t always appoint efficient property managers. In short, there are many ways in which they can fail leaseholders.

At Bonallack & Bishop, our property dispute team routinely represent leaseholders in dealing with difficult freeholders and situations where maintenance and other issues have arisen.

Here, we take a look at how some of these problems arise and, most importantly, some of the solutions that are open to you.

Leasehold update – On 24 May 2024 the UK Parliament rushed The Leasehold and Freehold Reform Act 2024 into law. It affects some of the solutions discussed on this page. But the reforms won’t come into effect until the Act is implemented. Until then, the information contained on this page reflects the current legal position
Keep up-to-date with the proposed changes – read our Leasehold Reform Latest News

NB although we refer to leasehold flats throughout this page, the situation is largely, though not entirely, similar for those of you who own a leasehold house and find that your freeholder is not maintaining the property.

Got a legal question about how to tackle a freeholder who is not maintaining your block properly? Call our specialist solicitors on FREEPHONE 0800 1404544 for FREE initial phone advice – with no strings attached.

Legal advice on property maintenance problems – the need for specialist Solicitors

If you are having problems with your freeholder maintaining the property and you’re looking at a legal solution, then it’s really important to make sure you got experts on your side.

Here at Bonallack and Bishop, we have to specialist teams who are able to cover whatever help you need

• our 6 strong leasehold team – possibly the largest team of its type in the country, we have helped over 10,000 people extend their leases, by their freehold or accept exercise the right to manage
• our 3 strong property dispute team do nothing but property disputes – including service charge disputes and breach of lease by freeholders.

But don’t just take our word for it. Our expertise is why we are the sole partners of the HomeOwners Alliance – the only solicitors recommended for freehold purchase, right to manage and property dispute advice by the only organisation to champion, support and serve Britain’s 17 million homeowners.

Your Freeholder – their property obligations

Your freeholder or landlord owns the land and building in which your flat is situated. And that usually includes a variety of common areas including the roof, stairways and corridors, car parks and gardens.

They have obligations to you and to the other flat owners or leaseholders. Common points that a landlord is usually required to deal with include:

·         Keeping the buildings and common areas in good condition, to include maintenance, repairs, decoration, supplying utilities to common areas and gardening

·         Dealing with building works where required, to include notifying the flat owners in accordance with the law and the terms of their lease and obtaining quotes

·         Managing works that are needed for maintaining the property. That will include consulting with leaseholders, and giving notice to them of any intended work to be carried out on the block, arranging access, dealing with the project throughout and paying the contractors

·         Ensuring the building complies with health and safety rules

·         Setting the amount of service charge to be paid and collecting payments for service charge and ground rent from all flat owners, to include chasing arrears

·         Preparing management accounts and distributing these to flat owners

·         Dealing with other administrative issues, such as applications by leaseholders to make changes at their flats – in what is referred to as a “licence to alter”.

As you can see it’s quite a long list, and particular with bigger blocks, there can be a lot of work to do.

N.B. It’s worth pointing out that when it comes to long leases, every lease varies. They’re not standard – like an AST – the Assured Shorthold Tenancy. As a result, whenever it comes to a problem with your freeholder, the 1st thing to do is to read your lease. And if you don’t understand what some of the clauses in your lease actually mean – that’s when you need the advice of a specialist leasehold solicitor.

Flat owner disputes with your freeholder

With so many obligations, freeholders often end up in dispute with the owners of flats in their buildings. As well as failing to carry out proper maintenance and follow the rules in arranging for work to be carried out, disagreements can arise. And some of the more common causes of disputes include the following:

·         The amount of service charge to be paid
Click here to read more about service charge disputes and how our solicitors can help you

·         The sum to be put aside in a sinking fund towards future large items of expenditure (a sinking fund is simply a fund set aside to cover large, one-off future expenses).
Click here to read more about the Leasehold Property Sinking Fund.

