Legislative Timetable for Wales

• Commencement Order No 1 (4 December 2002)
  [click here to access the full text of the order on the HMSO website]
  This commenced the following provisions, with effect from 1st January 2003:
  1. all of the amendments to collective enfranchisement but excluding the RTE Company, the Invitation to Participate and the Valuation Date.
  2. all of the amendments to lease extensions for flats and acquisition of freeholds of houses.
  
  
• Commencement Order No 2 (9 March 2004)
  [click here to access the full text of the order on the HMSO website]
  This commenced the following provisions, with effect from 30 March 2004:
  1. the Right to Manage.
  2. Improvements to be included in the statutory definition of a service charge.
  3. Administration charges.
  4. the new Leasehold Valuation Tribunal jurisdiction , and,
  5. the revised S20 consultation procedures.

  Note: The third and fourth Commencement Orders , referred to above , applied to both England and Wales.

Click here to access the text of the Act.

Commonhold

This is a new form of ownership for flats as an alternative to leasehold, and eventually its replacement. The Act does not provide any compulsory transfer to the new system nor any formal end to leasehold; the new system of commonhold is introduced as matter of choice for developers building flats, there is also means for conversion from leasehold to a commonhold.

In a commonhold the owners of the flats (the "unit-holders") will own their own flats on a freehold basis and their title-deed will also give them membership of the Commonhold Association which will own the land, the structure of the building and the common parts. All unit-holders will have a vote in the operation of the Commonhold Association and, thereby, the management, maintenance, repair and servicing of the building. There will be no separate landlord, the unit-owners will share ownership and management of the building through the Commonhold Association.

The practical management and governance of the building will be according to the Commonhold Community Statement, agreed and produced by the Commonhold Association. This, in effect, replaces the lease in setting the conditions of occupancy and will be a public document, registered at the Land Registry.

Where a group of leaseholders have already brought their freehold they will be able to convert to a Commonhold arrangement subject to the consent of 100% of flat-owners in the building.

For further information see the advice note Commonhold.

Leasehold Reform

• the introduction of a statutory Right to Manage for long leaseholders.
• changes to the qualification criteria for collective enfranchisement and lease renewal to broaden the range of applicants and simplify the valuation process
• provision of additional rights and protections to leaseholders regarding service charges and management.

The Right To Manage

Why the need ?

A major source of enquiries for some time at LEASE relate to complaints regarding service charge abuses and overcharging , mis-management and neglect of properties by landlords. Problems are also caused by missing landlords, especially when tenants need to insure their building and this can be a stumbling block when selling their flats. The Act allows the tenants to address these problems by giving them power to manage themselves without the need to buy the freehold or prove fault on the part of the landlord as would be the case if they were applying for a management order under the Landlord and Tenant Act 1987. It is a step towards recognising the much higher degree of investment or "equity interest" that tenants have in a building as compared to that of the landlord.

What is the right?

A right, upon service of a notice by the requisite number of qualifying tenants, to take over the management of the building, with no requirement to prove fault on the part of the landlord.

For further information see the advice note The Right to Manage.

Changes to Collective Enfranchisement and Lease Extension

Various changes are made to the qualification and valuation criteria relating to enfranchisement and lease extension of flats under the Leasehold Reform Housing and Urban Development Act 1993 and to houses under the Leasehold Reform Act 1967.

Changes for flats under the 1993 Act

• The residence test is abolished for both collective enfranchisement (freehold acquisition) and lease extension. However, in the case of lease extension there is a new qualification that the leaseholder must have owned the flat (but not necessarily lived in it) for the preceeding two years.

• The limit on non-residential parts of the building is raised from 10% to 25%, therefore a building can be subject to collective enfranchisement where no more than 25% of the floor area is non-residential.

• The number of qualifying leaseholders required to participate in a collective enfranchisement is reduced from two-thirds to just one-half of the number of flats in the building.

• The valuation date is fixed at the date of the application for collective enfranchisement or lease extension.

• No marriage value is payable in cases where a lease has 80 years or more unexpired at the date of application; the landlord's share of the marriage value is fixed at 50%

• Personal representatives of a deceased's estate will be entitled to make the claim for the freehold or lease extension provided the tenant had the right to do so immediately before his death but they must not serve the Notice of Claim any later than two years after the grant of probate or letters of administration.

