Can a leasehold flat managed by the leaseholders?

cherry76

The flat son is interested is leasehold but he said the leaseholders have set a company. Is that possible? No service charge, repairs on ad hoc, not sure whether this is good. Have checked the company, it does not seem to be properly managed. In a conversion of three, who is responsible for building insurance? EA mentioned £300 _ to £500 per annum for 1 bed flat in London. He is going to ask more info to EA. In the meantime I thought we could get some answers from this forum. Thanks

DullGreyGuy

Is it purely leasehold or share of freehold?

Leaseholder can enforce the "right to manage" (https://www.gov.uk/right-to-manage-a-guide-for-landlords) in which they'd form a company to do so in a similar way as if they'd bought the freehold.

If its good or bad depends on how well its run and the different leaseholders views. In principle there is no one taking backhanders increasing costs etc but maybe there is if one leaseholder dominates. Similarly many may like the idea of low service charges and no sink fund until such time as major works are required. 

In our area one development has massively higher service charges than the rest (£8k for a 2 bed) and surprisingly its one of the few share of freeholds but they have several major works needed in the foreseeable future and the votes from the leaseholders was to build up cash now rather than face £40k bills each later.

bouicca21

Is the company the freeholder (share of freehold)  or a right to manage company?  Either way the advantages are that the leaseholders have more control. The disadvantage is that someone needs to do the management and sometimes there is an absence of expertise and/or loss of enthusiasm for doing the donkey work.  In my experience it’s a mixed bag - one or more of the leaseholders might be unwilling to spend any money on essential works or even the minor works that make a place look cared for, like communal decorating.  Or they might be so enthusiastic that they want to keep updating stuff ´to comply with current building regs.

As for insurance that will (or should) be set out in the leases.  He has checked the lease hasn’t he?

cherry76

DullGreyGuy said:

Is it purely leasehold or share of freehold?

Leaseholder can enforce the "right to manage" (https://www.gov.uk/right-to-manage-a-guide-for-landlords) in which they'd form a company to do so in a similar way as if they'd bought the freehold.

If its good or bad depends on how well its run and the different leaseholders views. In principle there is no one taking backhanders increasing costs etc but maybe there is if one leaseholder dominates. Similarly many may like the idea of low service charges and no sink fund until such time as major works are required. 

In our area one development has massively higher service charges than the rest (£8k for a 2 bed) and surprisingly its one of the few share of freeholds but they have several major works needed in the foreseeable future and the votes from the leaseholders was to build up cash now rather than face £40k bills each later.

Thanks it is leasehold with a lease of 149 yrs. It is properly set up. I would rather it was a share of freehold.

cherry76

bouicca21 said:

Is the company the freeholder (share of freehold)  or a right to manage company?  Either way the advantages are that the leaseholders have more control. The disadvantage is that someone needs to do the management and sometimes there is an absence of expertise and/or loss of enthusiasm for doing the donkey work.  In my experience it’s a mixed bag - one or more of the leaseholders might be unwilling to spend any money on essential works or even the minor works that make a place look cared for, like communal decorating.  Or they might be so enthusiastic that they want to keep updating stuff ´to comply with current building regs.

As for insurance that will (or should) be set out in the leases.  He has checked the lease hasn’t he?

It’s a right to manage. My concern is the flat is on top floor and if the roof is leaking and nobody wants to pay for repair as it is not affecting them directly. Have not made any offer yet. I think I would prefer it managed by the freeholder. Does it still have to go through the freeholder to extend the lease. I was also thinking if it might be better if the leaseholders buy the freehold. Thanks.

DullGreyGuy

cherry76 said:

DullGreyGuy said:

Is it purely leasehold or share of freehold?

Leaseholder can enforce the "right to manage" (https://www.gov.uk/right-to-manage-a-guide-for-landlords) in which they'd form a company to do so in a similar way as if they'd bought the freehold.

If its good or bad depends on how well its run and the different leaseholders views. In principle there is no one taking backhanders increasing costs etc but maybe there is if one leaseholder dominates. Similarly many may like the idea of low service charges and no sink fund until such time as major works are required. 

