Residentsline Mini-Mag - Issue 9

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MINI MONTHLY MAGAZINE

ISSUE NINE...

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MINI MONTHLY MAGAZINE Residentsline

in association with

Flats Insurance We are pleased to introduce the ninth edition of our Mini Monthly Magazine.

CONTENTS

We have taken Flat Living's monthly feature and have prepared it as a hard copy for you to circulate to your team.

Top 3 Things to Consider When Reading a Residential Lease

4-6

The Ins & Outs of Leases

7-8

This month's issue is more about Leases.

Deciphering Your Residential Lease

For further copies please email us at magazine@residentsline.co.uk.

Insurance and Your Lease

To read a full copy of the latest Flat Living Magazine please visit www.flat-living.co.uk.

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To contribute in future issues please contact Rebecca@flat-living.co.uk

This month's edition of our Mini Magazine will be discussing the ins and outs of residential leases. We hope you find it useful, and please feel free to contact us with any questions – we're always happy to help.

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Top 3 Things to Consider When Reading a Residential Lease Sharan Dhadda, Associate Solicitor & Customer Relationship Contact for Residential Leasehold & Property Litigation at Brethertons, advises on the top 3 things you need to consider when reading a lease.

The one thing that you will often hear from either myself or my colleagues here at Brethertons is “know your lease!” That's our number one tip for anyone managing a development (whether it consists of 2 flats or 250 flats).

Before we delve into the “Top 3” things to consider, it is important to understand a few key principles surrounding leasehold.

It is important when managing a development that you can navigate your way around a lease. This includes understanding the recitals, definitions, demise, covenants (of the landlord/tenant/management company), the rights, reservations and the regulations often set out within the schedules.

Firstly, leaseholders (“lease” and “tenancy” and “leaseholder” or “lessee” and “tenant” are often used interchangeably – a leaseholder is a tenant, albeit a tenant under a long lease, rather than a six-month tenancy) purchase the right to occupy premises for a fixed period of time (or “term”). The lease itself governs the relationship between the landlord and tenant (and management company where applicable). It confirms (most of the time) who is responsible for what element and sets out processes which the parties are to follow. The tenant obtains exclusive possession of the premises for a determinate term (which is less than the individual granting the lease) (see Street v Mountford [1985] AC 809).

Secondly, it is worth appreciating the difference between two-party (landlord and tenant) and tripartite leases (landlord, tenant and a management company). Tripartite leases shift the responsibility for various obligations, relating to the insurance, maintenance and management of the building, from the landlord, to the management company.

Finally, it is important to distinguish tripartite leases from the right to manage. The Commonhold and Leasehold Reform Act 2002 established a “no fault” right for tenants to collectively take control of the management of their block, through the vehicle of an RTM company. Once the right has been successfully exercised, all of the rights and obligations in the lease which relate to the management of the building (e.g. repair, maintenance, insurance and the collection of service charges) are transferred from the landlord (or RMC) to the RTM company.

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Top 3 things to consider: 1. Repair and Maintenance (also – what is included in the demise?)

We are often asked to provide advice on the repair and maintenance of various elements within the block. The first step is to determine what property is demised to the leaseholders, and what property is retained by the landlord. The second step is to establish the responsibilities of the parties under the lease.

The parcels clause confirms the extent of the property which is demised to the tenant. It often refers to a plan and will provide express wording within one of the schedules as to what is included and what is excluded from the demise. If the lease is clear, then outside evidence is inadmissible.

However, often leases are unclear, and this raises various issues for those managing the block. With standard maisonette leases, the ground floor flat usually owns the foundations up to the ceiling, with the first floor flat owning everything above that.

Modern block leases often demise the surfaces of the walls/ceilings/floor and everything inside to the tenant, with everything beyond that (the structural elements) to the landlord.

Once you understand who owns what, you will likely need to consider what the parties' responsibilities are. The leaseholder will usually be responsible for keeping the flat in repair. The responsibilities of the landlord (or RMC/RTM company) will vary and careful consideration should be given to the wording used. In older leases, the obligations of the landlord (or RMC/RTM company) are often limited to keeping the roof and other structural parts of, and communal areas within, the building in repair, redecorating the exterior and internal communal areas periodically and insuring the building.

