Property Management
Abstract
I was appointed as a leasehold manager to an association that is in the process of accepting its first handover mixed tenure scheme of leasehold and assured tenancy properties. This is a report that would be used by the staff at the training session to enable them to get the whole concept of leasehold, how it works, its advantages, the different types of tenures, advantages and disadvantages of leasehold tenure scheme as well as a schedule of how the project will be run and managed. The report first introduces the concept of leasehold, where it explains what leasehold entrails briefly then explains what a leasehold tenure scheme is and what it entails including the regulations and laws concerning service charges within a leasehold tenure. It discusses the current policy directions about leasehold tenure projects. It discusses some of the advantages and disadvantages of a leasehold tenure scheme. The report also covers the differences between leasehold tenure and other forms of tenure, including freehold tenure and mixed-tenure schemes. The report recommends several policies and strategies that could be employed to ensure the effectiveness of leasehold tenure schemes.
Introduction
In the United Kingdom, there are about 24 million residential properties which in the first decade of the 21st century, 64% were owner-occupied. Most of them own the properties as well as the grounds where the properties lay exclusively; however, in the cases of flats, there could be several individuals who have the ownership rights. The landlord is usually assumed to own an individual flat on when all the apartments within a block are rented hence most characteristics of the flat including the grounds where it stands, the corridors, the roof as well as the external walls are assumed to be owned by the landlord too. Nevertheless, if the individual flats are owned by the individuals who live there, meaning that they have the ownership rights over the shared elements to enable them to live securely and have access to their homes.
These common areas where the flats lay are usually owned and managed by someone else since the individual flat owners cannot hold the common areas together. This, therefore, calls for the ownership of living space within a flat on an individual and exclusive basis as well as the shared rights among each flat owner to the standard facilities and the specific responsibilities of how to pay for their upkeep and to use them. Across the globe, the most common system adopted in the ownership of flats is whereby the common areas are owned collectively by all owners of the flat. Though this report covers a system of flats ownership mostly adopted in Wales and England known as the leasehold system, this system regulates the management and ownership of owner-occupied blocks of flats hence it is a system that is subject to regulations and rules that are frequently extended and revised by the Parliament.
Leasehold can be defined as a form of land tenure whereby one party buys the right to occupy a building or land for a specific given length of time. A leasehold estate refers to the ownership of a temporary right to hold property or area in which a tenant or lessee holds the rights of the real property in the form of title issued by the landlord or lessor. A leasehold estate is often considered as personal property even though the tenant holds the rights to the real property. A lease, on the other hand, refers to a legal estate, leasehold estates could be sold or bought on open markets. This, therefore, means that a leasehold differs from a fee simple or freehold whereby property ownership is purchased or obtained outright and held for an unknown length of time after that.
Leasehold also differs from tenancy whereby property is usually rented periodically, which in most cases, is often monthly. A lease period is mostly measured in decades or even centuries. Until the end of the lease period, the leaseholder usually has the right to remain in occupation of the property or land as an assured tenant who pays an agreed amount of rent to the owner. Such terms of the agreement are usually contained in the lease, which in most cases, has the property law and elements of contract intertwined.
Estate for years is a commonly used term to refer to a leasehold estate of any given period, be it a day, a week, a month, or a year. Even though the tenants under a leasehold agreement usually pay rent to landlords, in most cases, a leasehold contract does not act like a standard lease, but instead, the leasehold agreement offers the tenants a right to possess and exclusively use the real estate for a given period. The landlord, in this case, surrenders the usage as well as other rights during this period, however, retains the ownership of property deed. A leasehold agreement confers benefits to both the tenant and the landlord.
Advantages of Leasehold Tenure System
In a leasehold tenure system, the costs of the initial investment are usually reduced, and this is because ownership of land is a crucial requirement for one to start the construction of a building. Owning a land increases the upfront costs and the general costs of a project, however, in a leasehold agreement, which is an agreement between an individual and the landowner could help the individual do away with the upfront costs which in turn reduces the general expenses of the scheme. For the tenants, it is an advantage since it is cheaper to buy leasehold properties.
The fact that the tenant will not be required to purchase the land where a leasehold property lays makes the property cheaper. There is a tax deduction for the tenant who buys a leasehold property. The reason for this is because the tenant does not need to pay for state and federal income taxes since they do not own the land where the flat is based. Ownership of land leads to an additional rental tax to the tenants or the owner of the property. Leasehold properties are also advantageous to the tenants since they lessen responsibility for them. In leasehold properties, the responsibility of the property is usually on the developer of the scheme; hence the tenants do not need to worry about the properties at any given time. Acquiring a lease property makes the tenant feel safe.
