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Jargon Buster

Arrears

When a leaseholder has not paid their Service Charge on time as stipulated by the terms of their Lease, they are said to be ‘in arrears’.

Assignment

Transfer by the original Leaseholder (the assignor) to the new Leaseholder (the assignee).  Note that the original Leaseholder can still be obligated under certain circumstances unless expressly released by the Freeholder.  Notices of Assignment are typically prepared by the solicitors acting for and on behalf of the assignee upon completion.

Block Management

Agents who act for the freeholders and leaseholds for block of apartments and flats. They collect a service charge from the leaseholders and organise the maintenance of the communal areas, buildings insurance, pay communal utility bills etc.

Budget

Typically prepared on an annual basis, the budget is the expected expenditure in the building over the forthcoming financial year.  The budget is then portioned among leaseholders under the appropriate apportionment details in their Leases.  Actual spend during the year at a property is closely monitored compared to budget.  At the end of the year there is likely to be either a Surplus compared to budget (less money was spent than anticipated) or a Deficit compared to the budget (more money was spent than anticipated).

Buildings Insurance

Ensures your block is adequately covered for a major responsibility such as fires, damages to communal areas and structural issues.

Common areas

These are the areas not owned by any individual lessee but shared by all owners in an apartment block or estate.  They may include car parks, entrance halls, gardens, lifts and corridors.

Companies House

Companies House is the register of all companies in England and Wales. Company related matters are dealt with under the Companies Act 2006. The main purposes of Companies House are to incorporate and dissolve companies, examine and store information under the Companies Act 2006, and make the company information generally available to the public.

Company Secretary

The person responsible for the administration of the company, especially in terms of legal and statutory requirements. The Company Secretary ensures that documents are filed in a timely manner, and kept fully updated, at Companies House. The Company Secretary could be a leaseholder in the property, the managing agent or a specialist firm.

Deficit

When less money has been collected during the period than has been spent there is said to be a ‘deficit’. This is typically covered through cash in the bank initially and recovered from leaseholders with the subsequent period’s service charge. Details of this are typically spelt out in your lease.

EPC

Energy Performance Certificate.  Since October 2008 it has been required to have an Energy Performance Certificate (commonly called an ‘EPC’) whenever your property is rented out. This is part of European legislation to tackle climate change and reduce carbon dioxide emissions. The report grades buildings from A (most energy efficient) to G (least energy efficient) and suggests possible improvements that can be made to improve your property’s energy rating.

Flying Freehold

A legal term used to describe a part of a freehold property which overhangs or is under part of another property.  Typical examples include balconies overhanging other properties or rooms in older terraced houses which may overhang rooms in adjacent houses or common parts of the building.

Freehold

A legal term traditionally used to describe land and everything built on it and owned in perpetuity. If there is any time element associated with the ownership, however long that might be, the ownership is not freehold.

Freeholder

The individual or company owning the freehold to a property.

Grade I

A term used to describe buildings of exceptional interest in England and Wales. Only 2% of buildings are listed, and only about 2.5% of those are Grade I.

Grade II

A term used to describe buildings of special interest in England and Wales. Only 2% of buildings are listed, and about 92% of those are Grade II.

Grade II*

A term used to describe buildings of particular importance in England and Wales. Only 2% of buildings are listed, and only about 5.5% of those are Grade II*.

Ground Rent

Rent payable by the leaseholder to the freeholder for the land on which the building sits.  This provides an income to the Freeholder (so is not payment for any services provided) and the level of ground rent is set out in the Lease.  Often, ground rent payable escalates over time, typically increasing every 25 years or so.

Head Lease

A lease between a tenant and a freeholder where contractual rights and responsibilities for the building are given to one tenant.  Further long leases are usually granted by the Head Lessor to leaseholders.

Lease

A contract whereby a tenant pays a landlord, or leaseholder pays a freeholder, for the right to use a property. Leases can be of short or very long duration. Leases are complex documents and specialist legal advice should be sought if you are considering entering into a lease.  A lease typically requires rent to be paid (otherwise the contract is usually referred to as a Licence), although this does not have to be a commercial rent, with a peppercorn rent often sufficing.

As a rule of thumb, most houses are freehold and most flats leasehold. If you own a leasehold flat, you effectively rent it for a period of time, specified on the lease.

Leasehold

A leasehold to a property is the right to use a piece of land for a given period of time subject to certain conditions and (usually) subject to payment of a ground rent.

This is another form of legal tenure, and is different from freehold. It means that you buy a right to the property temporarily but do not own the land it stands on.