In some old “maisonette-style” leases, the responsibility for repairing and maintaining the building is divided between the leaseholders entirely (with the upper floor maisonette owner responsible for the roof, and the lower floor maisonette owner responsible for the foundations, and each responsible for the entirety of the walls surrounding their flats). In the case of more modern leases, the list of obligations may include cleaning, gardening, security, CCTV, concierge, porters, employing a managing agent, complying with statutory fire safety and health and safety requirements, and even providing a communal gym or swimming pool or other communal facilities.

Hot topics that we are often asked to advise on include: Doors: the alteration or replacement of flat entrance doors, to comply with statutory fire safety requirements, will probably not be a matter for the landlord (or RMC/RTM company), if the door is demised to the leaseholder. Further, the cost may not be recoverable as a service charge if the lease limits cost recovery to the costs associated with “repairing” the doors (since fire safety works are technically an “improvement”) (see Southwark Council v Various Lessees of the St Saviours Estate [2017]).

Windows: if the lease is otherwise silent as to the parties’ obligations, and does not make express provision for windows, an obligation to repair the “structure” and/or “exterior” of a building has been held to extend to its windows (see Sheffield City Council v Hazel St Clare Oliver [2007]).

Skylights: with people expanding into the roof-space more and more, skylights are becoming increasingly popular. Leases rarely refer to skylights and therefore do not confirm either ownership or responsibility for them. The case of Taylor v Webb [1937] confirms that, where the lease is otherwise silent and the landlord (or RMC/RTM company) is responsible for the roof, skylights form part of the roofs and therefore part of the structure, and therefore fall within the responsibility of the landlord.

Balconies: again, a common issue in many blocks. The case of Ibrahim v Dovecorn Reversions Limited [2001] involved two flats which included a roof terrace that ran alongside the remainder of the building and at the rear of the other flats. Each flat enjoyed exclusive use of the section abutting it. The balconies consisted of various layers of material, including timber joists, plywood and cement screed. In this case, it was unclear as to who was responsible for which parts of the balcony. The leaseholder covenanted to repair the demised premises, which was defined by reference to a plan, which included the balcony within the red edging; and the landlord was responsible for structural repairs. It was held that the surface of the terrace was included within the demise, however all the layers below that were included within the main structure of the building and therefore the landlord's obligation.

2. Tenants Covenants I will set out the more popular covenants below and briefly explain each one: Alienation: these provisions govern the tenants' ability to assign/sublet/share occupation of the premises. Clauses are usually either absolute (complete prohibition) or qualified (usually permissible subject to obtaining the landlord's consent). Qualified covenants usually state that the landlord's consent should not be unreasonably withheld or delayed (and if they do not, this will be implied by s.19 of the Landlord and Tenant Act 1927). The case law on when it is reasonable to withhold consent is quite extensive, and beyond the scope of this article. Generally speaking, the reason must relate to the assignee or sub-tenant, or their proposed use. It will be reasonable to withhold consent subject to the payment of a reasonable administration fee. It may be reasonable to withhold consent if there is an outstanding breach (e.g. non-payment of service charges), but only if granting consent would prejudice the ability of the landlord etc. to enforce the breach in some way.

Alterations: leases often contain covenants which control or limit the works that tenants can do within the demised premises. These can be absolute (no alterations) or qualified (no alterations without the written consent of the landlord etc.). Where the work amounts to an improvement to the premises, there will be an implied term that consent cannot be unreasonably withheld; however, that implication does not apply where work is proposed to property which falls outside the demise (e.g. the structure of the building). In a recent case, the Court of Appeal held that where a lease contained an absolute prohibition on alterations and a covenant

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on the part of the landlord to enforce tenant covenants in the lease, granting a leaseholder consent to carry out alterations resulted in a breach, by the landlord, of the enforcement covenant (see Duval v 11-13 Randolph Crescent Ltd [2018]).

Cost Recovery: a popular clause for obvious reasons. It is important, as managers, to know whether or not you can recover the cost of taking action to enforce breaches of covenant (e.g. recover unpaid service charges). Sometimes, the lease is clear and will oblige the leaseholder to pay whatever costs are incurred by the landlord etc. in recovering arrears or enforcing breaches of the leaseholder's obligations under the lease. Where the lease is unclear, and it is the landlord who is looking to take enforcement (as opposed to an RMC (unless the RMC is also the landlord) or RTM company) it may be possible for the landlord to rely on a “69 Marina” clause, which permits the recovery of costs which are incidental to, or costs which are incurred in contemplation of, the preparation of a s.146 notice or proceedings under s.146 of the Law of Property Act 1925 (see Freeholders of 69 Marina, St Leonards-on-Sea v Oram and another [2011]). That is provided forfeiture is available as a remedy and you have not waived your right to forfeit.

