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A to Z of leasehold terms explained

Confused by jargon? If so, here is SLC Solicitor’s A-Z (minus a few letters) of legal terms.

A Assignment Another word for the sale or transfer of a lease. Often ‘assignments’ require the consent of the resident management company (RMC)/landlord before they can go ahead.
B Breach Used in the sense of a failure to comply with an obligation in a lease or document. Breach has repercussions as it will allow the RMC/landlord to take action to remedy. Most common breach is failure to pay rent or service charge in the lease.
Building Insurance Buildings insurance covers the cost of damage to the structure of your property. This includes the roof, walls, ceilings, floors, doors and windows. Outdoor structures such as garages and fences are also included. If the lease states the Freeholder is responsible for insuring the building; they would pay for the insurance premium and then divide this to be paid by each leaseholder.
C Covenant A promise or an obligation to either perform an action (positive covenant) or desist from performance of an action (restrictive covenant). Usually found in leases and deeds. These obligations are on the part of the landlord and also the tenant. If broken (breach – see above) then there are legal repercussions.
D Demand for payment In order to secure payment of rents or service charges under leases then a written demand for payment must be sent to each tenant; it must be compliant with statute and include specific information such as the landlord’s address for service in England and Wales AND have prescribed schedules of tenants’ rights and obligations attached. If not accurate in these respects then the demand is not valid and the tenant is not obliged to pay until it receives a valid demand.
E Estate charge Akin to a service charge but applies to freehold houses (as opposed to flats) on an estate – where there are common amenities to be maintained – such as private roads; landscaped areas etc.
F Forfeiture The RMC/landlord’s ultimate sanction for breach of a tenant’s covenant i.e. the right to re-enter and repossess the property and bring lease to end. Threat of this will often prompt payment of arrears of service charge and ground rent.
Freeholder The freeholder owns the property or land, also referred to as the landlord. Unless a Management Company has taken the responsibility for the estate, the Freeholder will be responsible for collecting Service Charge and completing any necessary repairs or maintenance to the building.
G Ground rent An annual rent payable by a tenant of a long lease (a lease with a term greater than 21 years) to the landlord. It can be a nominal amount but most modern leases contain ground rents of a few hundred pounds which are increased every 20 or so years (usually doubling in amount). Failure to pay can trigger forfeiture proceedings.
H Hearing (in First-tier Tribunal (Property Chamber) (FTT) The First-tier Tribunal (Property Chamber) (FTT) is the venue for disputes about residential service charges – an alternative to the County Court – a low cost and relatively informal method of resolving service charge issues. Hearings at FTT will occur if disputes cannot be resolved. The FTT has jurisdiction to hear disputes on liability to pay and the ‘reasonableness’ of service charges.
I Interim payments of service charge RMCs/landlords can prepare budgets for the year ahead based on anticipated costs of expenditure and ask tenants to pay interim sums on account of service charges. At financial year-end the accounts can be prepared of actual expenditure and balancing payments can then be demanded from the tenants if the interim payments were lower than actual costs incurred. If higher, then any overpayments by tenants are usually ‘rolled over’ to the tenants’ credit in the following year’s accounts.
J Jointly and severally liable If one flat is owned by more than one individual – those individuals are liable jointly for all payments due under the lease – but also each one is individually liable for the collective amount, say for example, if one of them moved out and was untraceable, the whole amount of the sum demanded is due from the remaining tenant.
L Leaseholder/lessee Alternative names for tenant of a lease.
Lease A lease is a contract between the leaseholder and the landlord giving a legal interest in the property for a fixed period of time. It is an important document and leaseholders should ensure that they have a copy and that they understand it.
M Mortgage lender (tenant’s) If the tenant is in arrears with service charge and/or ground rent – very often the mortgage lender will pay those if notified of the arrears and advised that forfeiture proceedings will be commenced.
Management Company A company which is set up to manage a group of properties, they are responsible for maintenance and repair of the buildings under their management. Often, the directors of a Management Company are residents within the property.
N Notice of Intention RMCs/landlords must give a Notice of Intention to all tenants before carrying out major works (also known as ‘qualifying works’) which will cost each tenant more than £250 = this is the first requirement of the consultation procedures required by statute. If the complete consultation procedure is not strictly adhered to then despite the actual cost of the works carried out, the tenants will each only be liable for £250.
P Pre Action Protocol A set of rules and guidance which must be observed before claims are issued at Court or the FTT – although strictly speaking there is no specific protocol for service charge disputes. However, the court will expect parties to act reasonably in exchanging information and documents relevant to the claim and generally to avoid the necessity for proceedings to be started at all.
Q Qualifying Long Term Agreement (QLTA) A ‘QLTA’ is an agreement entered into by the landlord for a term of more than 12 months and as such the landlord must give tenants a Notice of Intention [see N above] before entering into a QLTA and must observe the consultation procedure strictly as failure to do so will mean that reimbursement for any works carried out as a result of the QLTA will be limited to £100 per tenant – irrespective of the actual cost. RMCs should exercise caution before appointing managing agents for contracts of more than 12 months unless they have carried out the consultation procedure.
R Right to manage Tenants can band together and collectively acquire a right to perform most management functions. There are stringent conditions to be satisfied before the RTM can be acquired and an exacting statutory process to be adhered to but if the tenants are successful then they will perform management services. The RMC/landlord is left with only the right to forfeit as the tenants cannot acquire that right.
Reserve Fund/Sinking Fund A reserve fund/sinking fund is a long-term savings account that homeowners contribute to every month through service charges. The monies set aside are to cover any unexpected costs that may arise in the future as well as the future costs of upkeep.
S Statutory trust All service charge monies must be held on the statutory trust imposed by s42 of the Landlord and Tenant Act 1987. The service charges funds must be held in a designated account which is to safeguard against bad accounting practices and insolvency of RMC/landlord.
Service Charge Service charges are collected for the maintenance, insurance, repair of the building and communal areas plus the employment of staff and management of the property. Service charges can vary each year dependent on the expenditure due for that period and they are required to be reasonable. Details of what is included to be paid with the service charges is set out in the lease and all contributions will be met by the leaseholders as it is not usual for the landlord to contribute to these costs.
T Tenant Another word for ‘lessee’ or ‘leaseholder’.
U Underletting This is alternatively known as sub-letting i.e. where a tenant grants an underlease/sublease of the flat to a third party. Most leases impose an obligation on the tenant to seek RMCs/landlord’s consent before granting such an underlease and to let the landlord have details of the undertenant. This is more common since the spate of buy-to-let acquisitions a few years ago.
V Variation of lease Sometimes if the terms of leases are unworkable then they may be varied so that the terms are adjusted to suit the parties. The variation must be with the consent of both landlord and tenant and ought to be contained in a deed. There is also a right to apply to the FTT for variation of specific provisions in leases if they are completely unworkable.
W Waiver of right to forfeit If tenants are in arrears of service charges or ground rent and the RMC/landlord wants to exercise its right to forfeit it is vital that no payments are accepted from the tenant or other steps taken to infer any continuation of the lease as this may waive (or prevent) the right to forfeit.

 

 

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