Leaseholder or Freeholder who is responsible?

by Readers Question

4 years ago

Leaseholder or Freeholder who is responsible?

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Leaseholder or Freeholder who is responsible?

We purchased an off-plan flat in London from a well known developer about 6-7 years ago. A couple of months ago we received notice from the managing agent that the roof had been leaking badly and has caused substantial damage to some of the flats and needs replacing, thereby giving us notice of intention to carry out major work. They said they are trying to recover the costs from NHBC as the building is under 10 years old. Now we have received a demand for £2,200 to be paid by October. The total cost is nearly £152,000 divided between 74 flats. Leaseholder or Freeholder who is responsible?

We called the managing agent to get more details. Apparently, NHBC doesn’t cover the roof and the insurance doesn’t cover the roof either. It covers the damage caused to the flat but not the cost of replacing the roof.

The freeholders have approached the “First-Tier Tribunal Property Chamber”. They have, in view of the urgency, dispensed with the consultation period. The work is starting and we are expected to pay.

I would like to know if it is possible for both, NHBC and the insurers to deny liability and avoid paying?

Is it normal for an insurance cover on a big block not to cover the roof?

What good is the insurance policy that doesn’t cover the roof?

A hefty proportion of the service charge is for building insurance cover, taken out by the freeholder.

In cases like this when the policy doesn’t cover the roof replacement, is it the freeholder’s problem or the leaseholders?

Do the leaseholders have a legal remedy?

I asked the managing agent for contact details of other leaseholders to form a consultation forum. As expected, they hide behind Data Protection Act.

What is the best way of forming a Residents Action Group (or Leaseholders’ Action Group, since most flats are let and residents are tenants)?

More generally, can the residents choose the management company and the insurance cover or they have to accept what the freeholder chooses?

What do leaseholders need to do to get collectively the freehold of the block they live in.

I and no doubt many other readers would be grateful for any insights, suggestions or answers to any of these questions.

Many thanks

Sina

Comments

Annette Stone

4 years ago

To answer your questions as you have raised them:

If the work is really urgent then the freeholders - but more usually the managing agents - can approach Tribunal to waive the consultation periods but you should still have comparative quotations and a firm specification detailing the causation of failure of the roof and the proposed remedies. You should also really have the right to nominate a contractor.

It depends on the causation of the problem and whether the communal areas are covered. Quite often in modern blocks leaking roofs occur because of a design fault and that is not covered by either the NHBC guarantee or insurance

I am sure the roof is covered for insurable risk but that is one off instances such as part of the roof blowing off. It is not for design faults, lack of maintenance or general repairs.

Where there is a repair that is necessary that is not covered by insurance it is the responsibility of the service charges which are paid by the lessees

You need to get someone to take a close look at the documentation you have been sent. You need to see

a.

To form a right to manage company or to buy the freehold you need 50% of the lessees to agree to your proposals. You would need to trace 50% of the owners and I suggest you start with the owner occupiers, some of whom may be able to put you in touch with others. It is really just detective work.

This will not help you with the current problem as if the freeholders get the go ahead from Tribunal they will be entitled in law to collect the funds and unless you can prove that the work is unnecessary you will have to pay. Even if the problem was caused by a design fault you will find that the phrase "caveat emptor" or "buyer beware" applies and unless you had a full survey prior to buying which indicated that the roof has a design fault you will not have an argument

The freeholder chooses the management company although 50% of the lessees can take either of the suggested routes outlined above. The leases usually provide for the freeholder to choose the insurer and even if the insurance chosen is not the cheapest available as long as it is reasonable and within the market range Tribunal will uphold the choice.

If you do manage to find your 50% or close to it and you would be interested in a good managing agent in the London area do let Mark know and he can put you in touch with me.

Annette Stone

4 years ago

It all depends on what the cause of the problem is. You need to get someone with some experience to look over the quote and see what the problem is and what the cost of the work is and how much has been allocated to fees. If there is a surveyor's report (and there should be for a job this size) you should have a copy of it.

Unless the problem is an insured risk such as part of the roof blowing off you cannot claim under the insurance and if the problem is down to anything other than proven poor workmanship the NHBC are unlikely to have provided cover.

Unfortunately, in many modern blocks designed by avante garde architects, leaking roofs are a design fault and major works are often required within ten years of build. I have dealt with two such buildings in the last ten years.

Regarding insurance the lease probably provides for the freeholder to choose the insurer and provided the rates quoted are within market range no challenge to this would be acceptable. Insurance provides cover only for insurable risks and unless one can be shown to be the cause of the problem why should insurers meet the costs?

In normal cases the freeholder also has the right to choose the managing agent and many of the big developers have their own "tied" management firms as these can make huge profits.

