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How to Organize for an Enfranchisement

You have established that there are enough tenants to qualify the building. What do you do now?
 

Enter into a participation agreement

 
Providing the participating tenants have agreed to proceed with no exceptions. All participating tenants should enter into a formal participation agreement. The agreement will govern the relationship between all tenants. This is prior to and during the collective enfranchisement procedure for the building. It includes items such as rights of voting, negotiation and agreement of terms. Most importantly, it covers the individual tenants’ financial contribution. This facilitates in future that there are no difficulties between parties.
 
This can be particularly important where there are large blocks involved as disputes can cause difficulty or delays. A prior agreement makes future disputes easier to resolve. It could also be useful to record an agreement on what happens after acquiring the freehold. For example, the new freeholder would grant lease extensions to all participating tenants in the purchase. This is often the main reason why leaseholders choose to purchase the freehold.
 
In small blocks or where the amounts are small, it may be possible to dispense of an agreement by everybody paying their share up front. If you have a structure in place then tenants have to agree means of finance to move on to the next stage.
 

What do you do next? Choosing the nominee purchaser

 
The nominee is the person named in the initial notice, who acquires the freehold and becomes the new landlord. The participating tenants must decide on who the nominee purchaser is at an early stage. He or she must conduct the business at the later stage of the process and on completion will be responsible for the management of the building.
 
A nominee purchaser can be a person or one of the tenants, or a corporate person, a trust and more than likely a company formed by the tenants for the purpose. There are currently no controls for the qualification and selection of a nominee purchaser. In addition, tenants are free to choose whoever or whatever agency they wish.
 
The most common format is a company wholly owned by the tenants. If this is the case the company must be established before it can be submitted on the initial notice. There are various companies that will be able to help you with this. Companies House is also a helpful tool. They can advise on how to establish a company. As well as producing Articles of Association that reflect the purpose of the company and govern voting rights and controls of shares.
 
Leaseholders may find it useful to establish a cost fund or fighting fund to cover the initial steps. These will be the valuation, the information gathering and arranging of the nominee purchaser. These are all applicable in the early stages.
 

Do I need a professional advisor?

 
Is it believed to be critical for the presenting and serving of an initial notice. It is important to appoint either a valuer and/or a solicitor to help with the various stages of enfranchisement.
 
The valuer will provide as follows:-
 
(a) Providing valuation advice to fully appraise the tenants on the possible outcome of negotiations.
 
(b) Advise on the offer amount for the initial notice.
 
(c) Respond to landlords counter-notice.
 
(d) Negotiation and settlement of the price.
 
(e) Advice on the structural repair and condition and implication of future maintenance costs and service charges.
 
(f) Advice on future management.
 

Why do we need a solicitor?

 
a) Preparation of the information for the action
 
b) Setting up the company
 
c) Service of the initial notice
 
d) Response to landlords request for substantiation of a claim
 
e) The conveyance of title
 
f) Amendment of the terms of the leases after enfranchisement
 

Assessing the purchase price

 
An initial valuation of the property by a qualified valuer or surveyor is strongly recommended. This is to provide the enfranchising leaseholders with an idea of the final purchase price prior to commencing the action
 
There is a formula based within the 1993 Act which a surveyor will use to give an estimate of the premium payable. The participating leaseholders will have to jointly pay to buy the freehold.
 
No valuation will be 100% accurate. It can be virtually impossible for a valuer to provide an exact valuation of the eventual settlement figure. However, the valuer should be able to give the best and worst case scenarios. Using local knowledge and anticipating areas of claims and counterclaims when doing so.
 
There is no such thing as a fixed price for a freehold. Leaseholders should be aware from the beginning that prices can range to avoid future surprises.
 
When considering the likely purchase price the leaseholders should consider the freeholders’ costs as well. Leaseholders will share the cost of the freehold as well as the freeholder’s reasonable legal and valuation costs.
 

Summary

 
It is so important to ensure that the participating tenants have the correct legal advisors as well as valuers with local knowledge that can help you.

