Sharan Dhadda, Associate Solicitor & Customer Relationship Contact for Residential Leasehold & Property Litigation at Brethertons advises on the top 3 things you need to consider when reading a lease.
Before we delve into the “Top 3” things to consider, it is important to understand a few key principles surrounding leasehold.
Firstly, leaseholders (“lease” and “tenancy” and “leaseholder” or “lessee” and “tenant” are often used interchangeably – a leaseholder is a tenant, albeit a tenant under a long lease, rather than a six month tenancy) purchase the right to occupy premises for a fixed period of time (or “term”). The lease itself governs the relationship between the landlord and tenant (and management company where applicable). It confirms (most of the time) who is responsible for what element and sets out processes which the parties are to follow. The tenant obtains exclusive possession of the premises for a determinate term (which is less than the individual granting the lease) (see Street v Mountford [1985] AC 809).
Secondly, it is worth appreciating the difference between two party (landlord and tenant) and tri-partite leases (landlord, tenant and a management company). Tri-partite leases shift the responsibility for various obligations, relating to the insurance, maintenance and management of the building, from the landlord, to the management company.
Finally, it is important to distinguish tri-partite leases from the right to manage. The Commonhold and Leasehold Reform Act 2002 established a “no fault” right for tenants to collectively take control of the management of their block, through the vehicle of an RTM company. Once the right has been successfully exercised, all of the rights and obligations in the lease which relate to the management of the building (e.g. repair, maintenance, insurance and the collection of service charges) are transferred from the landlord (or RMC) to the RTM company.
The one thing that you will often hear from either myself, or my colleagues here at Brethertons is: know your lease! That’s our number one tip for anyone managing a development (whether it consists of 2 flats or 250 flats).
It is important when managing a development that you can navigate your way around a lease. This includes understanding the recitals, definitions, demise, covenants (of the landlord/tenant/management company), the rights, reservations and the regulations often set out within the schedules.
Top 3 things to consider
1. Repair and Maintenance
(also – what is included in the demise)?
We often get asked to provide advice on the repair and maintenance of various elements within the block. The first step is to determine what property is demised to the leaseholders, and what property is retained by the landlord. The second step is to establish the responsibilities of the parties under the lease.
The parcels clause confirms the extent of the property which is demised to the tenant. It often refers to a plan and will provide express wording within one of the schedules as to what is included and what is excluded from the demise. If the lease is clear, then outside evidence is inadmissible. However, often, leases are unclear and this raises various issues for those managing the block. With standard maisonette leases, the ground floor flat usually owns the foundations up to the ceiling, with the first floor flat owning everything above that. Modern block leases often demise the surfaces of the walls/ceilings/floor and everything inside to the tenant, with everything beyond that (the structural elements) to the landlord.
Once you understand who owns what, you will likely need to consider what the parties’ responsibilities are. The leaseholder will usually be responsible for keeping the flat in repair. The responsibilities of the landlord (or RMC/RTM company) will vary and careful consideration should be given to the wording used. In older leases, the obligations of the landlord (or RMC/RTM company) are often limited to keeping the roof and other structural parts of, and communal areas within, the building in repair; redecorating the exterior and internal communal areas periodically; and insuring the building.
In some old “maisonette” style leases, the responsibility for repairing and maintaining the building is divided between the leaseholders entirety (with the upper floor maisonette owner responsible for the roof, and the lower floor maisonette owner responsible for the foundations, and each responsible for the entirety of the walls surrounding their flats). In the case of more modern leases, the list of obligations may include cleaning, gardening, security, CCTV, concierge, porters, employing a managing agent, complying with statutory fire safety and health and safety requirements, and even providing a communal gym or swimming pool, or other communal facilities.
Hot topics that we are often asked to advise on include:
- Doors: the alteration or replacement of flat entrance doors, to comply with statutory fire safety requirements, will probably not be a matter for the landlord (or RMC/RTM company), if the door is demised to the leaseholder. Further, the cost may not be recoverable as a service charge if the lease limits cost recovery to the costs associated with “repairing” the doors (since fire safety works are technically an “improvement”) (see Southwark Council v Various Lessees of the St Saviours Estate [2017]).
- Windows: if the lease is otherwise silent as to the parties obligations, and does not make express provision for windows, an obligation to repair the “structure” and/or “exterior” of a building has been held to extend to its windows (see Sheffield City Council v Hazel St Clare Oliver [2007]).
- Skylights: with people expanding into the roof-space more and more, skylights are becoming increasingly popular. Leases rarely refer to skylights and therefore do not confirm either ownership or responsibility for them. The case of Taylor v Webb [1937] confirms that, where the lease is otherwise silent and the landlord (or RMC/RTM company) is responsible for the roof, skylights form part of the roofs and therefore part of the structure, and therefore fall within the responsibility of the landlord.
- Balconies: again a popular issue in many blocks. The case of Ibrahim v Dovecorn Reversions Limited [2001] involved two flats which included a roof terrace which ran along side the remainder of the building and at the rear of the other flats. Each flat enjoyed exclusive use of the section abutting it. The balconies consisted of various layers of material, including timber joists, plywood and cement screed. In this case, it was unclear as to who was responsible for which parts of the balcony. The leaseholder covenanted to repair the demised premises, which was defined by reference to a plan, which included the balcony within the red edging; and the landlord was responsible for structural repairs. It was held that the surface of the terrace was included within the demise, however all the layers below that were included within the main structure of the building and therefore the landlord’s obligation.
