Guest Blog Post Written by the fantastic Kevin Lever, of KDL Law.

Following on from our December 2021 Legal Update on the progress of the Leasehold Reform (Ground Rent) Bill the Bill received Royal assent on Tuesday 8 February 2022 and is now law. That said, Regulations will now need to be made by the Secretary of State before most of the provisions of the Act come into force. The Act aims to make leasehold ownership more fair and affordable for leaseholders.

Who does the Act apply to?

All Landlords granting new residential leases in England and Wales will be bound by the terms of the Act.

What are the changes?

Ground rent payable on leasehold properties will be restricted to a peppercorn (i.e. non-monetary) in future leases and rent administration charges are banned in most residential leases with a term longer than 21 years.

Are there any exceptions?

Business leases, statutory lease extensions of both houses and flats, community housing leases and home finance plan leases will not be affected by the Act.

Any surprises?

It had been anticipated that retirement housing (dwellings that can only be occupied by people aged 55 years and older) would be exempt but this is not the case. However, there will be a slight delay in the Acts effect on such property with only retirement housing leases granted after 1 April 2023 being caught by the Act.

Can the Act be applied retrospectively?

No – the Act will not apply to current leases and thus there is no benefit to holders of existing leases with high or more reasonable ground rent obligations. Any agreements for lease entered into prior to the Act being passed will be unaffected and a monetary ground rent may be demanded.  However Landlords need to be careful not to inadvertently surrender and re-grant existing leases under which they may collect ground rents. Ground rent will not be payable under the re-granted lease once the provisions of the Act are in force and the penalties outlined below will apply in this situation.

Will there be a penalty for Landlords who demand ground rent?

Yes – Landlords who seek to demand ground rent after the Act has been passed will be liable to fines of between £500 and £30,000. Additionally, such Landlords will be required to repay any unlawfully collected ground rents plus interest. Leaseholders will be able to apply to the First Tier Tribunal in England or the Leasehold Valuation Tribunal in Wales for a declaration that a prohibited ground rent is replaced with a peppercorn rent.

Enforcement action can be taken against past and current Landlords, as well as people acting on their behalf.

Conclusion

The Act is good news for those purchasing new property or perhaps agreeing new terms with their current landlord but it will of course have absolutely no impact on anyone with an existing lease with a liability to pay ground rent. We have already seen holders of current leases excitedly, but wholly incorrectly, informing us, and our landlord clients, that ground rent demands after the passing of the Act will be “illegal” etc. and that they need not pay.  We assume that there will be, as there always is, a bit of time to pass before those to whom the Act does not assist getting to grips with the fact that they are still liable to pay the rent demanded of them.

 Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

What is a Residents’ Management Company?

A Residents’ Management Company (RMC) is a limited company set up to manage a building containing flats, or an estate containing freehold houses. In most cases the property owners or leaseholders are members or shareholders of the company.

The RMC is normally set up by the original developer to enable to ongoing management of the building and/or communal areas, and it some instances the freehold of the development will transfer to the RMC when the last unit is sold.

An RMC can also be written into a lease where the freehold is retained by the developer. The RMC would have management obligations such as insurance, maintenance, compliance and collection and accounting for service charges. In most instances, an RMC will employ a professional managing agent (like us) to run and manage the development.

What are RMC Directors?

RMC directors are members of the company who are appointed by the leaseholders/owners to make decisions on behalf of the company. It is normally an unpaid position.

To be eligible to be a director, you must:

  1. Be an owner/leaseholder within the development (this is often a requirement, but check your Mem & Arts to confirm)
  2. Over the age of 16
  3. Not be an undischarged bankrupt
  4. Not be a disqualified director whose term of disqualification has not yet been spent
  5. Not be the auditor of the company

What are the obligations of an RMC Director?

As a limited company registered in the UK, the Company and its Directors must abide by company law. The general principles that must be abided by are:

  • Follow the rules of the company (known as the “Memorandum and Articles”)
  • Decisions must always be made for the benefit of the company rather that the individual
  • Promote the success of the company at all times
  • Complete statutory filings and returns
  • Maintain the statutory books
  • Ensure the statutory accounts are an accurate representation of fact
  • Disclose any conflicts of interest to other directors immediately

In addition, as an RMC director, there are a few other responsibilities:

  • Be available to liaise with your managing agent and other directors on management matters
  • Discussing and approving the annual service charge budget
  • Ensuring the service charge accounts are an accurate representation of fact
  • Ensuring that all decisions or actions taken are within the bounds of the lease
  • Ensuring that all Health, Safety and Fire obligations are met
  • Ensuring the insurance cover is valid and adequate
  • Attendance at 1to 2 board meetings per year, or as required
  • Attendance at AGM
  • Willingness to be involved with on-site issues

Do I need any experience?

In short, no. You need a willingness to be involved in the proactive management of your building or estate; the rest you can leave in our hands. As professional managing agents with a proven track record, we can make your life as an RMC director easy and stress free.

What are the benefits?

As an RMC director, you will gain an insight into how your block or development runs. You will be involved in decisions relating to the service charge budget and mangement of the site. You will have more input over the service charge budget and the selection of the managing agent who is ultimately responsible for the day to day running of the development.

How do I become a director?

Each company will specify how directors are appointed with its Memorandum and Articles. Often, directors can be appointed by being proposed and seconded by existing directors. At other times, you will need to wait for the next AGM to be appointed. You can view the Memorandum and Articles of your RMC by clicking this link and searching for your company.

For more information on becoming an RMC director, use the contact form below to contact us today.

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