What is Enfranchisement?

It is the right, subject to qualification, for owners of flats in a block to buy their freehold. People often apply for enfranchisement to try and reduce their costs and take control of what they spend on the building long term. The relevant Act is the Leasehold Reform Housing and Development Act 1993 (as amended).
 

What has to happen to consider enfranchisement?

 
50% of the leaseholders have to meet the qualification criteria before considering going ahead. Once this is the case the qualifying tenants can participate. Unfortunately, the procedure is quite complex and it is vital to serve the correct notice on the landlord. So it is always advisable to use a specialist solicitor and surveyor when undertaking this process.
 

Checking Eligibility

 
The first action must be to check that the building qualifies and that there are enough qualifying tenants to be able to proceed. You need to check as follows:-
 
a) The flat contains at least two flats.
 
b) Qualifying tenants own at least two-thirds of the flats. Qualifying tenants are leaseholders that have a lease in excess of 21 years when first granted. This will cover most leases which are often between 99 to 125 years when they are first granted.
 
There are other leases which come within a definition of a qualifying tenant although these are a lot less common. These are as follows:-
 
a) A shorter lease which contains a clause providing a right of perpetual renewal.
 
b) A lease terminable on death or marriage or unknown date often called the Prince of Wales clause.
 
c) The continuation of a long lease under local Government Housing Act 1989 following the expiry of the original term.
 
d) A shared ownership lease where the tenants share 100 per cent.
 
e) A lease granted under the right to buy or right to acquire or on rent to mortgage.
 

Are there any exceptions to the above?

 
Yes, these are as follows:-
 
a) The landlord is a charitable housing trust that provides the flat as part of the charity function
 
b) The tenant owns more than two flats within the building. This is either jointly with others or solely in their own name. Please note where this applies these flats will be discounted from the two thirds.
 
c) The tenant has a business or a commercial lease.
 

Does the building have any restrictions when it comes to commercial use?

 
If more than 25% of the internal floor area of the building is for commercial use then the building does not qualify. The commercial restriction excludes common parts of the building. It could be shops or offices etc. Garages and parking spaces specifically used by flats in the building are classed as residential.
 

Does a residential landlord have an exemption?

 
There is no right of collective enfranchisement where:-
 
a) The building is a conversion into four or fewer flats and
 
b) Is not a personal block and
 
c) The same person has owned the freehold since before the conversion of the building into flats and he or an adult member of the family has lived there in the past twelve months.
 

Are there any other exceptions?

 
Yes, buildings such as a cathedral within a precinct or National Trust properties. Or where the freehold includes any track of operational railway including a bridge or tunnel or retaining wall to a railway track. Also, Crown properties which are mainly owned by the Government.
 

Summary

 
It is really important when starting the process of Enfranchisement to employ a solicitor. They are there to deal with all of the legal requirements with qualifying tenants. If this is wrong at any point then it can invalidate a notice and it is therefore very important to do it correctly.

How to Gather Information and Deal with the Initial Notice

There is one important first step for leaseholders who are considering serving a notice on the freeholder. The leaseholders have to gather information on the people in the building and whether they will be qualifying tenants
 
The leaseholders need to do this to ensure that the initial notice is correct and valid. Also to respond to any challenges from the landlord following the service of the initial notice.
 
The initial notice must be correctly served on the freeholder. It must include the correct information on the interest of the participating tenants.
 
There have been some cases where freeholder’s interest may be one or more different ownerships i.e. severed or flying freeholds. This does not in itself form any obstacle to enfranchisement. It just means tenants should be aware that they have to have the deed to the freehold of the property.
 

