Ground rent is a regular payment which a leaseholder must pay to their landlord (sometimes called ‘the freeholder’) under the terms of their lease.

Before ground rent is payable on a residential long leasehold property (which is one where the lease was originally for 21 years or longer), the landlord must serve the leaseholder with a notice containing certain information.

The information to be contained in the notice is set out in the Landlord and Tenant (Notice of Rent) (England) Regulations 2004, SI 2004/3096.

The notice includes “Notes for Leaseholders” which provide helpful and important information to both leaseholders and landlords and alert them to the significance of the notice.  The “Notes for Leaseholders” provide information on other measures which provide protection from forfeiture (in other words, losing your property) for failure to pay a small amount for a short period. They also provide guidance on how the landlord must serve the notice.

It was brought to the attention of  the Department for Communities and Local Government that paragraph 3 of the Notes may be misleading. In order to avoid any misunderstanding, a small change has therefore been made to this paragraph for clarity. This change was made on 26 April 2011. The notes now make clear that forfeiture action cannot be taken for non-payment of rent, service charges or administration charges (or a combination of these) unless the unpaid amount is more than £350 or consists of (or includes) an amount which has been outstanding for more than three years.

This change has been put in place through a correction slip issued by The Stationery Office. A link to the correction slip is here.

The guild notice available for download has been amended accordingly available here.

The right to manage is available to leaseholders of flats, not of houses.

The process is relatively simple. The landlord’s consent is not required, nor is any order of court. There is no need for the lease-holders to prove mismanagement by the landlord. The right is available, whether the landlord’s management has been good, bad or indifferent.

The right is exercised by the service of a formal notice on the landlord. After a set period of time, the management transfers to the right to manage company (the RTM company) which has been set up by the leaseholders. Once the right to manage has been acquired, the landlord is also entitled to membership of the company.

However, there are important issues to consider and a substantial amount of work to be done before service of the notice, if the takeover of management is to be successful. This leaflet sets out the issues and the practical operation of the right, from first considerations to full management of the building.
Preparation

Perhaps the very first consideration should be what the lease-holders want to achieve by taking over the management of the building.

Clearly, it makes sense for the leaseholders to take general control of the upkeep of their most valuable assets – the flats – but to do so will bring with it duties and liabilities. In acquiring the power to make approvals and to enforce of the covenants of the leases, the leaseholders become wholly responsible for all decision-making in terms of budgets and reserve funds, standards of management and provision of services, repairs and major works, and with the overall function of the building.

Whatever the motivation, there are a number of basic issues which should be considered prior to taking any action.

Thus, the replacement of defective wooden framed windows with new double glazed windows was held to be work of long term [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']improvement which did not fall within the service charge obligation.(Mullaney v Maybourne Grange (Croydon) Management Co. [1986] 1 E.G.L.R. 70. This case should be contrasted with Minja Properties v Cussins Property Group [1998] 2 E.G.L.R. 52, in which a mandatory injunction was granted allowing the landlord access to replace defective single glazed window frames with double glazed units, such work being held to be work of repair within the landlord’s covenant.)

But where many of the wooden window frames in a block of flats were defective and required replacing, and the landlords reasonably came to the conclusion that it would be cheaper and more appropriate to replace all the windows in the block at the same time, it was held that the cost of such work was recoverable by way of service charge. [Reston v Hudson [1990] 2 E.G.L.R. 51. It is not entirely clear from the report whether the proposed new windows were likewise wooden or some other material.]

Likewise, where the landlord replaced a flat roof with a pitched roof and metal framed windows with UPVC units, and such works were cheaper than the alternatives both in terms of the initial and future costs, it was held that the works amounted to works of repair and maintenance and the cost was recoverable under the service charge provisions. [Wandsworth LBC v Griffin [2000] 2 E.G.L.R. 105, (Lands Tribunal).]