• For a resident landlord to qualify for exemption from collective enfranchisement he must have carried out the original conversion of the building into flats, plus he, or a member of his family must have lived in the building for the last 12 months.

• Provision not yet commenced - for leaseholders proposing an application for collective enfranchisement to first form a Right to Enfranchise Company (RTE Company), according to regulations and prescribed Memorandum and Articles; the RTE Company will then make the application and become the new owner of the freehold. The RTE Company will thave to invite all leaseholders of the building to take part in the application.

  It is not yet clear when these provisions will be commenced.

For further information please refer to the publications on Collective Enfranchisement and Lease Extension.

Changes for houses under the 1967 Act

• Where a leaseholder has previously extended the lease under the statutory right provided by the 1967 Act, the new Act abolishes the restriction on buying the freehold after extension and allows security of tenure under the Local Government and Housing Act 1989 to apply at the end of the term as an alternative to enfranchisement. In addition, a sub -tenant whose long lease has been created out of a lease that was extended under the 1967 Act will no longer be excluded from rights to buy the freehold.

• Where the Landlord is absent and cannot be traced the Act allows for the tenant to apply for a Vesting Order to the County Court instead of the High Court, in order to significantly reduce the costs of such application.

• The residence test is partly abolished in that it will no longer apply to residential leases, however the tenant must have owned the lease of the house for at least two years. If the lease is one to which Part II Landlord and Tenant Act applies (i.e. a business lease) then the residence test applies but is reduced to two years from the current three.

• Personal representatives of a deceased's estate will be entitled to make the claim for the freehold or lease extension provided the tenant had the right to do so immediately before his death but they must not serve the Notice of Claim any later than two years after the grant of probate or letters of administration.

• The same changes as made to the 1993 Act regarding marriage value and the share of marriage value are made to the 1967 Act.

For further information please refer to the publication Houses - Qualification and Valuation for Enfranchisement.

Service charges and the LVT

Improvement costs

The definition of a service charge in Section 18, Landlord and Tenant Act 1985, is amended to include costs of improvements. So, where a lease includes a liability for costs of improvements (usually common in Council or Housing Association leases), these must now be subject to the requirements of reasonableness, can be challenged at a Leasehold Valuation Tribunal and must be included in any formal consultation carried out by the landlord under Section 20 (see below).

For further information please refer to the publication Service Charges, Groundrent and Forfeiture.

Administration Costs

These are costs that relate to matters that were not clearly within the definition of service charge and include the landlord charging for costs of approvals / consents under leases, charges for providing information, legal charges arising from the tenant failing to pay by a due date or costs in dealing with alleged breaches of the lease.

Demands for administration charges must be accompanied by a statement of the leaseholder's rights and the demand is not valid without this.

The costs must be reasonable and may be challenged at the Leasehold Valuation Tribunal.

For further information please refer to the publication Service Charges, Groundrent and Forfeiture.

Consultation on works and contracts

S20 of the Landlord & Tenant 1985 Act has been amended, broadening its scope to long term contracts and giving the LVT power to consider issues relating to alleged breaches of the section by the Landlord.

The landlord is required to consult any tenant paying variable service charges if he proposes to

• carry out works to a cost to the leaseholder of £250 or more
• enter into a long-term contract likely to cost the leaseholder £100 per year, or more.

Where the landlord fails to carry out the consultation process he is unable to recover any cost arising from the works or contract above the £250 or £100 statutory limits.

The new procedure is intended to provide a realistic form of consultation by the landlord on his proposals and to provide the tenant with a genuine opportunity to comment or to propose a contractor. There is a statutory period of 30 days in which the comments or proposals may be made.

The landlord must serve at least two notices, sometimes three:

• Notice of intention - a general outline of the proposed works or contract and why the landlord considers them to be necessary; there will be no prices at this stage. The tenant's views are invited and every tenant has the right to propose a contractor.
• Notice of proposals - full details of the proposals or contract, the costs and the proposed contractor. This notice must also contain a summary of the comments the landlord received in response to the notice of intention and his response to them. The tenant's further views are invited.
• Notice of award - when the landlord lets the contract he must formally notify all the tenants (unless the contractor is one proposed by a tenant or who provided the lowest tender).