The Information Required

The leaseholders need to have certain information as follows:-
 
a) The full identity of the freeholder where it is a personal company name and address
 
b) Details of any intervening or head leases and identify the names and address of the relevant lessees.
 
c) Full names and addresses of the leaseholders of the building and details of their leases.
 
d) Details of any flats let through the landlord and let on a periodic tenancy
 

Where to find that Information

The leaseholders will already know some of this information. Obtaining the remaining information is as follows:-
 
1) There are landlord and tenant legislation, enabling leaseholders to obtain details of the name and address of the landlord. The Landlord and Tenant Act 1985 gives this right. The freeholder must provide the information within 21 days of the request. It is an offence to not comply with this. The ground rent demand should also have the same details on.
 
2) Land Registry. The applying party has the entitlement to inspect the register and obtain copies of the entries relating to the freehold. The entry will provide the name and address of the registered owner. It will also provide details of any other interest of the freehold such as other freeholders, head lessees and mortgages. There is a small fee for copies of these registers. The land registry holds the registers. You can also obtain details of any leaseholders through this information as well.
 
3) Information Notice. Under Section 11 of the 1993 Act, you could serve the landlord with an interest in the property, requiring details of that interest.
 
The leaseholders can, therefore, request from the landlord certain details. These are details of any other freeholders, any intermediate leases, including the name and address of the lessees and the terms of the lease. The information notices can require sight of certain relevant documentation such as service charge. The recipient of these such notices has to respond within 28days.
Is there a right to take part?
 
There is no right to take part or right of invitation to join the freehold purchase. However, participating tenants may find it useful to ensure that all tenants are aware of their proposals. At present, though, there is no legal obligation to do so.
 

The initial notice

 
The initial notice triggers the statutory procedure for purchasing the freehold. The nominee purchaser is then liable for the freeholder’s reasonable costs from the date that the freeholder receives the notice. It is therefore absolutely critical that the notice is complete and contains no inaccuracies. These may need a correction via an application to the county court. This can be costly and could lead to a rejection of the notice.
 
There is protection for enfranchising tenants. They have the right to register the initial notice with the Land Registry. This provides protection for the company against the landlords’ sale of the freehold. Since any purchase of the freehold would subsequently be to the registration of the initial notice. The procedure will, therefore, be able to continue as though a new owner had originally received the notice.
 
The service of the initial notice also features the valuation date as the same date as the initial notice. The valuation date is the date upon which the variables affecting the price of the freehold are set. For example, the number of years left on the leases, the present value of the flat and their assured future value. Therefore however long the negotiation or the determination of the price. The valuation factors apply to the day of the service of the initial notice.
 
It is advisable to instruct a solicitor for the preparation of the service of an initial notice as they can be extremely problematical.
 

What if I have an absentee landlord?

 
If after all reasonable efforts the leaseholders cannot find the freeholder this should not prove to be an obstacle. There are other ways to find this information. However, these are all extremely complex and leaseholders should employ a solicitor to look into this. There are various options, the details of which would take too long in this article to outline.
 

Preparing for the subsequent procedures that need to take place

 
The landlord has the right to ask for evidence of the participating people and titles to their flat on receipt of the initial notice. It is a simple task of producing the official land registry entries providing they are all registered. The landlord has a period of 21 days after giving the initial notice in which to request the information. It must also be provided within 21 days of the request. In the event that a leaseholder is not registered the notice would be withdrawn with the costs payable to the freeholder. This is why it is so important to employ a solicitor who knows what they are doing as a specialist in this area.
 
Where the initial notice is withdrawn a new notice cannot be served again for another 12 months beginning on the date of the withdrawal. The landlord has the right to inspect the property. This includes the participating tenants’ flats subject to ten days’ notice to the occupier.
 

Can the landlord serve a counter-notice?

 
A landlord must serve his counter-notice by the date specified in the initial notice. This must be to either agree to the leaseholders’ purchase of the freehold and accept the terms or not agree to the right and give reasons why they do not. The freeholder can deny the right of enfranchisement due to having redevelopment plans or lease back proposals.
 

Redevelopment

 
The freeholder is not obliged to sell the freehold in the case of redevelopment. This is if plans to demolish and redevelop the whole or a substantial part of the building can be proven to the court. This can only apply where two-thirds of the leases in the building are due to terminate within a period of five years from the date of the service of the initial notice.
 