·         The landlord’s failure to enforce restrictive covenants in the lease against other flat owners (for example, if they are noisy in breach of the terms of the lease or if they fail to pay service charges meaning there is insufficient money for repairs)

·         The landlord’s unreasonable refusal to allow alterations to you would like to make to your flat

·         The landlord’s failure to provide management accounts

What can I do if my freeholder does not maintain my property? How you can take control

It can be extremely stressful to have a freeholder who fails to maintain your home or buy to let investment. And that often made worse if they are hard to contact or not responsive to your requests for action.

The problem can be tackled in two main ways: by taking steps to enforce your rights as a leaseholder and require the landlord to fulfil their obligations or by working with the other flat owners to take over the management of the property yourselves

1.    Taking over the management of your block

The law supports leaseholders who want to take over the freeholder’s obligations and deal with the property management themselves. There are 2 main options :

(i)      clubbing together with enough other leaseholders to buy the freehold from the landlord, known as collective enfranchisement

(ii)    exercising your right as leaseholders to take over management of the property

And if maintaining the property is the major issue, there is a third option for you to arrange for the appointment of an independent managing agent

(iii)    the court-appointed property manager

And if the freeholder wants to sell the freehold, there is also a fourth option:

(iv)  the right of first refusal to purchase the freehold – in what is known as the “Right of 1st refusal”.

Please see below for more details of all 4 of these options.

OPTION 1 – Collective enfranchisement – buying the freehold

Working together with most or all of the other leaseholders, you may have the legal right to buy the freehold from the landlord -in a process known as collective, freehold or lease enfranchisement.

There are associated costs involved with this, including surveyor’s fees for valuing the freehold and your collective enfranchisement solicitors costs in dealing with the purchase. The leaseholders will usually be responsible for all of the costs, including the landlord’s reasonable legal and surveyor’s costs.

The leaseholders will also need to pay the landlord a premium to be agreed between them when purchasing the freehold.

Although the total cost can be substantial, there are several considerable benefits, including:

·         You and your fellow leaseholders will together be able to extend the leases for all of the flats you own without paying a premium if you wish. This can be important, as it is difficult to sell a flat and it will decrease in value once the time remaining on a lease falls below 80 years

·         if some leaseholders don’t take part in the enfranchisement project (much more common with larger blocks) although it will cost you more by way of the premium you will need to pay to the current freeholder (simply because it is being divided between a fewer number of leaseholders) you will benefit as new shared freeholders if any of the nonparticipating leaseholders decide to extend their own lease later.

·         You can decide how much service charge is paid each month

·         You can decide how much will be paid into a sinking fund each month to save up for large items of expenditure in the future, such as a new roof

·         You can arrange your own buildings insurance and property maintenance and shop around for the best deal

·         You can decide what work needs doing and arrange for it to be carried out when you want

·         You and the other participating leaseholders will be responsible for all of the management tasks

·         You should find your flat is worth more as a result – in the vast majority of cases, a flat with a share of the freehold, especially if it has a lease extended to say 999 years, is worth more than the same flat with a shorter lease and no shared freehold

Eligibility for collective enfranchisement

The Leasehold Reform Housing and Urban Development Act 1993 (the Leasehold Reform Act) gives flat owners the right to buy the freehold of their block, providing certain qualifying criteria are met, including:

·         The building contains two or more flats

·         At least two-thirds of the flats are owned by tenants with leases that were granted for a minimum of 21 years at the start of the term, known as qualifying flats

·         At least half of the owners of these qualifying flats are willing to take part in collective enfranchisement and own a share of the freehold. If there are only two flats, both owners must wish to take part

·         If part of the premises is commercial, that part is no more than 25% of the floor area

In some relatively unusual circumstances, your block could be exempt from collective enfranchisement. This includes where the property is not a purpose-built block, there are no more than four flats and the landlord or a family member occupies one flat and has done so for a year or more.

Collective enfranchisement 1st steps – the Participation Agreement

The best way of starting off the process of buying your freehold is usually with what’s known as an enfranchisement participation agreement.

This this document will set out how the process will be dealt with among the flat owners who wish to take part. It can include issues such as:

·         How matters will be agreed upon, for example, by voting and the number of votes needed for an issue to pass

·         How terms and conditions will be decided

·         What it is proposed to do once the freehold has been purchased, for example, will lease extensions be granted and will alterations be permitted?