2. Tenants Covenants
I will set out the more popular covenants below and briefly explain each one.
- Alienation: these provisions govern the tenant’s ability to assign/sublet/share occupation of the premises. Clauses are usually either absolute (complete prohibition) or qualified (usually permissible subject to obtaining the landlord’s consent). Qualified covenants usually state that the landlords consent should not be unreasonably withheld or delayed (and if they do not, this will be implied by s.19 of the Landlord and Tenant Act 1927). The case law on when it is reasonable to withhold consent is quite extensive, and beyond the scope of this article. Generally speaking, the reason must relate to the assignee or sub-tenant, or their proposed use. It will be reasonable to withhold consent subject to the payment of a reasonable administration fee. It may be reasonable to withhold consent if there is an outstanding breach (e.g. non payment of service charges), but only if granting consent would prejudice the ability of the landlord etc. to enforce the breach in some way.
- Alterations: leases often contain covenants which control or limit the works that tenants can do within the demised premises. These can be absolute (no alterations) or qualified (no alterations without the written consent of the landlord etc.). Where the work amounts to an improvement to the premises, there will be an implied term that consent cannot be unreasonably withheld; however, that implication does not apply where work is proposed to property which falls outside the demise (e.g. the structure of the building). In a recent case, the Court of Appeal held that where a lease contained an absolute prohibition on alterations and a covenant on the part of the landlord to enforce tenant covenants in the lease, granting a leaseholder consent to carry out alterations resulted in a breach, by the landlord, of the enforcement covenant (see Duval v 11-13 Randolph Crescent Ltd [2018]).
- Cost Recovery: a popular clause for obvious reasons. It is important, as managers, to know whether or not you can recover the cost of taking action to enforce breaches of covenant (e.g. recover unpaid service charges). Sometimes, the lease is clear, and will oblige the leaseholder to pay whatever costs are incurred by the landlord etc. in recovering arrears or enforcing breaches of the leaseholder’s obligations under the lease. Where the lease is unclear, and it is the landlord who is looking to take enforcement (as opposed to an RMC (unless the RMC is also the landlord) or RTM company) it may be possible for the landlord to rely on a “69 Marina” clause, which permits the recovery of costs which are incidental to, or costs which are incurred in contemplation of, the preparation of a s.146 notice or proceedings under s.146 of the Law of Property Act 1925 (see Freeholders of 69 Marina, St Leonards-on-Sea v Oram and another [2011]). That is, provided forfeiture is available as a remedy, and you have not waived your right to forfeit.
- Hard Flooring and Nuisance: a lease will usually contain an obligation not to cause a nuisance. It may also contain a covenant prohibiting hard floors. In one case, a leaseholder was ordered to pay in excess of £100,000 to another leaseholder, in damages, for the noise nuisance caused by hard floors which they had installed, in breach of their lease (see Fouladi v Darout [2018]).
- Pets: often a sensitive issue for tenants; however, it is important to know whether or not the lease permits pets and if so, in what circumstances. In Victory Place Management Company Ltd v Kuehn [2018], the leaseholders were ordered to remove a dog from their flat. The lease contained a covenant not to keep pets on the premises, save with the prior written consent of the management company. The Court held that the management company’s decision to have a “no pets” policy, save in exceptional circumstances, was permissible.
- Service Charge Mechanisms: when I receive a request for advice on this, I take a three pronged approach. Firstly, I review the lease to confirm what is recoverable (the lease usually contains a list confirming this); secondly, I review the lease to confirm how it is recoverable (the lease explains the mechanism – arrears/advance/on account payments/balancing charges etc.) and thirdly and I check the terms of the lease to confirm the proportion payable. The case law surrounding this area is somewhat complex, however each matter is unique and in order to avoid potential problems, it is worth developing an understanding as to how the block is to be charged.
3. Landlord Covenants
It is just as important to understand the landlord’s covenants. If the lease is tri-partite (explained above), then the landlords responsibility is usually limited to ensuring the tenant has quiet enjoyment (this clause prevents the landlord from acting in a way that unreasonably interferes with the leaseholders’ use and enjoyment of their property); that the leases are in the same form; and that subject to being indemnified, he/she will enforce the covenants within the lease.
The management company (or the landlord if it is not tri-partite) is usually responsible for the repair/maintenance of the structure/common parts/common services, provision of the services and also insurance of the building. When managing a development, it is vital that you understand your responsibilities so that you can ensure they are met.
The lease contains other important clauses within the schedules which include rights and reservations. I do not propose to discuss these in detail within this article, however it is important to understand the rights tenants have over the land in order to ensure that you do not interfere with those rights (albeit any interference must be substantial). These rights usually include rights to park, rights of way, rights for services, access, use of a bin store, etc.
Leases often contain a schedule of regulations which provide the landlord/management company the power to regulate how the land is use and to create additional estate regulations where necessary. Whilst you have the power to limit the tenants’ rights, you must ensure that you do not remove them entirely.
Finally, the majority of issues concerning leases all fall down to interpretation. It is a matter of construction; however the courts/tribunals will take into consideration the original intention of the parties and will often adopt a common sense approach (see Arnold v Britton and others [2015]).
Each lease is different and should be reviewed on a case by case basis. You should not make any decisions based on the content within this article. If you have any questions in respect of the above, please contact Sharan Dhadda or another member of the Residential Leasehold team at Brethertons on 01295 270 999 for legal advice.
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