Glossary- Common property management related terms
We thought it would be useful to provide definitions to the most common property-related words and phrases that we come across
(Click a question to view the definition) We thought it would be useful to provide definitions to the most common property management related terms that we come across. The legislation surrounding many of these terms is complex, and our definitions are simplistic summaries, so further advice should be sought where necessary.
The Association of Residential Managing Agents (www.arma.org.uk ) is the only residential Leasehold Block Management Association in England and Wales. They offer guidance and advice to their members. Through this membership our clients and the Leaseholders of the properties, currently held under our management benefit from association.
When a Leaseholder does not pay their Service Charge on time they are said to be ‘in arrears’. If you are a Leaseholder of a property currently held under our Management and you are experiencing difficulties in making payment, please contact us as soon as possible.
assignment is the transfer by the original Leaseholder (the assignor) to the new Leaseholder (the assignee). Notices of Assignment are usually prepared by the solicitors acting for and on behalf of the Assignee upon completion.
Typically prepared on an annual basis, the budget is the expected expenditure in the building over the forthcoming financial year. The budget is then portioned among Leaseholders as agreed in their Leases. Actual spend during the year on a property is closely monitored against this.
Companies House is the register of all companies in England and Wales. Companies House is where you can find details of incorporated and dissolved companies and make company information generally available to the public.
The Company Secretary is the person responsible for the administration of the company, in terms of legal and statutory requirements. The Company Secretary ensures that documents are filed in a timely manner at Companies House. The Company Secretary could be a Leaseholder in the property, the Managing Agent or a specialist firm.
When more money has spent than collected there is said to be a ‘deficit’. This is usually covered through cash in the bank initially and recovered from Leaseholders’ following scheduled service charges. Details of this are typically spelled out in your lease.
EPC (Energy Performance Certificate)
Since October 2008 and as part of the European legislation to tackle climate change and reduce carbon dioxide emissions, it has been necessary to have an Energy Performance Certificate (commonly called an ‘EPC’) whenever your property is rented out. This report grades buildings from A (most energy efficient) to G (least energy efficient) and suggests possible improvements that can be made.
Flying Freehold describes a part of a Freehold property which overhangs or is under part of another property. This typically includes balconies in older terraced houses which may overhang rooms in adjacent houses or common parts of the building.
Freehold is a legal term used to describe land, everything built on it that is owned in perpetuity.
Freeholder (also known as Lessor)
The individual or company owning the Freehold to a property, sometimes referred to as a Lessor.
Ground Rent is the rent payable by the Leaseholder to the Freeholder for the land on which the building sits. The level of Ground Rent is set out in the Lease and provides an income to the Freeholder (so is not payment for any services provided).
The head Lease is a Lease where contractual rights and responsibilities for the building are given to one Tenant.
A Lease is a contract whereby a tenant pays a Landlord, or Leaseholder pays a Freeholder, for the right to use a property. Leases are complex documents and the terms can be short or long term and specialist legal advice should be sought if you are considering entering into a Lease.
A Leasehold to a property allows the Leaseholder to use a piece of land for a given period of time subject to certain conditions and payment of a Ground Rent.
Leaseholder (also known as Lessee)
The individual or company owning the Lease to a property.
FTT (First Tier Tribunal)
First Tier Tribunal, is a body established to resolve Leasehold related disputes without the need to go to court to settle it. The FTT is an independent legal body whose decision is legally binding. The FTT typically deals with disputes regarding Service Charges, appointment of a Manager and Receiver for a property, building insurance, acquiring the Freehold estate or varying or extending a Lease.
A Managing Agent takes many of the pressures of running the building away from the Freeholder and / or Directors of the Company, allowing them to enjoy their home or investment. A Managing Agent performs most of the daily duties of running a property under the appointment, direction and control of the Freeholder, RMC, RTM or Developer.
Managing Agent Enquiries
This is the set of questions raised by a purchaser’s solicitor on sale of a property.
A Party Wall is a dividing partition erected along the boundary between two properties providing common support to both buildings on either sides of the partition. Each owner has rights to enter the other property to repair or maintain their building or the wall. The legislation surrounding Party Walls can be complex and specialist advice should be sought.
Peppercorn Rent is a nominal rent set out in a lease in order to show that a legal commercial transaction has been undertaken.
RMC (Residents Management Company)
Residents’ Management Company is a company that residents establish in order to run the building themselves. This may be stipulated in the Lease or as a result of legislation. The RMC runs the building, enforcing the covenants of the Lease. They often appoint a Managing Agent to act on their behalf to perform the day to day functions of this Management Company. The business is run for the benefit of the Tenants or Leaseholders and not for profit. Directors and the Company Secretary may be Leaseholders in the property.
RTM (Right to Manage)
Under the Commonhold and Leasehold Reform Act 2002, Leaseholders have the right to form their own company and take management of the building away from the Freeholder. Among the many reasons typically stated for going through the Right to Manage process are to reduce service charge and / or to control the appointment of the Managing Agent.
Section 20 Consultation Process
A Section 20 is a consultation process under which leaseholders must be consulted if any works are anticipated which cost more than £250 (including VAT) for any one Leaseholder in the property. Without this consultation, the maximum that the landlord may legally be able to recover is £250 per Leaseholder. Agreements of more than 12 months in duration are also covered under the Section 20 consultation process.
The Service Charge is the charge made to Leaseholders by the Landlord for providing services to the property. It usually includes provision of on-site staff, payment of insurance, repairs and maintenance, communal utility supplies, maintenance contracts in place at the building and Managing Agent fees. Details of timing, method of payment, and what is included in this service is usually set out in the Lease. The Charge is often collected in advance so that the landlord is not out-of-pocket in providing the services.
Service Charge Demand
The Service Charge Demand sets out the Service Charge that each Leaseholder has to pay in the current period. The Demand will typically include a cover letter, a copy of the Budget, an Application for Payment and notices.
When more money is collected in Service Charges than spent there is said to be a ‘surplus’. This is often either retained in the bank account or returned to Leaseholders with the subsequent Service Charge demand.
Tenure is the legal term which describes the nature of ownership of a piece of land, which determines whether an occupant is an Owner or a Tenant. Freehold and Leasehold are examples of Tenure.
Virtual Freehold is a term used to describe a very long Leasehold interest (often 999 years). When this is in place the Lease is worth the same as the Freehold interest in the property.