·         How payments will be dealt with, including up-front legal and survey costs

·         How the purchase price of the freehold will be split if some flats are worth considerably more than others

·         How ongoing costs of maintaining your property will be shared

Although clarifying these issues is really important, the most important aspect of the participation agreement is that it legally commits all those who sign to carry on with the enfranchisement. Getting that agreement on day one and keeping everybody on board can be a real challenge – especially with medium-sized and larger blocks.

The participating flat owners will then need to choose an individual or body to be what is known as “the nominee purchaser” – the legal vehicle you will use together to own the freehold. A management company is usually formed for this purpose with the flat owners as members or directors.

At this stage, it can a good idea to create a fund for participating leaseholders to pay into. This can be used to pay for the charges as they arise and to prepare for payment of the purchase premium.

Enfranchisement – valuing the Premium and the Initial Notice

The next step is usually to instruct a surveyor with collective enfranchisement valuation experience to value the freehold. They will usually be able to provide a low and a high valuation. This will enable you to decide how much to offer to pay the landlord and whether any counter-offer is reasonable.

Relatively few surveyors deal with lease extension or enfranchisement valuations. It’s a specialist area. But with our experience in the field, we have over the years built up an informal panel of surveyors who we trust in this field, and we are happy to introduce you to 1 of them or instruct them ourselves on your behalf as part of our one-stop shop service.

The 1st real stage in the process is when the nominee purchaser serves an initial collective enfranchisement notice on the landlord advising them of the proposal to buy the freehold.  This is referred to as a section 13 notice after the relevant section of the Leasehold Reform Act.

The notice should include:

·         The names and addresses of all qualifying flat owners

·         The freeholder’s name and address

·         The name and address of the nominee purchaser

·         Details of the property and the rights you wish to acquire

·         Details of eligibility

·         The price that it is proposed to pay for the freehold

·         The deadline for serving a counter-notice, which must be at least two months from the date of the notice

All of the qualifying flat owners and the nominee purchaser must sign the notice. It is important that the notice is carefully drafted and legally valid. You are strongly recommended to ask a solicitor to draw up the notice as mistakes could damage your claim. If your claim is dismissed by a tribunal, it is not possible to make another one for one year. That can prove very expensive – especially if the real maintenance problems in the block or if your flat is going up in value.

Once the notice has been served, the flat owners taking part in the process will generally be responsible for the landlord’s reasonable costs from then on.

Enfranchisement – agreeing a price with your freeholder

The freeholder may agree with the premium you put forward – or alternatively may serve a counter-notice proposing a higher price. They may also dispute the claim, in which case the county court can be asked to decide the issue.

If the landlord suggests a higher price for the freehold, then you or your surveyor will normally enter into negotiations with your freeholder to try and agree on a figure you can both live with.

But where an agreement cannot be reached, the question of what the right level of premium to be paid is can be referred to the First-tier Tribunal Property Chamber (Residential Property) for a ruling. This is a court that specialises in hearing property cases, including leasehold enfranchisement disputes.

But do be careful with the timetable. There is a deadline to apply to the tribunal of six months from the date of receipt of the landlord’s counter-notice. That’s important, because if you don’t meet this deadline, then your notice is deemed to have been withdrawn – but the leaseholders will still need to pay the landlord’s costs. And after this kind of deemed withdrawal, it’s not possible to make a fresh application for a further 12 months.

Fortunately applications to First-tier Tribunal are relatively unusual – not least because in the vast majority of cases, regardless of who wins, each party needs to pay their own costs for tribunal representation (and that usually involves both legal and valuation representation for both sides,). That can prove expensive. As a result, potential Tribunal costs are a strong incentive for the parties to come to an acceptable compromise on the size of that premium.

Completing purchase of your freehold

Once a price has been agreed upon (or set by the Tribunal), the purchase of the leasehold can go-ahead in a similar way to an ordinary property purchase. Contracts will be signed and on exchange a deposit paid to the freeholder. There is a period of four months from date of agreement of the price in which to complete.