Hard Flooring and Nuisance: a lease will usually contain an obligation not to cause a nuisance. It may also contain a covenant prohibiting hard floors. In one case, a leaseholder was ordered to pay in excess of £100,000 to another leaseholder, in damages, for the noise nuisance caused by hard floors which they had installed, in breach of their lease (see Fouladi v Darout [2018]).

Pets: often a sensitive issue for tenants; however, it is important to know whether or not the lease permits pets and if so, in what circumstances. In Victory Place Management Company Ltd v Kuehn [2018], the leaseholders were ordered to remove a dog from their flat. The lease contained a covenant not to keep pets on the premises, save with the prior written consent of the management company. The Court held that the management company's decision to have a “no pets” policy, save in exceptional circumstances, was permissible.

Service Charge Mechanisms: when I receive a request for advice on this, I take a three-pronged approach. Firstly, I review the lease to confirm what is recoverable (the lease usually contains a list confirming this). Secondly, I review the lease to confirm how it is recoverable (the lease explains the mechanism – arrears/advance/on account payments/balancing charges etc.).

Thirdly, I check the terms of the lease to confirm the proportion payable.

The case law surrounding this area is somewhat complex, however each matter is unique and in order to avoid potential problems it is worth developing an understanding as to how the block is to be charged.

3. Landlord Covenants It is just as important to understand the landlord's covenants. If the lease is tripartite (explained above), then the landlord’s responsibility is usually limited to ensuring the tenant has quiet enjoyment (this clause prevents the landlord from acting in a way that unreasonably interferes with the leaseholders' use and enjoyment of their property), that the leases are in the same form and that, subject to being indemnified, he/she will enforce the covenants within the lease.

The management company (or the landlord if it is not tripartite) is usually responsible for the repair/maintenance of the structure/common parts/common services, provision of the services and also insurance of the building. When managing a development, it is vital that you understand your responsibilities so that you can ensure they are met.

The lease contains other important clauses within the schedules which include rights and reservations. I do not propose to discuss these in detail within this article, however it is important to understand the rights tenants have over the land in order to ensure that you do not interfere with those rights (albeit any interference must be substantial). These rights usually include rights to park, rights of way, rights for services, access, use of a bin store, etc.

Leases often contain a schedule of regulations which provide the landlord/management company the power to regulate how the land is used and to create additional estate regulations where necessary. Whilst you have the power to limit the tenants' rights, you must ensure that you do not remove them entirely.

Finally, the majority of issues concerning leases all fall down to interpretation. It is a matter of construction, however the courts/tribunals will take into consideration the original intention of the parties and will often adopt a common sense approach (see Arnold v Britton and others [2015]).

Each lease is different and should be reviewed on a case by case basis. You should not make any decisions based on the content within this article. If you have any questions in respect of the above, please contact Sharan Dhadda or another member of the Residential Leasehold team at Brethertons on 01295 270 999 for legal advice.

At Brethertons we have a commitment to sharing our 'knowledge within' and have therefore created a wide variety of useful documents, which we have made available to you in our Knowledge Hub download area: www.brethertons.co.uk/site/knowledge-hub/

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The Ins & Outs of Leases

Laura Severn, Director at LMP Law, advises on important factors to bear in mind with leases.

We’re always happy to remind people about the importance of all parties having a clear understanding of exactly what a lease contains. Not only must property management agents become more aware of the need to have a comprehensive knowledge of contents of any new property leases which they take on, but Leaseholders too should be made more aware that they should familiarise themselves with the contents of a lease before signing. After all, a lack of knowledge often leads, in the long run, to legal action being taken.

With a view to preventing issues arising regarding the terms of a lease, here are some important points to be aware of whether you’re a property management professional or a leaseholder: Important Factors For Professionals In The Property Management Sector To Bear In Mind: All professionals working within the property management sector are aware of the importance of ensuring maximum cash flow to their properties so that services can be provided seamlessly.

Cashflow comes by way of Service Charge collection – this needs to be actioned in the most efficient manner possible. However, this often cannot happen unless the answer to certain questions are found in the lease (and understood).

• • • •

When must demands be sent out?

How much can be charged?

Is there any inbuilt flexibility in the lease?

Have sinking funds and reserve funds been written into the lease?

• Are charges variable?

• Who must pay the insurance?

• In which name must that insurance be obtained?

Answering these key questions is key to avoiding future lease disputes and possible First-Tier Tribunals.