Listed Building

These are buildings listed on the Statutory List of Buildings of Special Architectural or Historic Interest.  There are currently three categories of listed buildings in England and Wales ranging from Grade I with greatest significance through Grade II* to Grade II.  Only 2%of the buildings in England and Wales are listed and the vast majority of these are old buildings – for example, most buildings built before 1840 are listed.

LVT

Leasehold Valuation Tribunal, a body established to resolve Leasehold-related disputes without the need to go to court to settle it.  The LVT is an independent legal body whose decision is legally binding.  The LVT typically deals with disputes regarding Service Charges, appointment of a Manager and Receiver for a property, building insurance, acquiring the Freehold estate or varying or extending a Lease.

Maintenance Charge

The costs that are incurred by a freeholder for repairing and maintaining internal and external communal parts of a building which is passed to the leaseholder.

Managing Agent

A managing agent performs most of the daily duties of running a property under the appointment, direction and control of the nominating party, whether that is the Freeholder, RMC, RTM or developer.  Often the appointment of a Managing Agent is covered under the terms of the Lease.  A Managing Agent takes many of the pressures of running the building away from the Freeholder and / or Directors of the Company, allowing them to enjoy their home or investment.

Managing Agent Enquiries

This is the set of questions raised by a purchaser’s solicitor on sale of a property. Matthew’s Block Management Department typically receives the questions via the vendor’s solicitor.

Party Wall

A dividing partition erected along the boundary between two properties providing common support to the building on both sides of the partition. The owner on each side of the dividing line has rights to enter the other property in order to repair or maintain their building or the wall. The legislation surrounding party walls is complex and specialist advice should be sought if necessary.

Peppercorn Rent

A nominal or inconsequential rent set out in a lease in order to show that a commercial transaction exists.

Residents Management Company (RMC)

The type of company that residents in a property typically establish in order to run the building themselves.  This may be enshrined in the lease or it may have come about as a result of legislation. The RMC is typically tasked with running the building, enforcing the covenants of the lease, often appointing a managing agent to act on their behalf in performing the day to day functions of running the building. The business is run for the benefit of the tenants or leaseholders and not for profit. Directors and the Company Secretary are often sourced from leaseholders in the property.

Right To Manage (RTM)

Under the Commonhold and Leasehold Reform Act 2002, the Leaseholders of a property have the right to form their own company and take management of the building away from the Freeholder. There are certain conditions that have to be satisfied in order to achieve this. The reasons typically stated for going through the right to manage process are either to reduce service charge and / or to control the appointment of the managing agent.

Section 20

A consultation process under which leaseholders must be consulted if any works in the building are anticipated which are expected to cost more than £250 (including VAT) for any one Leaseholder in the property.  If consultation is not undertaken, the maximum that the landlord may legally be able to recover is £250 per Leaseholder. Qualifying long-term agreements, that is agreements of more than 12 months in duration, are also covered under the Section 20 consultation process.  This is a complex area of property legislation and specialist advice should be sought if necessary.

Service Charge

Service charges are levied by the management company to recover the costs they incur in providing services to a building. The way in which the service charge is organised is set out in the tenant’s lease or tenancy agreement. The charge normally covers the cost of such matters as general maintenance and repairs, insurance of the building and, where the services are provided, central heating, lifts, porters, lighting and cleaning of common areas etc. Service Charge is collected in advance of expenditure so that the landlord is not out-of-pocket in providing the services.

Service Charge Demand

The service charge demand is the document which sets out the service charge that each leaseholder has to pay in the current period. There is a proscribed format that Service Charge demands need to follow. It will typically include a cover letter explaining the budget, a copy of the Budget, an Application for Payment and notices in the proscribed format.

Sinking Fund

A long-term savings account contributed to every month through service charges. This builds up every year and should pay for any major works that are required over a period of time – such as the painting of communal areas or replacement of a roof.

Surplus

When more money is collected in service charge than has been spent during the period, there is said to be a ‘surplus’. This is often either retained in the bank account or returned to leaseholders with the subsequent service charge demand. Further details are likely to be set out in your Lease.

Tenure

The nature of ownership of a piece of land, which determines whether an occupant is an owner or a tenant. Freehold and leasehold are examples of tenure that land can be held under.

Virtual Freehold

A term used to describe a very long leasehold interest (often 999 years).  In this situation, the Lease is worth the same as the freehold interest in the property, hence the term ‘virtual freehold’.

© Matthew's of Chester 2017