In an era where the mere mention of a new legislative term can evoke anxiety, the landscape of leasehold property ownership is undergoing a significant shift. Hayley Holland, a Senior Legal Advisor in our Residential Conveyancing Team, delves into the intricate details of the Building Safety Act 2022 and its profound implications for the sale and purchase of leasehold properties. Brace yourself for a comprehensive exploration of the intricacies, from deciphering the definition of a ‘relevant building’ to navigating the complexities of qualifying leases and Landlord Certificates, as we demystify the potential challenges, offer insights, and shed light on the critical aspects that every leasehold property owner and their conveyancer needs to comprehend.

Hearing that a new instruction is for a leasehold property can easily send our cortisol levels through the roof (whether you are in a Relevant Building or not!)

Assuming you’ve not been living under a rock for the past year, you will be aware that there is now legislation in place to deal with building safety (the Building Safety Act 2022 (BSA 2022)) *shudders*. This legislation is evolving quickly due to social and professional pressures. I’m sure we’d all agree, the first attempt was not fit for purpose (and, really, still isn’t!) Whilst we want everyone to be safe, this does mean more requirements that need to be complied with, more costs that will be involved for Leaseholders, not to mention certain lenders’ requirements of conveyancers, where, unless we are also a qualified surveyor and building safety inspector, it sends us running for the hills!

And the more costs involved – THE LEASEHOLDER IS GOING TO HAVE TO PAY FOR
EVERYTHING AND I WANT TO RUN AWAY IMMEDIATELY!

Having gotten over the initial panic and having spent some considerable time reviewing this legislation (I love Leasehold, *wonders if I can find a T-shirt to that effect*), I’ve been able to rationalise it in my mind and I have adopted a process to navigate what has the potential to be a rather complex transaction. I hope that in sharing this process with you, it goes some way to removing the anxiety of dealing with Leasehold property, particularly those that fall under the Building Safety Act 2022! In my mind, owners of Leasehold property should not be left out to dry by their lawyers and so we all need to be as educated and able to deal with Leasehold property as we can be.

If I haven’t lost you yet, you better buckle up, here we go…

The definition of a ‘relevant building’ in the BSA2022 includes there being at least 2 residential dwellings in the building. Therefore, there will perhaps be a case were there is only 1 residential dwelling in a building with commercial premises, and in this highly unlikely scenario, you would proceed on the basis of the flat not being in a relevant building. For the below purposes, I am proceeding on the basis that there are 2 or more residential dwellings in the building.

Point A

Is the flat in a building which has 5 storeys or is more than 11 metres high from the floor of the top storey? No? You can take comfort that the extra regulations and requirements for mid to high rise buildings do not apply here, so you can carry on as normal and have the Standard Leasehold Jitters (SLJ)

Point B

If the building is 5 storeys or more than 11 metres high, this satisfies one part of the building potentially being a ‘relevant building’. If this is the case, continue to Point C.

Point C

• Who is the Landlord?
• Does the Landlord own the freehold?
• Is the freehold owned by the leaseholders collectively by way of a resident management company, perhaps?

If the building is a leaseholder owned building, then the building is not a relevant building. Proceed with SLJ!

Whether the seller has a qualifying lease or not, will depend on what costs the landlord can pass to them. Depending on who owns the freehold will also depend on what costs the landlord can and cannot pass to the leaseholders, with some caps also being in play.

Point D

What if you think – great, the flat is not in a relevant building, as it is not 5 storeys or 11 metres high.

*CURVE BALL!* Depending on how the service charge is set up in the lease, what the ‘Estate’ is defined as and whether there are split service charge provisions, this may mean that the freeholder Landlord owns 3 buildings on the development, which are all linked through the service charge budget. One of those buildings may be, for arguments sake, 5 storeys high.

If the lease provides that all estate service charge costs are split equally between all leaseholders in all 3 buildings, you could have the potential of having to bear certain costs for historical re-mediation works within another building on the estate. Just something to bear in mind.

Point E

So you’ve come to the conclusion that you are dealing with a flat in a relevant building.
“What next!” I hear you cry!

We now need to deduce whether the Lease is a Qualifying Lease under the BSA2022. The
Government (rather surprisingly) have some great guidance online which you can run through
to identify what criteria has to be met for the Lease to be a Qualifying Lease.

Information on the steps needed in respect of a Leaseholder Deed of Certificate and a lovely
precedent for your use can also be found here!

Point F

• Has a Leaseholder Deed of Certificate been issued?

If it has, the Landlord has to proceed on the basis that it is valid – they do not have to acknowledge receipt and the protections for leaseholders, as set out in Schedule 8 of the BSA2022 apply. If the Landlord is wishing to pass any costs to the leaseholder, they have to serve their Certificate within 4 weeks of receipt of the Leaseholder Deed of Certificate.

Point G

• Has a Landlord Certificate been received?

*Interesting Fact!* Did you know that the Landlord has to serve a Certificate 4 weeks after realising there is a ‘relevant defect’ or of a leaseholder’s intention to sell the flat? If the Landlord has not served their Certificate within this timeframe, they are not able to recover any historical re-mediation costs up to the date that they should have served their Certificate.

Point H

• If a Landlord Certificate has been served, is it valid?

Point I

The Landlord can request the leaseholder to serve a Deed of Certificate within 5 days of finding out the leaseholder is intending on selling their flat. Is it an indication that, if the Landlord does not request this, that there may not be any costs the Landlord wishes to pass down, or is it that most Landlords are not yet clued up and understand the BSA2022, because, well, who does?

Point J

So, you have a flat in a relevant building.

Whether or not you have a qualifying lease or not, may not necessarily be a concern.

• Do you have a copy of your leasehold pack, with a copy of the Fire Risk Assessment, Health & Safety Report, EWS1 and/or FRAEW?
• Have any works been identified which fall within the remit of the Landlord being able to pass those costs down to the leaseholders?
• Do caps apply?

Remember, who the freeholder landlord is matters! If it is the developer who constructed the building and is responsible for the defects, they would not be able to pass those costs down.

There are many more points that you will think of, as you go through this process, and you will find yourself down a rabbit hole, with dominoes falling at every turn. But for you to get to point Z, where you perhaps should be running away, given the somewhat not ideal lender requirements, is where you have a flat in a relevant building, where the leaseholder is not protected under Schedule 8, and the Landlord has served their Certificate listing the costs they wish to pass down for relevant defects. Whilst there are caps that apply depending on the value of the flat, these caps are still quite high!

If you have a Landlord Certificate in-front of you, with no Leaseholder Deed of Certificate, and the flat is in a mid to high rise building, with historic re-mediation works that need to be carried out, your client and any future successor in title will not be covered by the contribution caps when asked to pay towards re-mediation of non-cladding relevant defects in instances where the Landlord or building owner did not meet the developer test and contribution condition.

There are still some hopeful changes to the BSA2022 to remedy gaps or lack of clear direction, but until such time, I hope we all continue to help each other with another added layer to the leasehold tenure, and that we will not enter a ‘computer says leasehold – we say NO’ era.

If you are wondering what a Leaseholder Deed of Certificate and Landlord Certificate is, and what the benefits could be in serving a Leaseholder Deed of Certificate sooner rather than later, or wish to discuss any of the points above in more detail, please get in touch with me, Hayley Holland -
hayley.holland@porterdodson.co.uk