Leaseback

 
Where the freeholder owns a flat, or flats in the building, they have the option of taking a selection on the flat of a 999-year lease.
 
Where there is a lease back the value of the flat is deducted from the calculation. If an agreement cannot be reached for whatever reason then either party can apply to the Tribunal for an independent determination. You must ask your professional advisors on all relevant documentation that needs to deal with such an application.
 
If the freeholder fails to serve a counter-notice by the date specified in the initial notice, the participator may apply to the county court for a vesting order. This is an order allowing them to acquire the freehold on the terms of the initial notice. If the Court is satisfied with the right of transfer it will grant the order. The leaseholders must make the application to the Court within six months of receiving the counter-notice.
 

Strict procedures and time limits

 
There are very strict procedures and time limits as follows:-
 
1) Leaseholder to serve Section 11 information notice
 
2) Freeholder must respond within 28 days, leaseholders must make arrangements for a nominee purchaser and if forming a company register at Companies House. Participating tenants serve a section 13 initial notice. The valuation date is the date of the Section 13 notice.
 
3) Freeholder may request evidence of title of participating leaseholders but must do within 21 days.
 
4) The nominee purchaser must respond as requested within 21 days.
 
5) Freeholder must serve counter-notice by the specific date in the notice. This date must be at least two months from the date of the service of the initial notice. Where the freeholder failed to serve such a notice the nominee purchaser can apply to the court within six months for a vesting order
 
6) If the counter-notice disputes the qualification the purchaser must apply to the court within two months to argue their case.
 
7) If terms are not agreed after service of the counter-notice either party may apply to a Tribunal. This must be at least two months from and within six months, of the date of the service of the counter-notice. The Tribunal then lays out the details thereafter.
 

Summary

 
This type of law is so complicated. It is absolutely critical to employ some form of professional to advise and assist throughout the transaction. At least have a local valuer and/or solicitor that specialises in the right to manage and collective enfranchisement.
 

Directors and Officers Liability Insurance

Do I need Directors and Officers liability insurance?

 

The cover protects the Directors and Officers of Right To Manage companies or residents associations. It will be individuals that administer and make decisions for their block of flats. They are usually unpaid volunteers that administer and make decisions that relate to the running of their flat block. These often include decisions on maintenance issues, planning permissions and company bank accounts. As well as parking, noise disputes and even on occasions how to interpret leases. They are not limited to these items as their roles can be wide-ranging. They also have further judiciary and statutory duties much like a Director of any other company.
If a director or officer makes a decision that causes a financial loss. Those Directors and officers may find themselves being personally sued by a resident of the block of flats or a third party. It is rare but it does happen.

Do I need to take out additional insurance?

 

It is totally a personal matter. Some policies will already have a level of cover within them. Therefore it may not be necessary to take out an additional policy. A Directors and Officers liability policy will provide protection for the legal liability of individual Directors and officers. In respect to claims for financial losses by residents or third parties.
It is for contesting errors or omissions only. Those that are made by the Directors and Officers of the Right To Manage company or residents association. The policy is solely for the Directors and Officers. To protect them in the same way that a firm of solicitors would have professional indemnity insurance to protect themselves.
If the company or residents association use a managing agent then they may not need Directors and Officers cover. This is because the managing agent may take responsibility and liability for the day to day management.
In these increasingly contestable times accidents can lead to injuries which can then lead to liability claims. Making the need for Directors and Officers cover more apparent than ever. So it is always best to check whether you have the cover or not.

Can I be personally sued?

 

Yes. Directors and officers liability insurance can seem expensive because claims are rare. However, when they do happen they can be very expensive. It is important to consider the potential saving in the case of a claim. As instructing a solicitor, even for an error or omission of a previous director can be very expensive. As the liability can be personally directed there are big potential downfalls.