Where a lease entitled the landlord to recover both the cost of “maintaining repairing renewing cleaning redecorating and in all ways keeping in good condition” the block and also the cost of “carrying out such additional works and providing such additional services as may be considered necessary by the Lessor in its absolute discretion” it was held that the cost of replacing wooden window frames with double glazed UPVC windows was recoverable; in so far as the work involved improvement as well as repair, then the lease allowed the cost of both to be recovered. [Sutton (Hastoe) Housing Association v Williams [1988] 1 E.G.L.R. 56.]

Where a lease entitled the landlord to recover the cost of complying with its obligation to clean and maintain the common parts of a shopping centre, it was held that the cost of removing waste from the common parts which had been deposited by a number of tenants (of which the defendant was not one) in breach of their covenants was recoverable [St Mowden Developments (Edmonton) v Tesco Stores [2007] 1 E.G.L.R. 63.]

It has been said that the landlord is not obliged to adopt a minimum standard of repair: provided that the works carried out are such as an owner who had to bear the cost himself might reasonably decide upon and provided the works constitute “repairs” within the meaning of the relevant provision then the tenant is not entitled to insist on more limited or cheaper works being preferred. [Plough Investments v Manchester City Council [1989] 1 E.G.L.R. 244 (Scott J.).] However, in a more recent case it was said that, whilst it is for the landlord as the covenantor to choose the mode of repair provided that he acts reasonably, the standard adopted must be such as the tenants, given the length of their leases, can fairly be expected to pay for: the landlord cannot, because he has an interest in the matter, overlook the limited interest of the tenant by carrying out works which are calculated to serve an interest beyond that of the tenant. [Fluor Daniel Properties v Shortlands Investments [2001] 2 E.G.L.R. 103 (Blackburne J.).] In another case it was held a tenant under a three year lease was not liable to pay for roof replacement works which would fulfil the landlord’s repairing obligations over a period of 20 years or more when such works were not necessary to fulfil those obligations over the shorter period of the tenant’s lease. [Scottish Mutual Assurance v Jardine Public Relations [1999] E.G.C.S. 43, in which the tenant’s liability was held to be limited to the cost of short-term repairs only] It has been held that the cost of replacing roof coverings with improved insulation and a higher specification cap sheet were recoverable by way of service charge [Postel Properties v Boots the Chemist [1996] 2 E.G.L.R. 60]. However, the cost of priming the roof troughs, which served no useful purpose was held to be irrecoverable. [Postel Properties v Boots the Chemist, above (in which the cost of priming certain roof troughs was disallowed).]

In the same way, what parts of the building are included is a question of construction of the lease. Thus, where a lease of offices on the top floor of a building contained an obligation to pay a proportion of the cost of maintenance of the exterior of the demised premises, the landlord was not entitled to recover the cost of works to the roof and parapet wall since on the proper construction of the lease neither were part of the exterior of the demised premises. [Rapid Results College v Angell [1986] 1 E.G.L.R. 53.] An ineptly worded clause which, when read literally, meant that the tenant of a basement flat was not liable to contribute to the landlord’s costs of maintaining those common parts of the building which the tenant was not entitled to use was construed in accordance with the obvious intention of the parties as obliging the tenant to contribute to the costs of maintaining the common parts throughout the building. [Billson v Tristrem [2000] L. & T.R. 220.][/amember_protect]

If you are the freeholder of a building and the flats are sold off on long leases and you manage the service charges including insurance etc., new rules affect you

As from 1st October 2007 (England) and 30 November 2007 (Wales) new rules apply to freeholders or management companies who mange the freehold of a building. Normally this requires billing the long leasehold tenants service charges including ground rent, insurance, maintenance and repairs.

The new regulations provide that a summary of rights and obligations in the form of a notice typewritten in at least[amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest'] 10-pt must accompany any demand for a service or administration charge.

Service charges are amounts payable for services, repairs, maintenance, improvements, insurance or the landlord’s costs of management, to the extent that the costs have been reasonably incurred.