The landlord may apply to the Leasehold Valuation Tribunal for dispensation from the need to comply with the procedure (for example, in the case of urgent works). Equally, tenants can challenge the procedures before the Tribunal on the grounds that the service charge is not payable if the procedure was not fully complied with.

For further information please refer to the publication S20 Consultation.

Service Charges - accounting and information (not yet commenced)

Under S21 Landlord and Tenant Act 1985 a tenant has the right to demand from the landlord a summary of service charge costs relating to the last accounting year. The Act amends this section so that the landlord shall be under an obligation to provide this yearly summary to each tenant, in a form to be prescribed, whether requested or not. Where he fails to provide the statement the tenant will have a statutory right to withhold payment of service charges up to certain limits.

S42 Landlord and Tenant Act 1987 currently requires the landlord to hold service charges monies in a trust account however there is no express provision in the section as to exactly what type of account it must be held in, nor any requirements to give the tenant information relating to the account/s. The Act inserts a new section requiring the landlord to place service charge monies in a designated account (i.e. one notified as such to the financial institution holding the money and also notified that no other funds are to be held in the account). The description of account is to be specified by regulations made by the Secretary of State. Tenants will be entitled on written request to reasonable facilities for inspecting documents relating to that account. Failure by the landlord to comply with the accounting requirements can lead to a right for tenants to withhold payment of the service charge and the landlord can be guilty of a criminal offence.

It is not yet clear when these provisions will be commenced.

Restricting Forfeiture

A landlord may not commence forfeiture proceedings unless he has first proved, or the leaseholder has admitted, the breach of the lease. Neither can forfeiture be commenced if the alleged arrears are less than £350 or have been outstanding for less than three years.

The landlord cannot serve a forfeiture (Section 146) notice until he has proved to a Leasehold Valuation Tribunal that the leaseholder is in breach of the lease or is in arrears beyond the statutory limit; in the case of arrears the landlord must also satisfy the Tribunal that the costs, on which the arrears are based, are reasonable.

For further information please refer to the publication Service Charges, Groundrent and Forfeiture.

Groundrents

The landlord wil not be able to recover groundrent unless he has previously demanded it, in the proper form, and giving at least 30 days notice.

For further information please refer to the publication Service Charges, Groundrent and Forfeiture.

Estate Management Schemes

Works carried out under Estate Management Schemes must be reasonable and may be challenged at the Leasehold Valuation Tribunal.

Variation of Leases

There are existing rights in relation to leases of flats for parties to apply to the County Court for a variation of a lease or leases on certain grounds under the Landlord and Tenant Act 1987. For example where the lease fails to make satisfactory provision for repairs, recovery of service charges or insurance.

Where an application is being made to vary a single lease under s35 Landlord and Tenant Act 1987 the Act broadens the grounds by allowing for a variation to be made to include interest on late payment of service charges and enables further grounds to be added by regulations. It is hoped these new provisions will significantly widen the circumstances in which variations can be made and provide more effective relief for landlords, tenants and Right to Manage Companies who are suffering problems with defective and unsatisfactory leases.

Applications for variation may now be made to the Leasehold Valuation Tribunal rather than the County Court.

For further information see the advice note Application to the Leasehold Valuation Tribunal.

LVT powers - it's new 'teeth'

The Tribunal will have powers to require parties before it to give it any information it may reasonably require on a minimum of 14 days notice subject to criminal action and a fine for failure to comply.

New procedural regulations give the Tribunal the power to order costs (up to £500 unless otherwise decided by regulations) where an action in the LVT is dismissed as frivolous or vexatious or where it decides a party has acted 'frivolously, vexatiously, abusively, disruptively, or otherwise unreasonably in connection with the proceedings'. This may overcome some problems where parties are challenging matters without grounds just to delay matters or being unco-operative especially in relation to production of information prior to a hearing.

For further information see the advice note Application to the Leasehold Valuation Tribunal.

In Summary

The Act provides welcome attempts to deal with long standing criticism and disputes over the current system of management of leasehold properties and proposes remedies to practical and interpretational problems that have proven a source of difficulty for landlords and tenants and those advising them. It also goes some way to redress the balance of power between landlord and tenant arguably reflecting the relative investment values in the property.