In our area one development has massively higher service charges than the rest (£8k for a 2 bed) and surprisingly its one of the few share of freeholds but they have several major works needed in the foreseeable future and the votes from the leaseholders was to build up cash now rather than face £40k bills each later.

Thanks it is leasehold with a lease of 149 yrs. It is properly set up. I would rather it was a share of freehold.

A Share of Freehold still has a lease... typically there is a Ltd that owns the building and the leaseholders are the shareholders/directors of that company. They then have a lease to their unit with the LTD being the freeholder. 

In principle everything is simpler as when the lease says you need the freeholders permission you are part of the process to decide if that permission will be granted or not however things get messy if there is a falling out between the shareholders or a split of opinions and people can then start getting petty... you ask for permission to go up into the loft and get told no; you then decide to vote against any request made by those that voted against you etc.

eddddy

cherry76 said:

It’s a right to manage. My concern is the flat is on top floor and if the roof is leaking and nobody wants to pay for repair as it is not affecting them directly. Have not made any offer yet. I think I would prefer it managed by the freeholder. Does it still have to go through the freeholder to extend the lease. I was also thinking if it might be better if the leaseholders buy the freehold. Thanks.

 A couple of areas where 'shared freehold' and RTM differ:

• An RTM company cannot extend the lease - only the landlord/freeholder can do that
  

• An RTM company can grant permissions required by the lease - e.g. for alterations, sub-setting, assigning, pet keeping... But the RTM company has to inform the landlord/freeholder who can object - in which case a tribunal has to decide.

Your concerns about a leaking roof are accurate. Getting 3 'strangers' who might have 3 very different outlooks on life to agree on things might be very difficult.

With 'shared freeholds' it's possible to have a declaration of trust which all leaseholders are required to sign when they buy a flat. It might include something like (in simplified terms)... 

"If the 3 members of the company cannot agree on a maintenance matter [like a roof leak], any one member can seek the opinion of a RICS surveyor. The opinion of the RICS surveyor becomes binding on all 3 members.

The cost of the RICS surveyor is to be paid by the member(s) who substantially lose the argument."

I imagine it's possible to roll a similar agreement into a RTM company. But if it doesn't exist already, there's the challenge of persuading people to sign it.

But you still have the challenge of taking legal action etc, if somebody still refuses to pay.

DullGreyGuy

For both the articles of association for the company (freehold or management) should have how decisions are to be made and how disputes are to be settled in it which can be reference to an independent third party like a surveyor to act as arbitrator. 

With an odd number of members some may be tempted to go for a simple majority vote but thats where the 2 vs 1 starts coming in and feuds start.

propertyrental

OP might be well put-off by the responses above. Yes, things can get awkward or turn sour, but there are definite upsides to self-managing too. Flat owners/leaseholders have control over their own building, and control over the finances. It can often be a lot cheaper.

Provided (underlined!) they work cooperatively and someone(s) take responsibility for day-to-day stuff it can be a far better set-up than having a profit-driven company managing the building.

cherry76

propertyrental said:

OP might be well put-off by the responses above. Yes, things can get awkward or turn sour, but there are definite upsides to self-managing too. Flat owners/leaseholders have control over their own building, and control over the finances. It can often be a lot cheaper.

Provided (underlined!) they work cooperatively and someone(s) take responsibility for day-to-day stuff it can be a far better set-up than having a profit-driven company managing the building.

Quite right really been put off by the responses. Checking the RTM company, there is no fund as repairs are done as necessary. Have asked my son to ask EA how often do the shareholders meet to make decisions and what happens if there is a dispute? He told me am asking too many questions. Seems looking for trouble but I can only offer my advice. Not having to pay monthly service charge seems good until he has to fork out a large sum in the future. There are already two directors and he is not interested to take an active part.

DullGreyGuy

It depends on the plans, a low service charge has its appeal until something major goes wrong at which point a healthy sink fund suddenly looks attractive. If its a temporary stop then maybe rolling the dice and having the extra cash to save for the next move is an acceptable risk, if its a long term stop then ensure you build up your own sink fund ready for when the bills come.