An administration charge is an amount which may be payable by the tenant as part of or in addition to the rent directly or indirectly-

• for or in connection with the grant of an approval under your lease, or an application for such approval;
• for or in connection with the provision of information or documents;
• in respect of the tenants failure to make any payment due under your lease; or
• in connection with a breach of a covenant or condition of the lease.

A suitable form for service charge demands is available here

A suitable form for administration charge demands is available here

In addition to notices for service charges and administration charges, a prescribed notice must also be served in the prescribed form. This requirement is made under The Landlord and Tenant (Notice of Rent) (England) Regulations 2004.

The requirements of the notice are:

Additional content and form of notice of rent due
2. – (1) A notice under subsection (1) of section 166 of the 2002 Act (requirement to notify long leaseholders that rent is due) shall contain (in addition to the information specified in accordance with paragraphs (a) and (b) of subsection (2) of that section and, if applicable, paragraph (c) of that subsection) -

(a) the name of the leaseholder to whom the notice is given;

(b) the period to which the rent demanded is attributable;

(c) the name of the person to whom payment is to be made, and the address for payment;

(d) the name of the landlord by whom the notice is given and, if not specified pursuant to sub-paragraph (c) above, his address; and

(e) the information provided in the notes to the form set out in the Schedule to these Regulations.

(2) A notice under subsection (1) of section 166 of the 2002 Act shall be in the form set out in the Schedule to these Regulations.

A suitable notice is available here

If a summary notice as required above is not served with the demand, the demand is not payable until a notice is served [s21B(3) Landlord and Tenant Act 1985]

The legislation referred to is:
The Service Charges (Summary of Rights and Obligations, and Transitional Provision) (England) Regulations 2007 and The Administration Charges (Summary of Rights and Obligations) (England) Regulations 2007.

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Extending your lease

If you are the Leaseholder of a Flat or House and your Original Lease is becoming shorter it can sometimes be a problem to sell the property to someone who needs a Mortgage.

It is possible to extend the Lease of your property by virtue of the Leasehold and Commonhold Act of 1993 (as amended).

As long as certain conditions are met, you can extend your Lease for a period of up to 90 years on top of your existing Lease term and there will be no further ground rent to pay. There is however a price to pay the Landlords as they loose the right to receive the ground rent and effectively do not get their property back for a further 90 years.

The Landlord will be entitled to:

• Compensation for the loss of Ground Rent and the reversion.
• 50% of the Marriage Value (The difference between the existing Value and the Value with an extended Lease, although this only applies to Leases which have less than 80 years to run).
• Compensation for loss of any Development Value.

Jonathan Berney Consultant Surveyors can advise on these matters and prepare a report for you in order that you can serve the initial notice on your Landlord and commence the procedure.

One valuable tip if you are considering an Extension is to serve the notice whilst the Existing Lease has more than 80 years to run. This avoids the cost of Marriage Value (the Leaseholder pays half of this element) and it applies when the original Lease has less than 80 years left. Thus if you Lease has an excess of 80 years to run do not delay extending until the lease has only 79 years or less as this may save you a considerable amount of money.

Although the original Residency qualification has been abandoned by subsequent legislation it is still necessary to have owned the Leasehold Interest for a period of two years prior to serving notice.

Another useful page is http://www.propertyinvestmentproject.co.uk/blog/2008/02/05/how-to-extend…

A covenant to repair the external parts of a demised house comprises the partition wall between it and an adjoining house, even though the wall is not exposed to the elements, because the external parts of premises are defined as those which form the enclosure of them, and beyond which no part of them extends. [Green v Eales (1841) 2 Q.B. 225; Pembery v Lamdin, [1940] 2 All E.R. 43, CA.]  So where the local authority pulled down the adjoining house, leaving the dividing wall without support, and the landlord did nothing to repair it or to prevent it sinking, he was held liable, under his covenant to repair the external parts excepting the glass and lead of the windows, for the lessee’s expenses in rebuilding the wall and for glass broken by the sinking of it; but not for rent and the expenses of the lessee for other premises during the progress of the repairs. [Boswell v Crucible Steel Co. [1925] 1 K.B. 119.]

