Leaseholder Rights

Leaseholders have the right assume management responsibilities for their block of flats provided that they have long leases (leases initially granted for 21 years or more). As long as there are at least 2 flats (or 5 in blocks with a resident landlord), there is no large residential part of the property and the property is not owned by a local authority, leaseholders will be able to exercise this right.

First of all, leaseholders must set up a ‘Right to Manage Company’ of which only leaseholders and the freeholder can be members. The company must then let all leaseholders in the block know of their plans and invite them to join the process. After 2 weeks, the company can serve a claim notice on the landlord giving 4 months notice provided that at least half of the tenants are members of the company (or both tenants where there are only two flats). If the landlord cannot be traced or if the landlord serves a counter notice within a month, the Leasehold Valuation Tribunal will be required.

Once the right to manage is granted to the company, the landlord must surrender management responsibilities at the earliest opportunity. The company then becomes responsible for services, repairs, insurance, collection of service charges  etc. The landlord will continue to take charge of flats with short leases and forfeiture issues

In order to sub-let a leasehold flat or assign a lease, the permission of the landlord is required. Whilst the right to manage company takes over this function, the approval of the landlord will still be needed and if the landlord refuses, the LVT may be required once again.

Whilst the right to manage seems attractive, there are drawbacks. Enforcement is the primary difficulty because whilst it is straightforward if all leaseholders involved are organised, engaged and willing to pay their share, there is a good chance that at least one leaseholder will not pay what they owe or will breach the terms of their lease. It is then up to the company to act which can be awkward where neighbours are concerned.

Another major problem can be caused by the fact that voluntary efforts are required in order for the company to function effectively and if some leaseholders do not put in the time and effort required to attend meetings and carry out tasks, it can create tension. Further problems include maintaining good relations with the freeholder; the fact that the company will not be able to use forfeiture; and that unlike landlords the company will not have the funds needed to pursue legal action against leaseholders if it drags on.

Under the Landlord and Tenant Act 1987, individual leaseholders can attempt to have a managing agent instated to run the block instead of the freeholder. A notice must be served upon the freeholder stating that the LVT will be asked to intervene if management standards do not improve. If the LVT is persuaded that a change is needed it will appoint a managing agent to run the block.

It is important that both parties are aware of the action which can be taken if a lease is breached. Leaseholders can take freeholders to court if they do not do what is required of them under the terms of the lease, such as carry out a repair. However, it is usually freeholders who bring action against leaseholders for breaching terms. The court will normally order a compensation payment and demand that the breach is corrected. It is also likely that the losing party will have to pay the winning party’s costs.

Freeholders also have the right of forfeiture which means that they can apply to the court to forfeit the lease and evict the leaseholder. However, courts will only grant forfeiture in very serious cases. The freeholder must first serve a Section 146 notice (under the terms of the Law of Property Act 1925) explaining what the breach was, how it can be rectified and whether compensation is required. This notice can only be served having established that a breach occurred – either the leaseholder admitted the breach or a court or LVT made a judgement. Leaseholders can formally apply to a court for forfeiture relief.

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