Glossary

Collective Enfranchisement

The 1993 Leasehold Reform Act (as amended) provides the right for leaseholders to collectively compel the Landlord to sell the Freehold to them. Leaseholders meeting the required criteria can form a Residents Management Company, raise funds and complete a formal legal process in order to take this action. The end result of this process is for participating leaseholders to own a share of freehold.

Company Directors and Officers

Residents and Right to Manage Companies require the appointment of Company Directors. It is usual for these to be shareholders or members of the company (which means they also have to be leaseholders) and for them to contribute their time on a voluntary basis. Directors are responsible for the management of the company and therefore the building / development, they must also ensure the company is run according to its articles of association, that its accounts are true and fair and many other legal requirements.

Freeholder

A freeholder is a person or company that owns the freehold of the building. Leaseholders own their property on a lease, but the freeholder will own the property outright. Freeholders are usually responsible for the repair and maintenance of the exterior and common parts of the building. A freeholder is also called a landlord and as a party to a lease, a Lessor with the leaseholder being the lessee.

Ground Rent

Ground rent is a payment made by the leaseholder to the freeholder under the terms of the lease. A lease is a tenancy and so it is subject to the payment of ground rent. It is an income for the freeholder rather than payment for the provision of services.

Landlord

See freeholder. In addition a Landlord can also be a leaseholder renting out their a property on a short-term tenancy agreement.

Lease

A lease is a contract between the leaseholder and the freeholder giving conditional ownership of a property typically for 99, 125 or 999 years. The lease sets out the contractual obligations of the parties. The leaseholder’s obligations usually include payment of the ground rent and contribution to the costs of maintaining and managing the building or estate. The freeholder will usually be required to manage and maintain the structure, exterior and common areas of the property. The lease will probably also place certain conditions on the use and occupation of the flat for example permission may be required to keep pets at the property.

Leaseholder

A leaseholder is someone who owns a property on a lease, typically for 99, 125 or 999 years. The length of the lease decreases year by year until it eventually runs out. A leaseholder is also called a tenant, but this should not be confused with short-term agreements, for example when a property is rented out. A leaseholder can also be called a lessee as one of the parties to a lease, with the freeholder being the Lessor.

Lessee

See Leaseholder.

Lessor

See Freeholder.

Reserve or Sinking Fund

A reserve or sinking fund is a fund collected over a period of time to be used for a specific purpose such as a large scheme of work. This could be roof renewal, external redecoration or other large expenditure. The aim is to split the cost over a longer period of time to avoid a very large bill in one service charge year. A reserve fund can only be set up if the lease allows it.

Residents Management Company

A Residents Management Company is a company set up to acquire the freehold of a property and/ or to manage residential accommodation including flats, houses, retirement homes and properties like estates, roads and pathways and industrial units. A Residents Management Company can be limited by shares or guarantee.

Right to Manage (RTM) Company

The formation of a Right to Manage Company allows leaseholders to take over responsibility for the management of their development from their freeholder. It doesn’t involve the purchase of the freehold but allows leaseholders to make their own collective decisions and to manage the property on a day-to-day basis. There is a formal legal process (established in accordance with the provisions of the Commonhold and Leasehold Reform Act 2002) which has to be undertaken in order to establish a Right to Manage Company. Right to Manage Companies are Limited by Guarantee with each leaseholder being a member. The freeholder is also entitled to membership of the Company.

Service Charge

A service charge is a charge that leaseholders are liable to pay under the terms of their lease. It normally covers the cost of such matters as general maintenance and repairs, insurance of the building and, where the services are provided, lifts, lighting and cleaning of common areas etc. The charges may also include the costs of management by the freeholder or by a professional managing agent and for contributions to a reserve fund.

Share of Freehold

A leaseholder who has a share of the freehold has a share or membership in the company that owns the freehold for the development. It doesn’t mean that their property is a freehold property, it remains leasehold, but it can bring additional rights and responsibilities. Where a share of freehold is owned the lease is commonly extended for up to 999 years but it may also include liability with others to repair and maintain the exterior of the building and the common parts. Qualifying leaseholders can enact a formal legal process to purchase their freehold and achieve a share of freehold. This is called Collective Enfranchisement.

Tenant

See Leaseholder. In addition a tenant can also be a person/s occupying a property on a short-term tenancy agreement.