Following completion, your solicitor will arrange for registration of the freehold purchase at HM Land Registry. The purchasers will take over managing the property straightaway and will be responsible for all of the freeholder’s tasks, including insuring the building, chasing arrears of service charge and arranging for maintenance.

OPTION 2 – Your right to manage

The Commonhold and Leasehold Reform Act 2002 gives leaseholders the right to form a management company and use this to take over management of their block of flats, provided certain criteria are met.

Qualifying for the right to manage

To be able to apply for the right to manage (or RTM) you need to meet the following conditions:

·         At least two-thirds of the flats in the block must be let on leases that were 21 years or more when first granted, known as qualifying flats

·         At least half of the flat owners must join in the request to enforce the right to manage and they must be qualifying flat owners

·         The property must have at least two flats (this means that the RTM process doesn’t apply to leasehold houses)

·         If the property is part-commercial, the commercial part must not be more than 25% of the total floor area

In some circumstances, it is not possible to enforce a right to manage, including where:

·         The property is not a purpose-built block, it has no more than four flats and the freeholder or their family member lives in one of the flats as their main home. They need to have lived there for a year or more

·         The landlord is a housing authority

The process for exercising the right to manage

The right to manage can only be claimed by a company, not by the individual leaseholders in their own name. . This means that the participating leaseholders will need to form a Right To Manage or RTM company.

·         The first step is to find out who wants to join in. This is best done by sending a participation notice to all the qualifying leaseholders, unless they have already said that they wish to join in.

·         The leaseholders then need to serve a notice of claim on the freeholder, at least 14 days after sending participation notices.

·         The notice to the freeholder should state that they intend to claim the right to manage. This should be served on the freeholder, any other party to the lease and any person or organisation who deals with the management of the flats.

·         All of the qualifying tenants in the block must also be given a copy of the notice of claim served on the landlord.

It is vital that the correct process is followed and that the notices are worded correctly. If they are not, the right to claim might not be valid.

The notice of claim must give a date by which the freeholder must respond with a counter-notice, if they wish to do so. This must be at least one month after receipt of the notice of claim.

The notice must also give a date on which the right to manage will be enforced. This must be at least three months after the deadline for serving a counter-notice.

·         You will need to set up a management company, with the participating flat owners as members. The freeholder is also entitled to be a member. After the notice period set out in the claim notice has passed, the management of the flats is transferred to the management company unless the freeholder has disputed the right.

Can the freeholder object to the right to manage?

Yes, in theory, but grounds on which the right to manage can be disputed are limited, including where the freeholder lives at the property and where the eligibility criteria are not met.

Flat owners who did not initially participate can join the management company later on if they wish to do so.

Which is best for flat owners – leasehold enfranchisement or right to manage?

Buying your freehold is usually your best option. It gives you much more control with a share of the freehold. example, provided the other leaseholders with a share of the freeholder agree, it gives you the option of extending the leases of all participating flat owners to 999 years without paying a premium for each extension.

However, there are 2 particular drawbacks:

• Firstly it is not always easy to persuade enough flat owners to agree to participate in the enfranchisement process, particularly in blocks with a substantial number of flats. And it can equally hard, if not harder, to keep them on board throughout what can be a slow drawn out process even if they have agreed to do so on day one
• And secondly, because of the need to pay a premium pay for the freehold, it can prove expensive. Remember, one of the factors in setting the premium is the value of your flat in the 1st place

Exercising your to manage, on the other hand, is cheaper, as there is no premium required to purchase the freehold. It is also a faster process than leasehold enfranchisement. And sometimes, because a large premium is not required, it can be easier to organise enough participating leaseholders to support the RTM.

The big drawback with RTM is that the landlord still owns the freehold. So flat owners will still usually need to request the consent of their fellow owners of the shared freehold for certain issues, such as subletting and alterations to the structure of the flat.