Summary

 

It is easy to overlook the importance of Directors and Officers liability but it can be vital if the need arises. The truth is that the individuals that volunteer for those positions are taking on a big responsibility. One that will affect the lives of everyone else that lives in the flat block. Therefore the potential financial liability is huge.

If you would like to discuss any of the above then request a call back to discuss your options. We can provide a separate policy or include the cover in a building insurance quote.

Law Commission Proposal for April 2019

The Law Commission has unveiled a series of reforms. These are with the view to make it quicker and easier for leaseholders to take control of the day to day management of their flat block.

 

We at iInsure365 are privileged to have been able to contribute towards the consultation and the Law Commission document.

 

The Consultation has now been released on how the leaseholders will be able to change the Right To Manage. These proposals will make it easier for people to take the Right To Manage.

 

What does it cover?

 

The new proposals include extending the Right To Manage criteria to include leasehold house owners. It will also allow leaseholders to apply to manage multiple blocks and addresses the costs and paperwork of doing so. 

 

Other questions raised in the proposal are as follows:-

 

1) What are the requirements for the Right To Manage and who can apply for the Right To Manage?

 

2) Do people have experience of failing the Right To Manage because of definitions of the Act?

 

3) Would it be helpful for lessees to have one person to have the right of management? Or should there be a reduction for qualifying tenants from at least two thirds of the flats to 50%?

 

4) Do you agree that there should be a removal of the exemptions for buildings that consist of a non-residential area of more than 25%?

 

5) Should Right To Manage Companies have to employ a managing agent where there are commercial properties involved?

 

6) Should there be an extension to the qualifying terms of Right To Manage and if so how?

 

7) Should the Right To Manage Company be able to obtain ownership of the building?

 

8) Should the Right To Manage companies by limited by guarantee?

 

There are various other questions on the Right To Manage and how lessees should govern and use them.

 

This is the most comprehensive review of the Right To Manage system that has taken place over the last few years. It will dramatically change and help lessees to be able to deal with the Right To Manage for their block of flats in a much easier way in future.

 

Summary

 

We are pleased to be able to confirm that we have contributed towards the Law Commissions paper on the Right To Manage. We believe it is absolutely critical for lessees to be able to have a much easier way to manage their own buildings and to reduce their costs. It is often so problematical for lessees and owners of flats as they do not understand the process. We are often asked to obtain quotes for lessees. In doing so lessees often find that they have been paying more than they should for their insurance premiums. This may be knowingly done by the freeholder/managing agent or the building may be over insured. This document will be able to bring restrictions that will help the Right To Manage company to control their expenses.

 

Consultations in relation to the above end on the 30th April. We believe that if you have any involvement in Right To Manage you should read the Law Commission paper. Not only that but also try to give consultation and any comments on it to help lessees in the future.

Valuation of a freehold subject to long leases

The valuation of a freehold of a block of flats with long leases is based on the investment value. 

 

In order to value an investment for enfranchisement purposes and to achieve such an income for so many years there has to be a calculation. It is best illustrated in an example as follows:-

 

1. Calculate the term

 

The calculation for the term in ground rent would be £50 x 10 flats = £500.00 per annum for the block

Multiply the ground rent figure by the year’s purchase. This is calculated by the valuer or more usually taken from the valuation table. To obtain the years purchase multiplier the valuer must make an assumption on a yield rate. In this example the valuation table showed the yield as 8% for the years figure. The years purchase of lease 68 years at 8% = 12.433 so £500.00 x 12.433 = £6,216.00.

 

2. Calculate the reversion

 

The current value of the flats say £105,000.00 x 10 flats = £1.5M (leaseholders present interest)

It is the nature of leasehold properties for the value to decrease as the lease shortens. So a long lease is generally worth much more on the open market than a short term lease. In general enfranchisement will increase the value of the individual flat. The amount of this improvement will be heavily dependent upon the length of the unexpired term before extension. There are no hard and fast rules as to how much the value will increase by. It is always an estimate based on local comparisons within the market.

 

The lease will affect the value of each individual flat but the freehold valuation must consider its current state. In effect the valuer has to assess the unimproved value of the flat not the improved value.

