So what’s changing?

The Government has recently made new law which will effect the way your building is to be managed and will increase the rights you have as a leaseholder.

The Commonhold and Leasehold Reform Act 2002 received Royal Assent on 1st May 2002 but is to be introduced in stages. Both leaseholders and managers will need to be alert to the changes in rights and procedures.

Overall, the purpose of the Act is to provide more rights and power for leaseholders and the greater protection of their service charge money.

1. The Right to Manage - a right for the leaseholders to take over the management of the building from the landlord. There will be no need to prove any fault or inefficiency by the landlord and there is no requirement for purchase or payment of any compensation to the landlord. It will not need a court order, just the service of a notice on the landlord. The leaseholders will have to get together and set up a Right to Manage Company, and it is this Company, which will take over and run the building.

   Regulations will control the details of the arrangements; the Right to Manage is, provisionally, expected to be available from late September 2003. There will be a full guide to the Right to Manage on this website, and available in hard copy; on the date of commencement.

    

1. Service Charges, Rent & Forfeiture

   More consultation on service charges - the existing arrangements where the landlord has to tell service charge payers about his proposal for major works are being strengthened and will now also include proposals for long -term contracts. Where the landlord is planning to let a contract for more than a year, for example for lift maintenance, for cleaning or for employment of the managing agent, he will need to formally consult the leaseholders on his proposals and give reasons for his decision.

   This provision is, provisionally, expected to come into force from late October 2003.

   Improvements and administration charges - up to now works of improvement to the building and charges for administrative functions by the landlord have not been challengeable on the statutory grounds of reasonableness. This is now changing and if your lease includes a liability to contribute to costs of improvements then the costs must be reasonable and will be able to be challenged at a Leasehold Valuation Tribunal. The same will apply to administrative charges which can include fees for consents, legal costs, costs levied for provision of information, documents etc. Again these provisions are expected, provisionally, to come into force from late September.

   Separate Accounts - the Act includes requirements for leaseholders’ service charge monies, including sinking funds, to be held in a separate, designated trust account exclusive to the building and for the leaseholders to have rights of inspection of the bank statements etc so as to be able to check that their money is where it ought to be. It is, however, possible that this may increase costs to leaseholders, arising from the necessary changes to accountancy and banking procedures. It is not likely that these requirements will be in force before the end of 2003, perhaps not until later in 2004.

   Annual Summaries - the Act will require the landlord to produce, as a matter of course, rather than following a written demand, a yearly statement of each leaseholder’s service charge account, in the form of a balance sheet. This way, leaseholders will be kept aware of the payments they have made and how they have been spent by the landlord. In a radical step the Act produces a statutory right for the leaseholder to withhold payment of his service charges if the landlord fails to comply with the requirement.

   There is also to be a requirement that all demands for service charges from the landlord must include a statement of leaseholder’s legal rights. Again, these provisions are unlikely to be brought in this year.

   Demand for groundrent - the landlord will not be able to take proceedings to recover the groundrent unless he has previously demanded it, in writing, in the proper format, giving at least 30 days notice. This provision is not yet in force and may be introduced later in the year.

   Changes to forfeiture - generally a lease will provide for the landlord to bring action to forfeit and reposess a leasehold flat where the leaseholder is in arrears of groundrent or service charges or is otherwise in breach of the lease. The Act is giving more protection to leaseholders in requiring that, in the absence of admission by the lessee or prior determination of a court or tribunal, the landlord must first prove the breach before the Leasehold Valuation Tribunal, amongst others, before he may serve a forfeiture notice. This new procedure is not expected to be introduced until early 2004.

   Service Charges - The Act has recognised that many leaseholders are not fully aware of their statutory rights and so, from later this year, all demands for service charges must be accompanied by a statement setting those out. The wording of the statement will be prescribed, by regulations to be produced by the Government, and the leaseholder will have the right to withold the service charge if it is not provided (or not provided in the correct form).

   There will be a full guide to all these changes on this website, and available in hardcopy, on the date of commencement - look at "Service Charges, Groundrent and Forfeiture".