And RTM gives you no help with any lease extension. You will each individually still need to go through separate process, pay a premium and cover both your own and your freeholder’s legal and surveying costs to extend your lease.
Click here to read more about the differences between enfranchisement and the right to manage – and which might work best for you

OPTION 3 –  Enforcing your rights as a leaseholder – the Court-Appointed Property Manager

If you have tried speaking to your freeholder and writing to them setting out your grievances in respect of property management and this has not resolved matters, there is one final option. This is to ask the First-tier Tribunal Property Chamber to appoint a manager to replace the freeholder or their agent.

To be eligible to use this approach, there must be two or more flats at the property. But a single leaseholder can make an application alone if they wish.

However there is one aspect of making this kind of application which is quite different from enfranchisement or applying for the right to manage. With both enfranchisement and RTM, you have a legal right – regardless of whether the freeholder is doing a good job of managing the block or not.

In contrast, with the Court-Appointed Property Manager, the leaseholders need to show to the satisfaction of the Tribunal that the freeholder’s management has been incompetent or unreasonable and that it is just for a property manager to be appointed.

You will need to provide evidence that your freeholder is at fault – this might include one or more of the following:

·         The service charges are unreasonable

·         The administration charges are unreasonable

·         The freeholder has breached their management obligations – perhaps by failing in maintaining the property to a decent enough level

·         The freeholder is not complying with approved codes of property management, such as that set out by RICS

If the Tribunal agrees with you, it will make an order to appoint a manager. The manager will be answerable to the tribunal and will be bound to follow the terms of the order the tribunal makes. This means that the leaseholders will not necessarily have any input into the management.

This is not always an ideal situation. It depends on how well the order is drafted and the competence of the court appointed manager. The leaseholders can nominate a manager and this does not have to be a professional. For example, one of the leaseholders could offer to take on the role, although the tribunal may be reluctant to appoint someone without relevant experience.
Click here to read more about the Court-Appointed Property Manager

OPTION 4  – Right of first refusal – if your freeholder wants to sell

If your landlord is considering selling the freehold, then you and your fellow flat owners may have the freehold right of first refusal to purchase it. This is sometimes referred to as RFR.

The Landlord and Tenant Act 1987 states that where a landlord intends to sell a freehold, they must offer it to the tenants first before putting it on the open market. And in failing to do so, the freeholder commits a criminal offence.

The first step in RFR is for the landlord to serve a section 5 notice on the tenants telling them that the freehold interest is being sold and offering them the chance to buy it. The tenants then have to respond with a section 6 notice by the deadline given. This is their agreement to or rejection of the offer. If the leaseholders miss that deadline, the landlord can sell the freeholder to whoever they want.

If the purchase is going ahead, the tenants will need to decide whether they wish to form a management company. Their solicitor will investigate the legal title to the freehold and arrange for completion of the purchase.
Click here to read more about the “Right of 1st Refusal” and how our specialist solicitors can help you

Points to watch out for when taking on freehold management of your block

As well as benefits to managing your own freehold, there are a number of potential drawbacks. These include:

·         Dealing with the collection of service charge arrears, if some flat owners are slow to pay.

·         Dealing with disputes. If flat owners dispute issues such as the amount of service charge payable and refuse to pay, this can cause substantial problems. The freeholder has an obligation to insure and maintain the property as well as to enforce payment of service charges. Any dispute with a leaseholder may be particularly uncomfortable if you and the other leaseholder live in the block – because you are close neighbours

·         The management process can be time-consuming. Accounts need to be prepared, for example. Where there is a management company, proper filing needs to take place at Companies House and directors need to be removed and appointed every time a flat is sold. Quotes will also need to be secured for repairs and property maintenance work and arrangements made for work to be done. Where there is no-one prepared to take on these tasks, a managing agent can be used, but this will be expensive

Freeholder Not Maintaining Property? Professional representation for freeholders and leaseholders

If you are a flat owner and you are considering taking on the property management – whether you are purchasing the freehold, exercising your right to manage or asking the court to appoint a manager, you are strongly advised to seek expert legal advice from a solicitor with experience in this complex area of law. And remember, very few solicitors specialise in this area. Our leasehold solicitors do this work routinely.

It is crucial that the correct process is followed and that a robust structure is set up in advance to ensure that the management can be dealt with efficiently from the start.