Important Factors For Leaseholders To Bear In Mind: Leaseholders are, of course, keen to live in a well-maintained property. However, that doesn’t mean that they should overlook the importance of checking the terms of their lease. Two key questions that all leaseholders should ask are: • What are the additional costs, and how are they calculated?

• When must I make payment?

It is absolutely imperative that all additional charges which are contained in the terms of the lease are fully explained during the early conveyancing stage.

Failure to obtain an answer to the above questions could mean that people end up choosing a property which they cannot afford in the long run, and thus fall into arrears with service charges or payments for ground rent. Unfortunately, if this happens, there can be very severe consequences.

Of course, there are currently government consultations taking place to try and safeguard this process for leaseholders further. More on that in future articles.

Paying Attention To Community Rules: Although the financial terms of the lease are perhaps deemed the most important, other terms must also be kept in mind.

Community rules, for example, are one area which may be overlooked by both property managers and leaseholders alike.

Property managers must familiarise themselves with all of the community regulations relating to the properties that they work with. They must be able to respond to leaseholders’ questions and be aware of all requirements and

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restrictions mentioned in the lease so that any breaches can be spotted. For example, property managers must be aware of the rules regarding satellite dishes, washing lines and the handling of refuse.

Leaseholders sometimes fail to pay close attention to their own obligations when it comes to their property. One area which is often overlooked is that of pet ownership, for example.

Some leaseholders assume that while a cat or dog may be unacceptable, a smaller pet such as a goldfish or hamster will be permitted. However, strictly speaking this may not be the case at all.

There may also be restrictions regarding the playing of music, walking on wood floors after a certain time, or specified quiet hours which must be adhered to under the terms of the lease.

Leaseholders must make themselves aware of these conditions, or they could find themselves in breach and, in the extreme case, at risk of eviction.

Maintenance Lease Issues

The Value of the Lease

When it comes to maintenance of a property, again both property managers and leaseholders have their own obligations which will be outlined in the terms of the lease.

For any property manager, knowing the value of a lease is vital to ensure that all steps are taken to protect or enhance that asset. The date and term of the lease must be known to property managers as well as the length of time remaining on it.

Property managers will need to be familiar with all of their own requirements when it comes to handling the upkeep of the property. Although handling regular wear and tear is standard practice, if there are regular major upkeep works to be carried out under the lease condition, extra planning will be required. Property managers must also ensure that appropriate suppliers have been arranged to cover any specialist or complex maintenance tasks.

Meanwhile, leaseholders must familiarise themselves with the rules regarding the upkeep of their own property. A surprising number of leaseholders redecorate their property without checking whether they are permitted to do so. Others fail to repaint their walls, even though their lease requires them to do so regularly.

Leaseholders too must be aware of the length of time remaining on their lease since taking action at an early stage could avoid hefty premiums. It is also important for leaseholders to be aware of whether subletting is permitted under the terms of their lease.

While leases may seem complex and hard for the average layperson to understand, taking the time to go through the terms and conditions is imperative for all parties to avoid disputes arising and potentially serious financial consequences.

Laura Severn is a Director at LMP Law, specialist lawyers with a keen focus on the property management industry, with over 20 years combined experience in property law.

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Deciphering Your Residential Lease Louise Uphill, Senior Associate at Blake Morgan and ALEP member, provides guidance on how leaseholders can get to grips with their leases and highlights key clauses that should not be ignored.

Having dug out a copy of your lease from your ever-growing pile of paperwork at home, you find yourself faced with the problem of how to decode it! The good news is what follows is a basic guide to a standard residential lease so that you can start to navigate and understand your lease better.

If your lease was granted after 19 June 2006, it will contain a set of prescribed clauses (which will be in tabular form) and will be a quick reference guide setting out the main parts of the lease that the Land Registry will need when they come to register or deal with the lease.

Amongst other things, the prescribed clauses contain the title numbers to the property, the parties to the original lease details, the full description of the property, the term of the lease and the premium.

If your lease was granted before 19 June 2006 then this information may be scattered within the lease but the information can be found once you know how the majority of leases are drafted.

Regardless of when the lease was granted, it will always contain the details of the original parties to the lease, never mind the fact that the lease has then been bought and sold a hundred times. As the legal owner of the flat, your name will appear on the title at the Land Registry instead.

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The lease may contain helpful definitions or particulars which set out the detail, or it may have schedules which contain the details of the parties and term. Clause 1 usually grants the lease, the term and sets the ground rent (plus any fixed or increasing rent review periods).

