Q What is a leasehold property?

A Leasehold properties are most commonly apartments and can be purpose-built blocks, converted buildings or part of a ‘mixed use’ development along with commercial or retail premises.  Leasehold ownership is simply a long-term tenancy of a property with the right to occupation for a period in excess of 21 years.  The ‘term’ of the lease is often 99,125 or 999 years and diminishes over time.

The ownership of the property usually relates to everything within the four walls including floorboards and plaster to the walls and ceilings, but does not usually include the external walls.  Responsibility for doors and windows varies and you should consult the lease for confirmation.  The structural and communal parts of the building and the land it stands on are owned by the freeholder, sometimes referred to as ‘the landlord’.

Q What is the difference between a leaseholder and a freeholder?

A In simple terms a freeholder (lessor) owns the land on which a development is built and in most cases owns the structure and external fabric of the building.  A leaseholder (lessee) is granted the right to possess a property within the building by the freeholder with a fixed term of occupancy that is set out in the lease.  In law, the freeholder is referred to as ‘landlord’ and leaseholder as ‘tenant’.

Q What is the difference between a managing agent and a management company?

A A management company is a legal entity, registered at Companies House and referred to within a lease.  It is created to provide ongoing management of a development.  In most cases the management company is made up of leaseholders as members and directors and they in turn will choose to employ a professional managing agent such as Town and City to provide services and management on its behalf.

Where a management company does not exist, the managing agent will be directly instructed by the landlord/freeholder.

Q What is the lease?

A The lease is a legal contract between the landlord and the tenant (and in some cases the management company).  It explains the rights and responsibilities that both you and your landlord have.  When an apartment is sold, the seller assigns all the rights and responsibilities of the lease to the purchaser.

Q What is ground rent?

A As leasehold is a form of tenancy, it is usually subject to a payment of ground rent to the landlord.  It is a specific requirement of the lease and must be paid on the due date, subject to the issue of a statutory demand by the landlord or their agent.
 
The ground rent is usually a fixed amount and it may be payable annually, half yearly or quarterly.  The amount may be reviewed after a number of years, specified within the lease.

Q What are service charges?

A Service charges cover your share of the cost of maintaining the building and development in which your property is situated.  Service charges are normally paid quarterly, but can sometimes be monthly or annually depending on the terms of the lease.  As a guide, service charges usually cover all the costs associated with looking after the common parts of a building and development e.g. maintenance, electricity, cleaning, gardening and servicing equipment such as the lift.  A figure for buildings insurance is often also collected as a part of the service charge.  Ideally the service charge includes a contribution towards a ‘sinking fund’, which allows for periodic upgrading of the building e.g. decorating of common areas.  However, not all service charge budgets allow for this.  The ‘management fee’ within your service charge is payable to Town and City for arranging and managing all of these services.

Service charge amounts can vary from year to year and can go up or down without any limit, based on predicted expenditure.  Details of what can (and cannot) be charged by the landlord and the proportion of your charge will be set out in the lease.  The management company/freeholder arranges the provision of services and the leaseholders pay for them.  All costs must be met by the leaseholder; the freeholder will generally not contribute.  Most leases allow for the service charges to be collected in advance, repaying any surplus or collecting any shortfall to the leaseholders at the end of the financial year.

Q What happens to my service charge payments?

A Service charge monies are collected and held in a trust account for the for the individual management company to allow contractors, utilities and services for that management company to be paid. Although not members of the RICS we do adhere to theirs code of practice for Service Charge Monies which requires Town and City to hold all client monies in designated accounts.

Q What is a service charge budget?

A At the start of the financial year, a budget or ‘statement of anticipated expenditure’ is prepared for the costs likely to be incurred during the service charge period.  The service charge budget is primarily designed to cover expenditure anticipated for the day to day costs of managing the communal areas of the development.  As this is an estimate there will often be a balancing charge to adjust to the level of costs incurred.  At Town and City, our job is to provide all services required in the most efficient and cost effective way possible.  To this end, our maintenance team continually negotiates with suppliers and contractors on behalf of the freeholder or management company.

Q What is a balancing charge or balancing credit?

A At the end of a service charge period, a reconciliation of actual expenditure supported by valid invoices is compared to the amount of service charge requested in advance (as per the budget).  Any variation between budgeted expenditure and actual expenditure being either a surplus or shortfall is then apportioned to each leaseholder.  If there is a ‘balancing charge’ then this will be invoiced to each leaseholder.  If there is a ‘balancing credit’ this will usually be reflected on your service charge statement or in some instances, dependant on your lease, the directors of your management company will decide if this is to be returned to each leaseholder in the correct apportionment or if the surplus amount will be placed into a sinking fund for future works.

Q What is a sinking fund?

A A sinking fund is also known as a reserve fund.  A contribution towards a sinking fund is usually built into the budget each year.  This money is retained in an individual, interest bearing, trust account to build up a fund for future major repairs, renewals or replacements, for example internal redecoration, roof repairs or lift replacement.