After using the property for a given period, the responsibility of the property is handed back to the landlord. Leasehold properties are an advantage to the landlords since it reduces tax for them. When a landlord sells a property upright, they have to do a calculation of the capital gain where they pay taxes for the profit earned for the year that they sold the property. This reduces the amounts of taxes that the landlord could have paid in contrary hence the landlord benefits from leasehold properties by only paying the ordinary amount of taxes. The landlord also benefits from ownership retention. After the lease expires, the landlord retains the ownership of the land or the property, and the tenant can only use the property again if he/she renews the agreement or leases the property for another period.
Disadvantages of Leasehold Properties
The main disadvantage of leasehold properties is restricted use. The tenants are usually never able to use the property fully, and at times the landlord restricts and makes the tenant feel as if the property relates to him. When a tenant decides to knock off the old building and build a new one, he/she has to sign a new leasehold agreement. In other properties, the landlord restricts the tenants from owning a pet within the building. A leasehold property is difficult to sell since the takers are usually very few, and when the property is almost its end, it is impossible to sell it. It is typically a necessity to pay a premium when the lease expires, and the tenants want to hold more on the property.
The landlord demands more premium from the tenant, and the longer the period of the lease, the more premium is required from the tenant. It is usually difficult for a leaseholder to get loans for the property. The banks could allow an extensive background check; however, they don’t guarantee a loan. Short lease periods as well as when the property’s lease is almost expiring, the chances of getting a loan are very minimal. The tenant must make regular payments to the landlord as annual land rent. The amount of these fees makes the tenants feel as if they live in a rental apartment. There is no stability in a leasehold property, mainly because the tenant lacks the long-term benefits that are associated with the property.
This is so because when the land value increases, it is the landlord who benefits from it and when vacating, the tenants are responsible of ensuring that they leave the property in the exact condition that they found it which is a responsibility that is supposed to be of the landlord. Internal maintenance and ancillary costs, as well as the repair work, are all responsibilities of the leaseholder while the landlord only pays for the maintenance costs. From the above advantages and disadvantages, the landlord has more benefits. However, the properties could be beneficial and at the same time hectic to the tenants hence requiring well though decisions before deciding to lease a home.
Service Charge Schedules and Cost Centres
Most of the leasehold schemes commonly have one service charge that usually covers all the expenditure. Nevertheless, not all the developments that are generally forthright and therefore the leaseholders may contribute to two or more service charges though in different proportions. Differing service provision, as well as differences in the advantageous use, are usually well reflected in different service charge schedules. This is in a case where the estate has numerous buildings and the tenants or the leaseholders help in giving some amount to maintain their premises as well as another different proportion for the estate costs and may include security and external landscaping. It could be in a case where the estate comprises of freehold houses and blocks of flats in which the owners contribute to the estate costs through variable estate rent charges.
There could be a different service charge due to car parks that are only imposed on those leaseholders who have a parking space. Also, development is mixed-use comprising both retail or commercial as well as residential leaseholders who contribute to the differing proportions or services. In cases where there are different services charges, the expenditures and incomes have to be allocated to the right cost centre or schedule. The service charge accounts meant for the various schedules have to be kept separate so that one schedule may not be funded with the money from another schedule since the beneficiaries and contributors of each would be different.
The leasehold tenure system has different charges as according to the section 20 consultation for private landlords, the consultation council and another public sector as well as the resident management companies; these charges include service charges, ground rent, forfeiture and possession, administration charges, recognised tenants associations, insurance, as well as the estate management scheme charges. The scheme, therefore, will have a standard budget for security system service, grounds maintenance, Cleaning contract, electricity for the block. These electricity and cleaning services will be charged or contributed by the leaseholders while the ground maintenance and security system services will be provided or charged to the landlords. A proper schedule will be developed to ensure that they will be favourable and affordable to both the leaseholders and the landlords.
Landlords usually charge the service charges in leasehold to recover their costs in the provision of services to a building however the service charge is generally organised on what it entails, how it worked out as well as what it covers in the tenancy or lease agreement. The charges mainly include the costs of services including central heating, general repairs and maintenance, cleaning and lighting, building insurance, porters, lifts as well as costs of management by a professional managing agent or the landlords. The lease agreement hence lists the charges that a landlord can and cannot charge as well as the proportion that the leaseholder pays.
The charges collected by the landlords are usually only those charges that are included in the lease hence the obligation of the tenant to pay for the fees and the landlords to collect them are governed by the conditions contained within the lease agreement. Since the lease is a contract between the leaseholders and the landlords, the leaseholders have the right not to pay any amounts not included in the lease. A mixed-tenure scheme of leaseholders and assured tenancies budget would be grounds maintenance, car park, security servicing, i.e. fire alarms and fire risk assessments, electricity, cleaning.