As far as forming a right to manage company to take over the management or buying the freehold you would need 50% of the lessees to agree to do either. It would depend on your lease but I would hazard a guess that you have quite a high ground rent doubling at 20 - 30 year intervals and this would make the cost of buying the freehold of a block of 74 flats enormous and probably beyond your reach.

If you and others do want to form an rtm try and contact as many owners as you can and see if they can put you in touch with others. That is by far the best way; otherwise it's detective work and asking tenants who their letting agent is and contacting owners that way can also be helpful. It can take months and I have often done this for groups of lessees who would like our firm to manage for them.

It takes about six months to a year to trace 50% of the lessees and get an rtm up and running properly, more if your freeholder objects and so this will not help you in the present situation unless you can prove that the work is not that urgent and can be held off.

If you do want to move forward with a change of managing agent I am sure Mark can recommend a specialist in the London area!!

Steven Way

4 years ago

I have had a very similar issue with a block in Kent where I am representing the freehold company which is made up of the lessees.

In this case there is an inherent defect in the floors which need rebuilding just seven years after completion. We have approached the NHBC - 10 year buildmark warranty - and they have frankly been useless. They are not interested in the claim, are wriggling like mad, don't get the urgency - structurally unsound ground floors with lessees in temporary accommodation for nearly a year and we are no further forwards. The developer has gone, the suppliers of the floor have gone and so it seems the freehold company [made up of lessees] is going to cop the lot.

As far as liability under the terms of a lease for inherent defect repairs is concerned I think the relevant case is Ravenseft Properties v Davestone (Holdings) Ltd [1980] which found that the remedying an inherent defect will constitute repair and so it follows that the repairing clauses in the lease apply. There is plenty of LVT decisions that cover this.

Why and how has the roof failed? I don't suppose there is a separate warranty on the roof for either materials or workmanship is there?

The time-scales you quote are odd - you received notice a couple of months ago but they still needed dispensation? A couple of months is enough time for first and second stage consultation and to get a tender. Did they also get the proposed service charge assessed as reasonable before they started?

Freda Blogs

4 years ago

Reply to the comment left by "Annette Stone" at "09/09/2013 - 14:10":

Observations:

Leaseholders can form an RTM company without acquiring the freehold.

As the development is quite new it is improbable there would be any marriage value in the freehold acquisition value, so capitalisation of ground rents (plus legal and freeholders costs) would be the only elements of the calculation, so potentially affordable.....IF you can get the required number of leaseholders to participate, and that is probably the hardest thing to achieve, although in this case acquiring the freehold at the present time may not be a good idea because of the following point.

I think it is the case that if a freeholder does not fully comply with the consultation provisions, the leaseholders do not have to pay for the works and the freeholder bears the costs (in which case leaseholders would not want to acquire the freehold at the present time) so in this case it would be important to know under what circumstances the freeholder has dispensed with consultation. Has the first tier property chamber agreed this dispensation? If no authorised and legitimate reason for avoiding consultation, the leaseholders may be able to avoid payment for the works.

Annette Stone

4 years ago

Reply to the comment left by "Freda Blogs" at "10/09/2013 - 09:20":

In reply to Freda's comments, of course the lessees can form an rtm without acquiring the freehold and my original e mail made that clear

I am afraid that whilst what you say about acquiring the freehold without the necessity of paying marriage value is correct you will probably find that in London most new developments have starting ground rents of £250 minimum and ground rent review periods of anything from 10 to 33 years where ground rents double. You do not need to be a genius to do the maths and see that even the capitalisation of the ground rents can add up to a very substantial sum, particularly when leases are originally granted for more than 125 years. Developers look to put in the highest ground rents possible to take account of their potential future profit on the sale of the freehold

As far as seeking determination of the correctness of the service charges demand the original blogger did say that this was in hand and as far as Freda's final point about the
Lessees' potential for avoiding costs if the Section 20 procedures were not strictly followed a recent decision of the Lands Tribunal set this assumption aside as long as the work can clearly be justified so this cannot be relied on any longer

Annette Stone

4 years ago

Reply to the comment left by "Freda Blogs" at "10/09/2013 - 09:20":

In reply to Freda's comments, of course the lessees can form an rtm without acquiring the freehold and my original e mail made that clear

I am afraid that whilst what you say about acquiring the freehold without the necessity of paying marriage value is correct you will probably find that in London most new developments have starting ground rents of £250 minimum and ground rent review periods of anything from 10 to 33 years where ground rents double. You do not need to be a genius to do the maths and see that even the capitalisation of the ground rents can add up to a very substantial sum, particularly when leases are originally granted for more than 125 years. Developers look to put in the highest ground rents possible to take account of their potential future profit on the sale of the freehold

As far as seeking determination of the correctness of the service charges demand the original blogger did say that this was in hand and as far as Freda's final point about the
Lessees' potential for avoiding costs if the Section 20 procedures were not strictly followed a recent decision of the Lands Tribunal set this assumption aside as long as the work can clearly be justified so this cannot be relied on any longer

Puzzler

4 years ago

Approach the original well-known developer. It would be very bad PR for them. Perhaps they will contribute.

