English land law has two types of land ownership: freehold and leasehold, and it’s important to understand the difference.
(We’ve written about these differences here, if you’d like to find out more.)
If you are buying a flat or an apartment the likelihood is that you will be buying a long lease as opposed to the freehold. This ensures that the correct structure for ownership of the building and common areas exists and creates a workable mechanism for the repair and maintenance of these areas. The most common participant in this structure is a management company.
A management company is a company that manages the property for the freeholder or the leaseholders, and there can be many different types: a flat management company, a right-to-manage company, or a commonhold association. As a leaseholder, you may own a part of the management company and be a director. This means you have some say and some duties in running the building and its affairs. It is also worth noting that most leases require a new buyer to become a member of the management company (and sometimes director) when completing the purchase.
Here are some things to consider:
- Check the lease terms. The lease is a contract between you and the freeholder that sets out your rights and duties as a leaseholder.
- Check the management company details. You can find out who owns and runs the management company, what type of company it is, and what its rules are on the Companies House register.
- Learn about your responsibilities as a director of the management company. As a director of the management company, you have some legal duties that you must follow, such as acting in good faith, promoting the success of the company, avoiding conflicts of interest, exercising reasonable care and skill, and following the rules in your company’s articles of association.
- You are also responsible for ensuring that the management company fulfils its obligations under the lease when a property changes ownership. The management company will be responsible for the following:
- Completing an LPE.1 Form (leasehold property enquiry form) for the seller’s solicitor
- Ensuring that the new buyer enters into a Deed of Covenant if this is required by the lease
- Receipting the buyer’s Notice of Transfer
- Arranging management company membership for the new buyer
- Providing a certificate of compliance if required by the leasehold title. This may be provided by a solicitor / conveyancer depending on the terms of the restriction.
Buying a leasehold property and joining the management company can be rewarding but also challenging. You should do your research before making any decisions, consult your solicitor for legal advice, and contact Companies House for any queries about your company’s registration or filing requirements.
If you are unsure about your obligations or need assistance regarding any of the management company’s requirements, please contact Katie Miller on 01756 692884 or katie.miller@awbclaw.co.uk.
27 July 2023
Further reading:
What’s the difference between leasehold and freehold? – AWB Charlesworth Solicitors (awbclaw.co.uk)