 

When calculating the reversion the valuer must do so based on the sale value for when the current term expires. For this purpose it must be assumed that the most favourable leases will be granted for a maximum of 999 years.

 

The example below states the acquisition of the freehold will produce an increase in the value of each flat of 10%. Meaning a future value of each flat of £165,000.00.

Improved value: £165,000.00 x 10 = £1.65M

 

Again, take the multiplier from the tables to provide an investment value. What is the promise of the future £1.6M worth in today’s market? Then multiply, the present value of £1.00 to the same yield rate of 8% as of previously.

Present value £1.00 deferred 68 years at 8% is 0.00534. So £1.6M x 0.00534 = £8,811.00.

 

What is the investment value of the freehold?

 

The investment of the freehold i.e. the freehold interest is therefore represented by the sum value of the term and the reversion £6,216.00 plus £8,811.00 = £15,027.00.

That is the sum that the interest is likely to achieve in an open market sale.

 

Marriage Value

 

This represents the increased value of the flats following completion of the enfranchisement. The market value increases as the enfranchised leaseholders have the ability to grant themselves longer leases. The potential profit only arises from owning part of the freehold. All parties share the freehold equally as dictated by the legislation.

 

Legislation stipulates to ignore the marriage value of any flat held by a prospective member. Taking the figures from the previous example above the approved value of the property at £1,650,000.00.

 

From this subtract the leaseholds current value £1.5M and the freeholders interest of £15,027.00 and in any case the marriage value is £134,973.00.

 

Take a 50/50 split between the freeholder and the enfranchising leaseholders. The leaseholders would have to pay half the price i.e. £67,486.00 in addition to the freeholder’s interest.

 

You will see in this example that the marriage value can considerably exceed the value of the freeholder’s interest. The calculation depends upon the estimated increase in the value of the flats. So logically, the lower increase the lower the marriage value will be. This is where the input of a local valuer and local knowledge is of paramount importance.

 

Completing the valuation of a freehold

 

Using the examples above the potential valuation, assuming no extra costs arise from the additional freeholders interest or injurious affection would be the sum of the freeholders interest £15,027.00 plus the marriage value £67,486.00

Possible purchase price £82,513.00 or approximately £8,250.00 per flat.

 

Summary

 

The example freehold valuation assumes that all leaseholders are both qualifying and participating. The examples provided are solely to demonstrate general work and practice valuation. They are not for the application of individual circumstances. It is extremely important that you get a local professional valuer to help you in advising on the cost of purchasing the freehold.

Do you still use a managing agent?

Even after taking the Right To Manage or Collective Enfranchisement?

 
Managing agents and freeholders still receive commission on insurance. They will also not disclose this to the leaseholders. It is now a requirement by law that any insurance commission they receive is disclosed to the leaseholders. iInsure365 have on many occasions provided insurance quotes for leaseholders. By doing so we have saved them substantial amounts of money.
 
Managing agents often come up with excuses. For example; they use this as part of their fees, or that they use the commission to deal with insurance claims. Even that the insurance isn’t on a like for like basis (often insurable items that aren’t actually required by the leaseholder). Surely they should be open and transparent and let you know exactly what you are getting?
 
We have found that managing agents and/or freeholders can charge up to 40% commission on insurance. They will even, on occasion, increase the premiums to earn more commission.
 
We are totally transparent. If you request details of any commission we will happily give it to you.
 

Can I get my own insurance quote for the building?

 
Yes, you are entitled to get your own quote.  The best way is to provide us with a copy of the full policy and schedule so we can ensure you have a like for like quote. You will likely find that the managing agent and/or freeholder will do anything in their power to keep the insurance policy with themselves. You may find that they lower the price once presented with a cheaper alternative. However, you do have the right to claim back money charged for inflated insurance through a Leasehold Valuation Tribunal.  
 

Is iInsure365 affiliated to any managing agent?