Windows and skylights

Plate glass windows have been held to be [amember_protect levels='keywee' user_action='error' user_error='amember_error_default_user' visitor_action='error' visitor_error='amember_error_default_guest']part of the “skin of the house” and therefore of the external parts. [Ball v Plummer, The Times, June 17, 1879, CA; not reported elsewhere, but referred to in Boswell v Crucible Steel Co., above, and in Holiday Fellowship v Hereford, below.]  So window repairs have been held to be “outside repairs” within a covenant using that expression. [ibid. ]  Skylights have been held to be part of the roof.(FN1) On the other hand windows (consisting of wooden window frames and glass panels in them) have been held not to be part of the “main walls” within a covenant to keep the main walls, roofs … in good repair and condition. [Holiday Fellowship v Hereford [1959] 1 W.L.R. 211. As to removable window-sashes, compare the old case of R. v Hedges (1779) 1 Leach C.C. 201n.]

Main walls and timbers

The expression “main walls” has been said to mean those walls which support the structure or have directly to do with its stability. [The Holiday Fellowship v Hereford (unreported) Harman J. (approved on appeal [1959] 1 W.L.R. 211).]

Where the building in question is steel-framed, the expression “main timbers” will normally mean the steel frame. [Manchester Bonded Warehouse v Carr (1880) 5 C.P.D. 507; Plough Investments v Manchester City Council [1989] 1 E.G.L.R. 244.]

Exterior

The “exterior of the demised premises” does not include nearby premises or installations which are not demised.(FN2) So where the landlord of a shop covenanted to keep the exterior of the demised premises in good repair, he was held not liable when the shopkeeper’s goods were damaged by water escaping from the sprinkler system installed as part of the fire precautions in another part of the building owned by the landlord. [ibid. ]  Nor does the exterior of second floor offices include the roof of the building or a parapet wall on the roof, even though the second floor was the top floor of the building. [Rapid Results College v Angell [1986] 1 E.G.L.R. 53 (CA).]

Structure

Landlords frequently covenant to do “structural” repairs, but there appears to have been no judicial definition of this word until Vaisey J. defined “structural repairs” as meaning repairs of, or to, a structure. [Granada Theatres v Freehold Investment (Leytonstone) [1958] 1 W.L.R. 845 (decision in part set aside by the Court of Appeal, but without comment on this definition: [1959] 1 W.L.R. 570).]  One consequence of such a definition might be, as Vaisey J. suggested, to the simple division of all repairs into those which are structural and those which are decorative. If this is correct, then very trivial repairs might fall within such a covenant. It is submitted that by the word “structural”, used as a qualification of “repair”, is meant something more than a mere distinction from decoration. The repair of cement rendering (3/8 to 7/8 inches in thickness) which had come away from the wall, involving deterioration of the brickwork, was held to be a structural repair and, there being a considerable extent affected, constituted a “structural repair of a substantial nature”. [Granada Theatres v Freehold Investment (Leytonstone) [1959] 1 W.L.R. 570, CA.]  A roof repair involving no interference with the rafters or roof beams but necessitating the provision or refixing of some 350 to 500 slates out of a total of 12,000 was held to answer the same description. [ibid. ]

“Structural alterations” have been defined by the Court of Appeal as  “permanent alterations which affect the structure of the premises”; those which “would affect the form and structure of the premises” and those which involve “any substantial alteration, extension or addition to the fabric of the house”.(FN3) A house is a complex unity. “Structure” implies concern with the constituent or material parts of that unity. The constituent or material parts involve more than simply the load bearing elements, for example the four walls, the roof and the foundations. The constituent parts are more complex than that. “Structural” is that which appertains to the basic fabric of the house as distinguished from its decorations and fittings. [Pickering v Phillimore unreported, May 10, 1976, CC (approved in Pearlman v Keepers and Governors of Harrow School, above).]  The installation of kitchen sinks and cookers with the necessary plumbing work does not amount to a structural alteration. [Monk v Murphy (1949) 113 J.P. 247n (CA).]  It is submitted, therefore, that the expression “structural repairs” is intended to distinguish those which involve interference with the basic fabric of the house–its walls, roof, foundations floors and so forth–from those which do not. The structure of a dwelling-house consists of those elements which give it its essential appearance, stability and shape. [Irvine v Moran [1991] 1 E.G.L.R. 261.] Although this is a good working definition, it must not be applied slavishly; and the particular context may require a different meaning to be given. [Marlborough Park Services v Rowe [2206] 23 E.G. 166 (CA)]

