Other charges applicable to leasehold properties

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By Alan Draper | Jun 2020

Administration Charges

The Commonhold and Leasehold Reform Act 2002 introduced rights relating to administration charges. These are defined in the 2002 act as ‘an amount payable by a tenant as part of or in addition to rent, which is payable directly or indirectly for:

  • the grant of approvals under the lease or applications for such approvals;
  • for or in connection with the provision of information or documents by or on behalf of the landlord or a party to the lease other than the landlord or tenant;
  • costs arising from non-payment of a sum due to the landlord;
  • costs arising in connection with a breach (or alleged breach) of the lease.’

Any administration charge the landlord asks for must be reasonable and the landlord must provide a summary of your rights and responsibilities relating to administration charges with the demand. If the summary is not included, you do not have to pay the charge until the landlord issues the demand with the summary.

In some cases, your lease may also allow your landlord to recover from you legal costs arising as a result of court action or a tribunal decision. These costs may arise as a result of you:

  • failing to pay an amount that was due to the landlord; or
  • breaking (or allegedly breaking) the terms of the lease.

If the costs result from one of the situations listed above, they will be classed as an administration charge. Administration charges should be reasonable, and you can challenge them by applying to the tribunal for a decision if you do not believe they are fair. However, as with service charges, you cannot challenge an administration charge which:

  • you have already agreed or admitted responsibility for paying;
  • has been (or will be) referred to arbitration following a dispute; or
  • has already been decided by a court or tribunal.

A copy of the summary of your rights and responsibilities relating to administration charges is available in the Document base


Ground Rent

What is Ground Rent and how is it different from a service charge?

Ground rent is the money that you pay as a leaseholder to the Landlord or Freeholder for basically renting the land that the leasehold property sits on. This is usually a fixed sum and is paid annually.

The service charge is payment for all the services (such as maintenance of gardens and communal areas) that you as a leaseholder will use but will not be specifically responsible for. This will often be an estimate of what the landlord will anticipate will be for the forthcoming year.

Ground rent can be collected directly by the Landlord, by the managing agent or a specialist ground rent collection company on behalf of the Landlord or Freeholder

Can Ground rents increase?

The ground rent provision will be stated in your lease. The landlord cannot insist that you pay more than the rent set out in the lease or change the provisions in relation to ground rent.

The ground rent can be fixed in the lease or increase at fixed times and amounts.

For example, at the beginning of the lease, the ground rent may be  £25 every year.  Then it can double every 25 years. Alternatively ground rent increases can be linked to specific formulas such as the retail price index, a percentage of the rental value of the property.

It is always worth understanding how ground rent is calculated now and in the future before purchasing a leasehold property

Who collects Ground Rent?

Ground rent is payable to the Freeholder but it may be collected directly by the freeholder or their agent. The freeholders agent may be a specialist Ground Rent collection agent or the managing agent. It is important to understand that the ground rent and service charge may be collected by different parties.

Will the ground rent increase if I extend my lease?

This will depend on whether you carry out the process for a lease extension under the formal or informal route. If you extend your lease formally then you will only have to pay a “peppercorn rent” which means no ground rent at all. See the separate section in the Common Ground Leasehold Library in relation to lease extension.

Ground Rent demands

The law requires the landlord to send you any ground rent demand in a prescribed form otherwise the ground rent is not payable.  Section 166 of the landlord and tenants act 1987 requires the landlord to notify long leaseholders that rent is due. Section 166 defines what needs to be included in the rent notice and the procedure for collecting rent. A specimen ground rent notice is available in the Common Ground document base

Ground Rent Arrears

Any arrears on ground rent are the liability of the current leaseholder even if those ground rents relate to a period prior to ownership of the lease even if the landlord failed to demand the ground rent from a previous leaseholder. This is because even though your were not the owner at the time and not personally liable, the landlord can take action for possession of the flat (forfeiture) for non payment of rent.

Your conveyancer needs to pro-actively ensure that ground rent payments are up to date before you complete the purchase. If you are selling the property and are required by the buyer to pay any outstanding ground rent, than you would need to follow the advice from your conveyancer as to how you approach the landlord and settle any outstanding amounts.

Restriction on Forfeiture

Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges or administration charges (or a combination of them) unless the unpaid amount is more than £350 or consists of, or includes an amount that has been outstanding for more than three years.

Limitation of 6 years for ground rent recovery

Under the Limitation Act 1980 the limitation period for recovery of ground rent is 6 years. This means that your landlord can only seek to recover ground rent going back 6 years.


Event Fees

Event fees are paid under residential leases if certain events happen (for example, the property is sold or sublet). This is very common with retirement properties. Event fees may be given a variety of names in your lease, including exit fees, transfer fees, deferred management fees, contingency fees and selling service fees.

Research has shown that:

  • these fees can be hidden in complex leases;
  • they may be triggered unexpectedly, for example, if your partner or carer moves into the property;
  • they are often revealed too far into the process of selling a property for the buyer to take them into account; and
  • the terms of the lease may mean that the amount of the fees is difficult to anticipate, even if the buyer knows about the fees.

Some event fees may be used towards the sinking fund (see below) of a development or to make sure that service charges are not too expensive. Your lease should make a distinction between those fees and any fees which are not linked to a benefit or service provided by the landlord and so are purely for the landlord’s profit.

If you are considering buying a leasehold property, particularly in a retirement development, you should ask your solicitor or conveyancer about the implications of any terms in the lease which allow an event fee or exit fee to be charged.


Rent Charge

A rentcharge is an annual sum paid by a freehold homeowner to a third party who normally has no other interest in the property. A rentcharge can also be referred to as a ‘chief rent’.

‘Rentowner’: a person who receives a rentcharge payment and has no other legal interests in the properties they collect from.

‘Freeholder’ or ‘homeowner’: a person who owns their own property and is responsible for paying the rentcharge. Most rentcharges have existed for many centuries, and are part of an historic system whereby land owners who released part of their land for development could charge a regular payment from the people living on it.

Since the Rentcharges Act 1977 no new income supporting rentcharges can be created.

A rent charge is a similar concept to a ground rent except ground rents only apply to leasehold properties and are not redeemable.


Insurance Charges

You should refer to the terms of your lease in order to establish who is responsible for insuring the building, what the cover should include and how the cost can be recovered. Usually the lease provides for the landlord to its agent to arrange the insurance of the building and charge the cost as a service charge. The cost of the insurance may be challenged before or verified by the First-tier Tribunal (Property Chamber) as with other service charges.

It is important to note the following:

  • The insurance arranged by the landlord or agent typically DOES NOT COVER CONTENTS.
  • If you let out you flat, a standard contents policy may nit be sufficient. You would be recommended to get a specialist landlords insurance cover

For further information about insurance in the context of leasehold, please refer to our section on Insurance

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