Top 10 Tips

Most leases require a leaseholder to obtain consent before making any alterations to a property. Consent is granted by a document known as a 'Licence to Alter'.

NEVER assume timber walls are not structural We had to stabilise floors in a 1980’s timber framed building after an unsuspecting owner removed the wall between the kitchen and living room.

Your proposed works will be an alteration IF the answer is YES to any of these questions

Will your works:

1. affect any face of the building (window/door/skylight etc..)?
2. cut through any wall?
3. remove any part of any wall (internal, external or partition wall)?
4. increase the amount of waste water/sewerage? (E.g. new kitchen, bathroom, toilet, shower etc.)
5. modify a communal service? (E.g. remove a radiator on a communal heating system, re-route a communal waste pipe.)

Most leases have a covenant requiring the owner to register any sub-let, and/or seek landlord’s consent to rent out their property. Even if the lease does not contain a specific procedure or process forregistering a sub-letting or seeking consent to sub-let, if the lease provides for 'lease regulations' then as the Freeholder or Residents Management Company in charge you can create 'regulations' to control sub-letting. The cost of complying with the sub-letting clause and registering tenancies is an administration charge under Schedule 11 of the 2002 Act.
And, if your lease does not allow you to create 'lease regulations' then if you have a Freehold Management Company, a Residents Management Company or a Right to Manage Company then you can call an Estraordinary General Meeting ("EGM") and pass a resolution to require leaseholders who want to sub-let to require consent or licence, thereby effectively writing the missing clause into your constitution.
Whichever method you use, controlling sub-let buidlings on a manned site gives you the opportunity to check new tenants in, put a protective lift jacked on the lift, use the lift key to stop the lift (rather than damage it by holding doors open), and even take a move-in/move-out damages deposit.

The 1985 Act requires landlords to consult with the service charge payers when ‘qualifying works’ exceed £250. And, if they don’t, recovery is limited to £250 per payee.

The Daejan case in 2013 gave some relief as it widened the scope for a landlord to claim a retrospective dispensation where a consultation process was absent or flawed.
Things you will need to consider is including a contingency in your Section 20 Notice, so that you don't get caught out if extra works are found and you either have to down scaffolding, or hire it for extra weeks whilst you trigger additional conslutation periods.

Forfeiture is the name given to the process whereby a landlord seeks to bring a lease to an end and take back possession of a property, effectively dispossessing the lessee.

Since February 2004, a Freeholder can only take forfeiture action if the breach is confirmed by way of a Court or Tribunal judgement. And, for ground rent arrears, the arrears must be more than £350. This is why mortgage companies often will not pay up service charge arrears as their security is now safer than it used to be.

Asking other owners in the building to pay a bit towards the bills informally is great until a leaseholder argues what they paid is not legally due, or simply does not pay. There are many pitfalls that you need to know how to avoid when serving a service charge and ground rent demand, forgetting to serve the correct prescribed notes is just one of ten. A good Managing Agent will keep you save governance-wise.

If all owners want to buy the freehold, and you already have a management company written into your lease, you will save money if you use it as the new Freehold owning company.

Doing so will save you having to prepare two sets of company accounts, two Directors & Officers insurance policies, having to file two2 Confirmation Statements with Companies House, appointing two company secretaries, and, using an existing management company means you won’t need to levy members contributions on the freehold members to fund the the costs of running a separate freehold company).

The most common lease omissions or defects are:

• can’t budget and collect service charges in advance,
• can’t recover the cost of a managing agents' fees,
• the lease requires expensive 'audited' accounts when 'certified' accounts would do
• each flat has to get their own buildings insurance,
• despite being required by law to produce service charge accounts (applies to five or more flats) the accountant fee is not recoverable,
• the lease is silent on who owns and decorates the windows,
• the lease requires the leaseholder to decorate the windows (five stories up),
• no deterrent to late payment, i.e., you cannot charge interest on arrears,
• lease percentages don’t add up to 100%,
• maintenance of physical plant on site is not described as recoverable service charge, i.e., lift maintenance or expenditure,
• a schedule is omitted from the lease, i.e., parties that should contribute, are not required to.

Section 37 of the 1987 Act sets out procedures whereby the Tribunal can vary a defective lease, and you don’t need 100% agreement but you will need

• 9+ flats – 75% agreement, and not more than 10% opposing,
• less than 8 flats – the agreement of 7 flats.

Applications can usually be considered by written track (no hearing) so are not too costly.

Since 1993, thousands of leaseholders have exercised their legal right to a statutory lease extension which means:

• an additional 90 years,
• the ground rent reduced to a peppercorn (effectively nil).

After a freehold purchase the shareholders will need to decide the strategy for the future lease extensions. i.e: should you sell:

• statutory lease extensions,
• lease extensions plus a share in the freehold company,
• top up lease extensions (top up to 99 or 125 years) with a modern ground rent for a slightly lower premium,

Also worth considering is: how to split the proceeds of future lease extensions i.e; perhaps limited to the original freehold purchase participants.

In principle selling a share in the freehold company, should attract a premium over and above the lease extension cost, and IF the lessee does not need an additional 90 years, why not sell the extra years they need and set a modern ground rent to preserve your income and maintain the value of the freehold.

To find out more about lease extensions >>step by step guide to lease extensions

For alterations to a kitchen or bathroom, or remodelling walls it is not normal, and probably not reasonable, to seek a premium for granting consent. In fact many leases require that such consent is not to be unreasonably withheld.

However, when alterations increase the size of a property, change the use or change the external aesthetic appearance, you should consider sharing the added value the consent brings by charging a premium, or a share of what is called ‘marriage value’.

‘Marriage value’ exists when interests or assets are combined to create a new interest or asset that has a higher value than the sum of the parts.

Examples of alterations for which it could be reasonable to charge a premium may include:

• conversion of a live-work unit or office to residential dwelling,
• turning an attic into an extra bedroom,
• creating a roof terrace on a roof,
• changing a window to a door giving direct garden access,
• creating a swimming pool in a garden,
• fencing off a part of a communal garden,

In these situations the consent will enhance the value of the leaseholder’s interest and a Chartered Valuation Surveyor should be employed to assess the premium that should be paid.

Corporation tax self assessment – write to your local tax office seeking an exemption from corporation tax returns, they will usually grant a three year exemption.

Full trading company accounts – stop trading if you can thereby reduce the cost and detail of the accounts you need to file. If you have traded in the past, e.g., bought the freehold, if the company can become dormant you can reduce to abbreviated accounts. If your company does not have any assets and has not traded during the accounting year, you can file dormant company accounts (essentially just a balance sheet).

To become dormant you will need to

1. Stop receiving income (pass a resolution to stop collecting ground rent),
2. Hold money outside the company, ie, in an Agent’s Client account so you do not have a trading bank account,
3. Not have bought or sold any assets during the year.