Difference Between Leasehold, Freehold Tenure, Mixed Tenure and Owning a Share of a Freehold.
Leasehold tenure is a method of owning properties, mainly buildings or flats for a given period and specifically not the land by which the property or building stands. The possession of property becomes the subject to payment of yearly ground rent; however, when the lease expires, the property owner is reverted to the freeholder unless the freeholder decides to extend the lease. The leaseholder pays an agreed-upon amount to the freehold based on the agreed terms, which could be either weekly, monthly, daily or even yearly. Freehold tenure is the case whereby the owner of a property owns it together with the land that it stands.
The name of the freeholder is usually registered in the land registry to be the sole owner of the land where the property stands and hence owns an absolute title. In freehold, the freeholder owns the property and therefore any lease never dictates him/her. The freeholder never deals with a landlord or a freeholder since he/she is the landlord also a freeholder does not have to pay for service charges, ground rent or any other landlord charges. A significant disadvantage of freehold tenure is that the freeholder is responsible for maintaining the property as well as the land which could be expensive in one way or another depending on the plot size.
Owning a share of freehold is the situation whereby the leaseholders come together, and all agree to buy a percentage of the freehold from the freeholder. An example is leaseholders living in a block of flats; they could decide to purchase the freehold so that they would have the rights to manage the neighbourhood and have more control over the houses within the block as well as the costs related to managing the flat. Buying a freehold as a group required every leaseholder to purchase a share. It could be expensive at some point; however; the leaseholders will need to find an agent to manage the building of start a managing company themselves.
Mixed tenure could be at times referred to as tenure integration or the integrated housing, and it is an urban planning strategy mostly adopted by most governments whereby more affluent and more deprived residents get to live in mixed communities. It is generally accepted that the mixed tenure communities need to be an essential component of both the redevelopment of the existing mono-tenure estates as well as a new housing development. In all situations, there is no single formula that will always work; however, the local stakeholders need to access local market conditions to agree on a more transparent vision within an early stage of the development process.
Tripartite lease helps landlords in getting rid of themselves from non-profit making and tedious duties such as the collection of the charges of services and the compliance with the demands of statutory requirements, the court case against bad debts, car parking issues, dealing with leaseholders who are a nuisance as well as leaseholder parties at the unsociable house. The landlords will no longer collect service charges or rents from the leaseholders, that will be the role of the residential management company. The company under my management will play significant roles, including ensuring that the housing is of high quality, safe and one that meets the leaseholder’s satisfaction.
Historically, under the tripartite leases, the management companies were limited through shares and had the main objective to maintain and manage the general parts of the blocks including the primary structure of the building, the entrances, car-parks as well as lifts for the overall benefit of the leaseholders. Today the responsibilities associated with the management companies are usually set up on the tripartite leases as well as within the memorandum and articles of association. Today, tripartite leases are mainly being used by the developers within new-build blocks, and it is typical for the leaseholders by just being a lessee within the blocks to have a membership or share within the management companies that are commonly known as resident management companies.
Resident management companies are the vehicles through which the landlords or the developers get to off-load the obligations that were unprofitable under the lease towards another party. In a tripartite lease, the duties of the landlord are usually limited in scope. They are generally extended only to the collection of ground rents as well as the placing of insurance and the receipts of insurance commissions. It is through a tripartite lease that the landlords were able to get rid of the frequent non-profit making and tedious obligations or duties such as the compliance with the legislative requirements of demands as well as the collection of service charges. The court case against bad debts, car parking issues, dealing with leaseholders who are a nuisance as well as leaseholder parties at the unsociable house.
When the legislative provisions were enacted with the aim of shifting the power balance to leaseholders such as the collective empowerment offers for flats as well as the rights to manage concept, resident management companies, as well as tripartite leases in practice, means that it is difficult for the dissatisfied leaseholders at times with the building management in changing the management or evoking the legislative procedures which had been created to help them. Even today, there are very few leaseholders who know that resident management companies are companies that are well constituted and running them is never a straightforward matter.
Resident management companies are supposed to be ran complying to the companies act, and contrary to that, it runs the risk of being kicked off by the register of companies. These could lead to a possibly disastrous consequence depending on the lease agreement, and no party can end up being responsible for the up-keep and management of the building. As a result, the building is left to ruin and rack as well as the directors of the resident management company possibly being liable personally for such breaches in management. To ensure that the resident management companies are successful, it is, therefore, a requirement for the leaseholders to realise that the companies require lessees from between themselves to volunteer and stand as the officers of the resident management companies which means taking of extensive obligations that they get no payment for.
