What is the difference between a Leasehold and a Freehold?
Freeholds are where a person or organization owns the property outright including the land it sits on.
Leasehold is where somebody buys the right to live in the property for a certain period usually 99 or 125 years. The leaseholder can make arrangements to extend their lease, see our articles on enfranchisement. But ownership of the property returns to the freeholder at the end of the term.
If you are a leaseholder and you own a flat within a block of flats, you don’t own the land that it sits on. The freeholder owns the land the property sits on. Leaseholders usually pay some form of ground rent to the freeholder.
What is the difference between a landlord, a residential management company and a residential managing agent?
The landlord/ freeholder owns the building. They have certain responsibilities to the leaseholders. Many buildings also have a residential management company. They are party to the lease and have a legal obligation to the leaseholders to provide certain services.
You will also find in some cases that a landlord and a residential management company will not carry out any services or duties. Instead, they will appoint a residential managing agent to do so on their behalf.
What does a residential managing agent do?
A residential managing agent is a person or company appointed by the landlord or residential management company to manage the building. They are not responsible for the management and repair of a building in the lease. They are often hired to carry out these duties in the building on behalf of the landlord or residential management company. Their role is to ensure that the landlord, residential management company, and leaseholders follow the terms of the lease.
What are service charges and what is reasonable to pay?
These are charges set by landlords to pay for providing services to maintain your building in a block of flats. The services could be; cleaning communal areas, maintaining gardens, lifts and cleaning windows.
The service charge often includes building insurance. However, this does not include the cost of insuring the inside of individual leaseholders flats or homes. Contents Insurance will cover this. The cost of service charges will vary depending on the type of building they are being charged on. The Association of Residential Managing Agents (ARMA) estimates that the average flat owner in London pays between £1800.00 to £2000.00 a year in service charges. Yet, this can be higher or lower depending on the age of the building and how leaseholders divide the service charges.
Service charges are generally variable. This means that they will change from time to time in line with actual costs. In practice, a landlord or management company will set an estimate for the year ahead and charge accordingly. They will then calculate the difference between this and the actual cost when the financial year ends. The difference will be either charged or repaid to the leaseholders. They may set up a reserve fund and transfer any excess to the reserve fund.
Your service charge contributions will be a proportion of the service charge cost. The lease usually states that the leaseholder will pay a reasonable or fair proportion. This could be anything. For example, if there are ten flats in the building you would normally pay a tenth but it depends on the contents of the lease.
All service charges must be in accordance with the terms of the Lease and where reasonable in accordance with the law. The key legal requirement is that these costs must be reasonably incurred and that the service or works must be of a reasonable standard. You can challenge any reasonableness of service charges via a property tribunal.
It is important that you look at the costs of all the amounts charged by the freeholder. If you feel that you are being charged excessively for the building insurance please don’t hesitate to contact us. We will be more than happy to give you a quote for your building. You will need to find out if any claims have occurred within the last three years and what your sum insured will be. We often find that buildings are over-insured. We now have a special tool that will work out the correct amount to insure the building for. Please don’t hesitate to contact us on this.