Shelter’s Income and expenditure figures highlighted13:57 PM, 4th February 2019
About 2 weeks ago 35
I own the freehold ground rent interest of a large block of flats where there used to be a Management Company but there is now a RTM Company in its place. The RTM Company has been in existence for 5 years and has throughout that time employed a managing agent who is a member of ARMA.
I have owned the freehold for 2 years now – during which time I have noticed that the RTM Company is failing to observe the Landlord covenants and breaching its own Articles of Association. The managing agent appears to be allowing the RTM Company to pick and choose which aspects of the Landlord’s covenants they deal with whilst ignoring some very critical Landlord’s covenants.
1. Contrary to the leases, they are not having the annual accounts certified and audited
2. Contrary to the leases, they have not had the building re-assessed for insurance purposes. They admit that the last assessment was done in 2007
3. Contrary to the leases, they are not monitoring and enforcing lessee covenants – such as prior written consent for subletting
4. Contrary to the leases – they are not monitoring or enforcing lessee covenants. They admit to never having inspected the flats and so they are not aware of any repair and maintenance issues within them. I am aware that there are some repair and maintenance issues with some of the flats. I brought these to the RTM Co.’s attention over 6 months ago but I have not received any status updates
5. Contrary to the RTM Articles of Association, they are charging new members £100.00 to join the RTM Company rather than £1.00
And now I have just discovered that two flats were sold recently – one in early January 2016 and another in early April 2016. These sales occurred without my knowledge as the RTM Company did not provide me with 30 days prior notice of assignment. Had the RTM Company given me the requisite notice I could have intervened to halt / delay completion of the sales.
The reason that I would have intervened is because there is an un-meetable restriction on disposition contained in the leases. The leases state that there is to be no disposition without the outgoing lessee contemporaneously ensuring that the incoming lessee enters into a direct deed of covenant with both the Lessor and the Management Company. The outgoing lessee must also ensure that the incoming lessee becomes a member of XYZ Limited Company. This latter point (membership of XYZ Limited Company) is and always has been an impossibility and must have been a mistake made by the original Draughtsperson of the leases.
Anyway in the case of both sales the RTM Company did not send a certificate of compliance to the buyers’ solicitors (a certificate of compliance is required by the leases). The RTM Company did however complete deeds of covenant with the incoming lessees. The RTM Company did not issue me with a copy of these deeds of covenant by the way and the first I knew of the sales completing was when I was contacted by the incoming lessees’ solicitors at the end of June 2016 because both incoming lessees have had their applications to register their ownership rejected by Land Registry. Under the circumstances, both title registers still list the outgoing lessees as registered proprietor. The outgoing lessees’ lenders have already removed their charges on the two flats.
We are now in a position where the two incoming lessees are in legal limbo. All the completion monies have transferred and one of the incoming lessees has already moved in. The second incoming lessee has already rented out their flat (without prior written consent, contrary to the leases). All the leases are affected by the same un-meetable restriction and there are currently another 7x flats in the block up for sale at the moment.
When I asked the Leasehold Advisory Service to whom I should send future ground rent demands (the outgoing lessees or the incoming lessees) I got the following response:
If the original lease was granted after 1st January 1996 (and it was) the Landlord & Tenant (covenants) Act applies. This states that on the” assignment ” of a lease the lessee assigning (outgoing lessee) ceases to be liable for the covenants in the lease, i.e. to pay service charges and ground rent. An “assignment ” under this Act includes an “equitable assignment”. An equitable assignment is where the property has been transferred but not registered at the Land Registry.
Based on the above, there has been an equitable assignment and the outgoing lessee should not be liable for service charges based on the above Act. However, there is a further complication, in that the same Act states that if the assignment is made in breach of covenant or by operation of law it is an “excluded assignment” and the outgoing lessee’s release from covenants does not apply. Arguably, the assignment was made in breach of covenant as the outgoing lessee did not ensure that the incoming Lessee became a member of XYZ Limited Company,even if this is an impossibility.
My questions are these:
1. To whom do I now send ground rent demands (the outgoing lessees or the incoming lessees?)
2. Given all the above circumstances, would I have sufficient grounds to succeed in an application to end the RTM?
3. If I do not apply to end the RTM, what are my options in terms of all the failings listed above?
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