The tripartite agreement is signed by all the three parties involved, and they are established with the aim of helping buyers to gain loans for properties alongside the planned property purchase. In tripartite leases, the resident management company exercises the right of the landlord as well as those of other parties to the premises lease. When a management company does not exist, them the leaseholders takes the responsibility of the resident management company, which include management, repairs, insurance as well as improvements. This means that tripartite leases make it easier for those leaseholders who wish to exercise the management right but taking over the management functions that are usually stated on the leases.
The performance of the company can be monitored by paying visits to the around the scheme to ensure that it is ran according to the agreed aims and objectives. It also can be done by sending a team to the project to do the monitoring and hold some interviews with the residents to hear what they would say about the services delivered to them by the company. If they keep complaining now and then, it would indicate that the company is not playing its role effectively within the scheme. The manager of the company needs to do some training by working closing with other agencies that deal with leasehold and assured tenancy to get the required skills to manage the company. The staff members also need to do some benchmarks on several agency companies to get some knowledge on how the companies function and play their roles within different schemes. The results can be monitored on their performance in the company and the measures and strategies that they raise to ensure that the company meets the satisfaction of both the leaseholders and the landlords.
Policy Directions
While mixed communities and social balance have been the fundamental principles of proper planning since the British New Towns and the Garden City Movement, it has only been recently that there has been more considerable attention on the policy. Both the Urban White Paper and the Urban Task Force report highlighted the need to enhance liveability within residential environments as well as meeting all the housing requirements in all sections of the community. In 2003, the sustainable communities’ strategy was launched to raise the communities’ quality of life through the reduction of inequality, tackle crime and antisocial behaviour, increasing prosperity, more employment, better education and health, better public services, as well as others more.
According to the Housing Corporation 2006, mixed communities play a significant role in promoting equality and choice, help in addressing community cohesion and social exclusion, as well as avoiding concentrations of deprivation. In detailed guidance that was issued by the local planning authorities in 2006 in PPS3, it required the local authorities to evaluate the housing needs within their parts, set clear targets, make sure that there was adequate land available as well as create mixed, sustainable and inclusive communities in these parts both rural and urban. Ever since 2003, there have been a series of strategic growth areas, millennium villages, eco-towns, urban extensions, housing market extensions as well as another pilot project that have been announced incorporating the mixed tenures principle.
An example is the English Partnerships who have embraced the approach fully and has commissioned a Design Code for the enhancement of four hundred homes in Upton. Houses for shared ownership and rent are pepper-potted across the estate. Large-scale development projects involve a broad mix of housing tenures and sizes that are distributed in segregated, integrated, or segmented patterns. Several agencies in Scotland, such as the New Gorbals, Glasgow, and the Ardler Village, Dundee, are currently promoting such mixed developments with all aspects of house tenures and sizes. The policies that relate to housing, environmental issues, and sustainable communities are rapidly developing and construction of high-quality homes within pleasant environments; the housing providers are required to meet the demand standards-based on climate change.
There is a need for a policy indicating the needs of both the leaseholders and the landlords to ensure efficient and effective management by the management company. There should be a policy stating the type of houses that meets the satisfaction of different leaseholders within the neighbourhood. Managers should always receive training and updates of the needs of both the landlords and the leaseholders based on the technological and housing advances that arise. There should be a policy on programs that try to improve the skills of the managers after every three months to ensure that they are creative and offer effective services to the property management companies.
Also, it is noted that young, single people usually do not mix well with less affluent or pensioners families with children. Most of these issues could be resolved by grouping or blocking different forms of housing; however, this does not guarantee the formation of a healthy and cohesive community. There are cases where focusing on community centres, schools as well as other facilities as being locations for social interaction could be more productive than the assumptions that social interaction mainly takes place at homes or in the streets. All this means that to develop the scheme, I the manager will have to come up with a project team from my company who will help in the running of the leasehold tenure scheme.
Currently, there exist significant gaps in how people understand the way different parts of the community respond to their neighbours and in what design; however, management and other features usually discourage or encourage interaction. Leasehold tenure is, therefore, likely to remain on top of the policy agendas for quite some time and is fully entrenched within the sustainable communities’ strategy by the governments. The effectiveness of the tenure highly depends on how far the positive features could be disseminated widely, as well as how far lessons can be learned. Hence government policy is created to encourage the fluidity within the housing tenure utilising strategies to intermediate and homebuy housing.