Mike W

4 years ago

The leasehold advisory service are very helpful - government run body with legal advice.

http://www.lease-advice.org

But you will need to get your copy of lease. My own experience of new build guarantees are that they are not worth the paper if they are more than 2 years from completion. I am not an expert but unless the roof is structurally defective (how do you prove it?) it is unlikely to be covered. Again you should have been given a copy of the NHBC policy or equivalent policy.

Managing agents? Some are good some hopeless. Try and get them to discuss - seems like you are only getting part of the story?

The PR aspect has been mentioned. Yes but remember when you go to the press everyone will know about your building problems including future purchasers.

Basic advice - get the facts. This sort of thing can and will get owners mobilised but it is a hard slog. And if owners are 'overseas' and not knowledgeable of leasehold matters it is a very hard slog.

I learnt a lot from my solicitor and the lease advisory service in a very short time. I would never buy a flat in a block without checking out the managing agent and every dot and comma in the lease.

Annette Stone

4 years ago

Mike is right in all he says. As far as Puzzler's comment, I doubt that publicity will hurt the original developer who is probably long gone as most now sell the freehold during the construction period to reduce their capital outlay. Large freeholders will pay very good money as they can then basically construct the leases they want which are rarely to the lessees' benefit. Without the lease and knowing the cause of the roof problems little more can be said

One other point is that the "guarantees" usually do not cover the communal areas specifically which complicates things. Normally each lessee has an individual policy to cover their flats only

Tony Lilleystone

4 years ago

I have worked on property purchases and sales for many years, and making sure that newly-built flats or houses have one of these NHBC warranties is always an essential part of the process. They are always advertised as giving homeowners widespread protection against faults so it is disappointing to learn that NHBC has refused to admit liability for the roof problems.
I have to say that I have no direct experience of making claims under these NHBC warranties, and while I am aware that they don’t cover everything I should have thought that they would cover the roof of the building. It is difficult to tell from your post whether the problem is due to bad design, bad workmanship, faulty materials or lack of maintenance – I expect that you won’t have seen a full report do you probably won’t know the exact details.
NHBC warranties should be issued in respect of each individual flat. I believe that at one time NHBC also issued a separate warranty for the common parts of blocks of flats, but they no longer do so. It could be that you and your fellow flat-owners might be able to make individual claims, so you could try contacting NHBC yourself.
Check on the exact wording of your own warranty – there have been various versions of the Buildmark warranty documents over the years but NHBC should be able to give you details from their own records if you do not have this available.
As a matter of interest I wanted to get more details as to how these NHBC warranties applied to blocks of flats, and I have just had a look at the NHBC website. In the definitions clause of the current version of the warranty the word ‘Home’ is defined to include the ‘house, bungalow, flat or maisonette …’ together with (amongst other things) ‘any Common Parts’. ‘Common Parts’ is defined as including:
‘any of the following for which the Owner is legally obliged to share responsibility for cost and upkeep with the Owners of other Homes covered by Buildmark (or similar cover that we may issue):
a. the parts of a building containing or providing support to a flat or maisonette;’
[The remainder of the clause refers to garages, outbuildings, boundary walls, drainage systems and other such items.]
In leases of flats in large blocks the roof usually forms part of the common parts of the building which the freeholder is responsible for maintaining and repairing, since the roof benefits all owners to a greater or lesser extent. So you would expect this to be mirrored in the NHBC warranty.
But it is surprising to see that the definition does not include any specific mention of roofs. Clearly the roof does not provide support to any flat but I suppose it can be argued that it ‘contains’ those flats immediately beneath the roof. However this seems a very narrow interpretation since all the flat-owners will have to contribute to the cost of the remedial works.
I hope that it is not really the case that NHBC warranties do not cover building defects in the roofs of blocks of flats, otherwise that would be a major flaw in the system. But it does look as if this is a point which needs investigation, and I will make further enquiries.
Assuming that the NHBC warranty does not apply, the problem you have here is that neither you nor the other owners of flats in what looks like a fairly large block will be directly responsible for repairing and maintaining the building, but you are liable to contribute to the cost. The managing agents obviously have a responsibility to get necessary work carried out and it sounds as if it is essential to get the work done before the situation gets even worse and costs more to put right.
Buildings insurance will only cover damage caused by insured risks, (such as fire, flood or storm damage.) It would not cover the cost of repairing defects in the construction of the roof although it should cover damage caused by water coming in.
So if the NHBC are not accepting liability the work must be done at the expense of all the flat-owners – I doubt if it would make much difference if you already had an RTM company since the work clearly needs doing (although you would have greater control over who did the work.)

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