 
Absolutely not, we have no affiliation with any managing agents hence why we are happy to provide details of the commission that we receiveWe ensure that your policy not only covers you on a like for like basis but will also raise questions on parts of the policy that may not be required. We often find that we cut lessees insurance premiums by up to two thirds when quoting against existing cover.  You may find that it is not easy to get the freeholder to change the insurance. So it may be worth considering the Right To Manage.
 

Should I complain to the managing agent about my insurance premium?

 
We would suggest that you always get an insurance quote first and then take it up with your managing agents.  If they do not wish to change then we would suggest that you seek legal advice from a solicitor who will be able to help. You could find that the savings outweigh solicitor costs.  
 

Can I change an insurance policy halfway through? 

 
Yes, each individual insurance company will have different charges. Be sure to check first but you may find that the savings made through ourselves will be greater than what the cancellation charge is. You need to get legal advice to ensure that you are fully aware of what the legal requirements are and what you can and cannot do. It can save you a substantial amount of money.
 

Summary

 
We will always try and help any leaseholder, freeholder or Right to Manage Company to try and reduce their costs. You will find that the savings can be substantial. Not only for the first year but every year thereafter. Please do not hesitate to contact us.

Do Landlords need to follow the Law on Licencing?

Yes, absolutely, landlords need to follow all the regulations that the law demands. When taking out insurance they confirm that they are complying with UK laws and are responsible if not. Landlords, therefore, have to make sure that they follow all current and up to date laws.

 

Do landlords have to comply with the new HMO requirements from the 1st of October 2018?

 

I have specifically asked some Insurance Companies what happens in the event that a client does not have the correct licencing. They confirmed that they would take this into account if a claim was made and it could lead to a claim rejection. It is therefore critical that landlords have a licence for their property. It is not just the licence that is important but also to comply with all special conditions. Generally, most licences have a long list of items that need to be complete to be compliant. It is most important that all the special conditions are adhered to and signed off by the Council. If the correct license is not in place in the event of a claim there is a high likelihood of claim rejection.

 

Are all the Councils the same?

 

No, not all Councils are the same. There is general HMO licencing for the whole of the Country but there is also selective licencing. This is with respect to individual councils as they have their own way to deal with HMO numbers and standards. It may be that they have added additional requirements for landlords in certain properties. Landlords have to meet all the criteria applicable to them.

 

Do landlords need to send a copy of the licence to their Insurance Company

 

No, it is not required when taking out the insurance. There is a statement of fact as part of any policy and policyholders confirm this is correct when taking out the insurance. It is absolutely critical under the new Commercial Act that this is completely truthful and correct. When making a claim against the insurance there will be a requirement to supply a copy of the licence to ensure that it is fully complied with.

 

Do landlords need to check if they need a licence?

 

Yes, it is very important to be fully aware of what legal requirements as a landlord to adhere to. They can find these by speaking to their local authority. It is important to comply with all requirements of the local authority and the Government.

 

Summary

 

When becoming a landlord it is essential to understand the requirements of maintaining a property fit to live in. If landlords are unsure of how to be compliant we would suggest that they employ a professional that can do this on their behalf. It will be critical with any insurance claim that is made that the law has been completely complied with.

How does the Insurance Act of 2015 affect leaseholders?

iInsure365 arrange building insurance for blocks of flats. We understand in detail the distinct requirements for these types of properties. We arrange flat block insurance for purpose-built and converted properties, owner-occupied blocks and rented flats.

 

Why is iInsure365 different from a managing agent?

 

iInsure365 make the business of insuring a block of flats as simple, straight forward and inexpensive as possible.

 

Block of flats insurance is traditionally arranged through third parties. With everyone involved possibly taking a part of the premium as commission. We are completely different and we only deal direct and don’t pay commission to managing agents.

 

iInsure365 will get the best possible terms they can offer. Work with a huge range of insurance companies to ensure they are always competitive. Insurance companies can often change their criteria when it comes to insuring blocks of flats. We are ideally placed to ensure that we can offer the best possible cover at the most reasonable and cheap cost.