Clause 1 may also deal with the rights granted for the benefit of the property and any rights reserved over the property for the benefit of any other land.

The early clauses (Clauses 2 and 3) will usually contain the leaseholder's behavioural covenants (or promises) or refer to a schedule in the lease which contain the covenants. Clauses 4 and 5 will often deal with the landlord's or management companies covenants (which may again be detailed in a later schedule). The latter clauses may deal with the regulations imposed by the landlord, service charge provisions or rent reviews.

The key elements to look at from a leaseholder's point of view will be the rent and service charge provisions as this will tell you the ground rent and service charges you have to pay. It will also tell you what services are provided (if any) and how the landlord or management company are required to manage the block. Insurance rent (if separate from the service charge) will also be dealt with in the lease.

The repairing obligations of both the landlord and you as leaseholder will be detailed and so too will the alienation (or assignment) provisions of the lease. This is where you may have to obtain consent to assign (sell), underlet or mortgage your property. Some leases only require you to notify your landlord of these dealings and it is important for your solicitor to check this when selling or buying a leasehold property.

In terms of alterations, some leases contain an absolute ban on alterations whereas some require the landlord to consent. If it is the latter, be sure to liaise with your solicitor before starting any work.

The term of the lease is one of the most crucial parts as the value of the property will be affected as the lease length falls. If you have a leasehold house, you can apply to purchase the freehold whereas if you have leasehold flat, you can either discuss an informal lease extension with your landlord, begin a statutory lease extension claim, or get together with your neighbours to collectively purchase the freehold (and then grant yourselves long leases and reduce ground rent to zero).

If you are concerned about your lease or need any assistance, speak to a specialist solicitor who will be able to advise you on the provisions of your lease and help you understand the intricacies of your particular lease.

For more information and to find an ALEP practitioner near you please visit www.alep.org.uk.

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Insurance and Your Lease

Belinda Thorpe, Managing Director of Residentsline, advises who is responsible for placing the property insurance and what to do if you’re not happy with the choice.

The main purpose of a residential lease is to outline the responsibilities of both the landlord and leaseholder during the lease term – this includes insurance.

There are many variations of a standard lease but who is responsible for placing the property insurance?

According to government housing services, the landlord is normally the party liable for securing insurance for the property, not the Residents’ Management Company (unless stated otherwise in the lease). The landlord will usually have to place insurance for the building itself but will not be held responsible for the contents – this will remain the leaseholder’s responsibility.

What if the leaseholder isn’t happy with the landlord’s choice of insurer or policy?

Residents’ Management Companies and leaseholders can challenge a cost they believe to be too high in the First-Tier Tribunal.

There will normally be something in the lease which states that costs incurred by an insurance policy should be “reasonable”.

As stated by the Leasehold Advisory Service, the Landlord and Tenant Act 1985 requires two things: 1. An interim service charge must be “reasonable in amount” 2. A charge relating to expenditure already undertaken requires the relevant insurance costs to have been “reasonably incurred”

• Is the premium unacceptably out of line with the market?

It is also important to recognise that the landlord’s chosen insurance policy must: • Be with an ‘authorised insurer’ who works in line with the requirements of the Financial Services and Markets Act • Cover the leaseholder and landlord interests • Provide cover to a sum not less than the amount required under the lease • Cover all the risks stated by the lease • Cover the risks included in the policy • Include the amount and period of the cover • Take into account any further information as may be prescribed Whilst choosing an insurer can often be a difficult and time-consuming task for both Residents’ Management Companies and landlords, sourcing a reliable broker will help.

So, what is reasonable?

The insurance policy chosen by the landlord will normally be charged back to the leaseholder as part of their annual service charge or by way of a separate collection.

The leaseholder will also have the right to ask for a full summary of the insurance policy from the landlord and to ‘challenge the cost through a tribunal’ should they deem it to be unreasonable in any way.

When questioning what can be considered “reasonable” in terms of securing insurance, the following must be taken into account:

Here at Residentsline, we will always do our best to find you a policy that can satisfy the legal requirements of your lease as well as providing cover with a trusted insurer for the most competitive price.

• Whether the landlord’s actions were suitable and in accordance with the requirements of the lease • Has the landlord scoured the market for alternative insurance premiums and/or policies?

If you need alternative quotes to make sure your insurance premium is reasonable, please don’t hesitate to give us a call on 0800 281 235 or visit our website at www.residentsline.co.uk.

We’re always happy to help.

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