In a particular lease, however, the word may be given a more restrictive meaning. In general, it seems, a more limited meaning will be given to the phrase “main structure” than to “structure”. [Ibrahim v Dovecorn Reversions [2001] 30 E.G. 116.]  Thus where the lease of a flat included the external walls of the flat, and the tenant covenanted to keep the flat (including all walls and party walls) in repair, but the landlord covenanted to keep in repair the “main structure”, it was held that the main structure did not include the floor separating the ground floor from the basement flats. [Toff v McDowell (1993) 69 P. & C.R. 535. This was described as a surprising construction in Marlborough Park Services v Rowe [2006] 23 E.G. 166 ( per Sedley LJ).] Similarly, where part of a building consisted of a roof terrace which also served as the roof of a lower part of the building, it has been held that only the surface of the terrace fell within the scope of the tenant’s liability, and that the remaining layers formed part of the structure and were maintainable by the landlord. [Hallisey v Petmoor Developments [2000] E.G.C.S. 124; Ibrahim v Dovecorn Reversions [2001] 30 E.G. 116 ]

A covenant to contribute to the cost of repairing “conveniences” has been held to require the covenantor to contribute to structural repairs. [Daejan Properties v Bloom [2000] E.G.C.S. 85.]

Ornamental water, drains and pipes

If a lessor covenants to keep the demised premises in repair, he is not bound to cleanse an ornamental piece of water in the grounds. [Bird v Elwes (1868) L.R. 3 Ex. 225.]  A lessor’s covenant to keep drains in good and tenantable repair has been held not to extend to the rectification of a structural defect. [Hugall v McKean (1884) C. & E. 391; affirmed in CA, 53 L.T. 94.]  But where a landlord covenanted to keep the exterior of a dwelling-house and buildings in repair, and during the tenancy an outside drain was found to be defective, it was held that the whole expense of putting it in a proper condition fell on the landlord, because he could not perform his covenant to keep the exterior of the house and buildings in repair without executing the work. [Howe v Botwood [1913] 2 K.B. 387.]  A pipe which is choked and not able to perform its function as a pipe has been held to be “out of repair”. A lessor who has covenanted to keep it in repair is nonetheless liable for breach of covenant though he may show that the cause of the defect is fortuitous and beyond his control. [Bishop v Consolidated London Properties Ltd (1933) 102 L.J.K.B. 257.]

(FN1) Taylor v Webb [1961] 2 K.B. 283, per du Parcq J. (not appealed on this point.) Whether a skylight is a “window” was touched upon, but not decided, in Ayling v Wade [1959] 2 Q.B. 228; see per Danckwerts L.J. at p. 232.

(FN2) Peters v. Prince of Wales Theatre (Birmingham) [1943] K.B. 73. A more liberal approach is taken in the construction of the phrase “structure and exterior of the dwelling-house” in s 11 of the Landlord and Tenant Act 1985:

(FN3) Bickmore v Dimmer [1903] 1 Ch. 158; Bushell v Hammond [1986] 2 K.B. 563; Smith v Portsmouth Justices [1906] 2 K.B. 229. See also Pearlman v Keepers and Governors of Harrow School [1979] Q.B. 56 (The installation of a central heating system constituted an improvement made by the execution of works amounting to “structural alteration extension or addition” within the Housing Act 1974, Sch.8, Para 1(2)).[/amember_protect]