 

Do iInsure365 deal with managing agents direct?

 

No, we have made it a point not to work with managing agents. We are open and transparent with all our fees and commissions and are happy to disclose any of these at any time. Many leaseholders aren’t aware that the managing agents are making commission. This involvement can lead to an increased premium. Landlords can often add to the premium in order to increase their commission on the policies. We do not.

 

What is the Insurance Act of 2015?

 

The Insurance Act of 2015 updated the law on disclosure and misrepresentation. It now requires insured parties to disclose every circumstance they know or should know that would affect an insurance premium. An insurer needs this information to decide whether to offer a premium at all and at what price. If the insured is in breach of the duty of fair representation the insurer can cancel the policy and keep the premium paid if the breach was deliberate.

 

How does the Insurance Act 2015 affect leaseholders?

 

Part II of the Act now creates a new duty of fair presentation encouraging active rather than passive engagement by insurers. They need to now tell the insured all that they need to know as well as clarifying if necessary the information disclosed.

 

Also, did you know that you can ask your managing agent for confirmation of what their commission is?

 

Summary

 

We have made it our number 1 priority to ensure that clients know what they are buying and know what the law is. It is important for people to understand that they may be overpaying for their building insurance cover. The Insurance racket has been going on long enough with property management in blocks of flats and it is now time for this to change.

Is it worth buying the freehold as a leaseholder?

Unfair service charges for leaseholders are rife. In England and Wales, there are powerful laws that give leaseholders rights. Leaseholders can force the freeholder to sell and buy the freehold in order to take over the management of the block of flats and have more control over their costs.

 

Is it worth buying my freehold?

 

It is now a lot easier for leaseholders to be able to buy their freehold and essentially be in control of their own costs.

 

It is a legal process known as collective enfranchisement. This gives leaseholders the right to get together and purchase the freehold for a fair market price. The government brought in the law in 1993. It was then updated by the Commonhold and Leasehold Reform Act of 2002.

 

Are lease extensions cheaper?

 

It can cost a substantial amount of money for a lease extension. Often, mortgage companies and insurers will look at the length of lease especially if they are 80 years or less. Leaseholders will always pay a ground rent during the term unless they purchase the freehold. By buying the freehold they can usually extend the lease for a longer term, possibly up to 999 years for free. The only outlay would be legal costs.

 

It is important to realise how flats with a share of the freehold differ from a freehold house. Flat owners with a share of the freehold own their freehold jointly with other leaseholders in the building.

 

Freedom from the freeholder

 

There are often stories where freeholders charge hundreds of thousands for either work or lease extensions. Leaseholders can go to a Leasehold Valuation Tribunal to challenge unfair charges but it does cost a substantial amount of money. Once bought, the new freeholders are free to make their own choices to reduce costs. This will include contractors and insurance policies. Leaseholders have so much more control when they own a share of the freehold.

 

Can owning a share of the freehold add value to a flat?

 

Yes, the gain could be substantial if there is a short lease. A short lease could also put buyers off as it is very difficult to get a mortgage on a property that has a lease less than 80 years. It is advised to ask a solicitor to look into the costs involved in doing so before committing to it. Also, see our Right to Manage article.

 

How much does buying the freehold cost?

 

The bulk of the cost will be the cost of negotiations and surveyors together with the actual value of the freehold itself. A property valuation will need to be done by a surveyor. There may then be a Tribunal if the landlord does not wish to sell. There could also be legal fees, valuation fees, stamp duty and freeholder fees. However, it could add a substantial amount to the value of the property.

 

Summary

 

The benefits of buying the freehold can outweigh the initial costs involved. We would suggest seeking the advice of a solicitor before making any commitment. Once the exchange has completed, either buying the freehold or taking the right to manage. The flat block will need to be insured again. In that case, we can provide a quote and place on risk quickly and easily. Request a call back if you would like a quote.

 

Mark Harrington

Managing Director

iInsure365

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