Q Why would I be asked to make an extra payment?

A Even when there is a sinking fund provision, it may not have been built up sufficiently to cover all eventualities.  On occasions when major works are required, the balance of the cost of the works will need to be appointed to each leaseholder and charged in addition to the service charge.

Q Can I be charged for things I did not agree to?

A Yes, but you have to be consulted on all works that cost more than £250 per dwelling.

Q How do I make payments?

A The managing agents are legally bound to collect monies on behalf of the management company or landlord in accordance with the terms of the lease.  There are several ways you can pay:

By standing Order
 
This is the preferred method of payment for most leaseholders as it ensure payments are made regularly and on time.  You can request a standing order from our accounts department if you wish to pay by this method.

Please be aware the Town and City cannot alter the amount requested by standing order and therefore if the service charge amount changes you will need to contact your bank directly to make them aware of the new payment amount.

By Cheque

Please make cheques payable to Town and City Management Limited. Please write your name and address of the property /and/or the property reference number on the back of the cheque.

By Card

Card payments can be made over the telephone. There is a charge on credit and debit card payments, depending on the type of card used.

Q Why am I not able to request a VAT invoice?

A Service charges to residential owners for the upkeep of common areas are VAT exempt.  Any costs within the budget are shown as gross, including our management fee.  Consequently we are unable to issue VAT invoices or receipts.  Indeed, as it is exempt, the management company does not need, or have a VAT number against which any reclaims could be made.

Q What is the ‘balance brought forward’ on my invoice?

A If a ‘brought forward’ balance is shown on any of your invoices, this is the total of previously invoiced/demanded charges outstanding when the invoice was raised.  However if you have recently sent a payment it is possible that it could overlap and you should therefore check what (if any) amounts you have paid since then, to establish if they are still owing.

A copy invoice can be produced at any time, however, it will always show the total outstanding at the date the copy is produced, not the date the original was printed.  Therefore the brought forward balance on a copy invoice will reflect the correct total owing at the date it is produced.

Q If my contact details change, what should I do?

A It is essential that our records are kept up to date with the relevant contact information.  If any of your personal details change, please notify us in writing at Town and City Management Limited, 2nd Floor, North Point, Faverdale, Darlington. DL3 0PH or by email at: mail@townandcity.com immediately.

Q What happens if I do not pay my ground rent, service charges, balancing charges or extra charges when requested?

A It is the leaseholder’s obligation to make the required payments promptly under the terms of the lease.  Town and City have an obligation on behalf of the freeholder or management company to maintain a strict credit control procedure to ensure all money is collected.  If payments are not made, the leaseholder can be taken to court and a charge taken against the property.  Ultimately, the property is at risk as non-payment is grounds for forfeiture of the lease.  If you have any difficulties in making payment or reason for withholding payment, we ask you to contact us as soon as possible to discuss a resolution.

Q If other leaseholders in my development do not pay, will I be charged for their arrears?

A Leaseholders are obligated to pay all service charges.  This allows Town and City to legally pursue leaseholders in the case of non-payment.  This is obviously in the interests of all leaseholders as adequate funds need to be available to maintain your building to a high standard.  Individual service charge arrears are not charged to other leaseholders but it may be that some legal costs are paid from the service charge to assist recovery from leaseholders that have not paid.  This cost is subsequently re-charged to the debtor.

As a leaseholder, you are relying on the other owners to make the payments on time because if this does not happen, this can affect cash flow on the development and contractors may not be able to be paid on time.  Due to this, contractors working on the development may suspend their services until such time as their invoices are paid.  Therefore it is essential that all payments are made on time as requested.

Q I own a freehold house, why do I have to pay a service charge?

A If a development has a combination of freehold and leasehold properties the freehold houses may have to contribute to the management company costs.

If this is the case, the information relating to your service charges/estate charges will form part of your deed of covenant, which you signed when you purchased the property.  Cost to freehold owners usually relate to the communal parts of the estate e.g. maintenance of access roads, lighting, insurance’s etc. 

Please refer to your deed of covenant or legal advisor for further information.

Q If I own a leasehold property, what do I need consent for?

A In most leases it will state that you are required to obtain consent for subletting your property, keeping pets, installing satellite dishes/aerials, changing the windows and undertaking any alterations.  We strongly advise that you consult your lease or contact your property manager at Town and City if you intend to do anything you believe may breach the terms of your lease.

Please also note that when selling your property you must serve a notice of assignment to the freeholder or management company.  We would strongly recommend that you or the purchasers solicitor contact Town and City in advance of any sale with any pre contract enquiries.

Q Who arranges buildings insurance?

A The freeholder/management company or the managing agent on their behalf arrange the buildings insurance for leasehold properties.  Leaseholders should arrange their own contents insurance.  In relation to freehold properties, the freeholder must arrange both buildings and contents insurance.

Q Who is responsible for carrying out repairs to a leasehold property?

A For leasehold properties, details on who is responsible for individual repairs to the property can be found in the ‘Property’ section in the lease.