Why is access to management information important in respect of leasehold property
Common disputes between leaseholders and managing agents often revolve around the cost and quality of services.
By understanding service charges, leaseholders can better assess whether they are receiving value for money.
However, gaining access to the information about service charge expenditure can be arduous.
Detailed records often reside with the managing agent, and reasonable access to them might not be often granted to individual leaseholders.
Additionally, understanding the technicalities of building practice and maintenance provided in communal areas necessitates a detailed inspection.
Many leases make provisions for regular inspections, allowing long leaseholders to ensure adherence to statutory requirements. However, if a leaseholder does not have professional knowledge and experience when making an inspection, they may not uncover very much of use.
Leaseholder rights that help uncover information
Appoint a surveyor to advise on items in service charge accounts
Under section 84 and Schedule 4 of the Housing Act 1996, Recognised Tenants' Associations may appoint a chartered surveyor to advise on whether variable service charges are reasonable and inline with the lease.
The legislation specifically requires that this right is executed by a Recognised Tenants Association (RTA) rather than individuals. Collaboration among leaseholders, through the formation of such an association, thus becomes vital in invoking this right.
To carry out a management audit
The legal right to conduct a management audit of leasehold property is conferred by section 76 of the Leasehold Reform, Housing and Urban Development Act 1993. This right can uncover discrepancies and ensure compliance with legal rights, service charges, and other lease-related matters.
An individual tenant has the right to a management audit under certain circumstances, specifically when their dwelling is the only one, or one of two, in a building.
For larger dwellings, collaboration among tenants becomes necessary.
The process may seem complex, but it provides a mechanism for long leaseholders to ensure that service charges and other documents related to lease adhere to legal requirements.
The rights do not provide any specific remedy to problems in themselves but are there to provide tenants with information:
A general check on present management standards and procedures: with proper auditing, transparency is enhanced.
A check or audit of the service charge accounts: confirming that all charges are in line with the lease.
Enforce covenants of the lease covering management, repair and services: helping to maintain the quality of services, including the management functions and maintenance provided in communal areas.
Ensure further compliance with approved codes of management practice: ensuring that the managing agent operates in line with statutory requirements and professional standards.
Provide evidence for challenge of service charges: with good evidence, you can challenge service charge contributions at court or tribunal proceedings to ensure the service charge expenditure aligns with the lease.
Support an application for the appointment of a manager: if management of the property is not performed according to the guidelines then a request can be made to the First Tier Tribunal (Property Chamber) to appoint another.
The appointed surveyor or auditor has legal powers of access
Appointing an auditor to act on your behalf allows you to have greater access to information that is usually not available to you.
The appointment of a surveyor grants more legal access rights, allowing in-depth exploration into the management of the building.
Surveyors and auditors can investigate aspects of management that aren't ordinarily visible to tenants, including reserve funds, service charges, and accounting period details.
Considerations for exercising your rights
Here's what you need to consider:
Procedure selection: different qualification criteria exist for two rights; these need to be understood and matched to your objectives.
Sensitivity: these procedures grant rights to sensitive information, arising solely from the proper appointment and notice to the landlord.
Form and nature of notices and process: varied in accordance with the appointment, whether it's an ongoing relationship with a surveyor or a specific audit with a predetermined completion date.
Landlord communication: notices can be served on the landlord's managing agent but must be copied to the official address. Provisions also cover access to documents held by a superior landlord or new landlord compliance following a disposal of interest.
Costs: who pays?
Under UK law, landlords or their managing agents are disallowed from charging tenants for supplying documents or facilities for inspecting them.
However, the tenants may incur a reasonable charge for copying.
Landlords can legitimately add costs resulting from the audit or actions of the appointed surveyor to the tenants' service charges.
The safety net for tenants lies in the ability to challenge these costs for reasonableness, similar to other service charge costs.
The purpose of an audit is set out in section 78 of the 1993 Leasehold Reform, Housing and Urban Development Act.
An audit carried out for the purposes of ascertaining:
a) the extent to which the obligations of the landlord which
i) are owed to the qualifying tenants, and
ii) involve the discharge of management functions in relation to the relevant premises or any appurtenant property,
are being discharged in an efficient and effective manner; and
b) the extent to which sums payable by those tenants by way of service charges are being applied in an efficient and effective manner
In other words, by giving this right, the legislation is aiming to allow leaseholders to carry out an objective assessment of the landlord’s management functions and procedures and to evaluate those.
Objectives and tasks
A management audit is typically a one-task assignment, involving investigating specific areas of the leasehold property and its management and reporting the findings to the tenants.
It does not carry the flexibility of ongoing support that an appointment of a surveyor provides.
What does an auditor examine?
Landlord's obligations: how the landlord fulfils obligations under the lease and relevant legislation.
Repair and maintenance works: how works are specified, managed, priced competitively, recorded, and authorised for payment;
Service contracts: review of existing contracts like lift maintenance or gardening for suitability, costs, and pricing methods;
Financial systems: how tenants' service charge money is held, ensuring its trust fund status, and understanding the handling of interest; and
Common areas condition: evaluation of maintenance and contracted services, cleanliness, and proper functioning of equipment.
With these findings, the auditor offers an informed professional judgement regarding the provision of services, their standards, and value for money.
To qualify for the right to have a management audit:
- you must have a long lease, defined as an original lease longer than 21 years;
- you must be obligated to pay service charges; and
- the property must be of a residential nature - dwellings such as flats or houses. It does not apply to business leases.
If you are the only tenant in the building paying service charges, you can exercise the right for a management audit.
If the building houses only two dwellings, either or both tenants can enforce this right.
If there are three or more dwellings, you'll need no less than two-thirds of the tenants to collectively exercise the right.
Under the legislation, the auditor must satisfy certain requirements:
they must be 'suitably qualified' either
i) a qualified Accountant; which means a member of: the Institute of Chartered Accountants, or the Association of Certified Accountants, or any other body of accountants recognised by the Secretary of State;
or ii) a qualified Surveyor, which means a fellow or associate of the Royal Institution of Chartered Surveyors, the Incorporated Society of Valuers & Auctioneers, the Architects and Surveyors Institute, or as prescribed in regulations made by the Secretary of State.
and they must not be:
a tenant of the premises; or
an officer, partner, agent or employee of the landlord.
There is no advantage in the audit being carried out by either profession, notably because the auditor may appoint others to assist them in the audit. These others also exercise the rights of the auditor.
So an accountant appointed as auditor may hire a surveyor for property inspection, and conversely, a surveyor may hire an accountant for examination of the accounts of a reserve fund relating to particular major works. The may also seek professional advice without appointing them.
What is important is to check the auditor’s relevant experience in property management. It is a specialist function.
Rights of access and information
An auditor has a statutory right under section 79 of the 1993 Act to require the landlord:
to supply him with the summary of relevant costs referred to in section 21 of the 1985 Landlord and Tenant Act on which the service charge is based;
to afford him reasonable facilities for inspecting and copying accounts, receipts and other documents supporting the summary, or any other document 'sight of which is reasonably required by him for the purpose of carrying out the audit'; and
to allow an inspection of any common parts comprised in the relevant premises or appurtenant property.
Section 80 notice to the landlord
Under section 80 of the 1993 Act, to exercise the right to an audit, a written notice must be given to the landlord that states:
- the full names of all the qualifying tenants on whose behalf the notice is served;
- the addresses of the flats of which they are qualifying tenants;
- the name and address of the auditor (to whom the landlord can send counter notices and information);
- any documents that the landlord is required to supply to the auditor or to afford them access to inspect and copy; and
- the date on which the auditor proposes to carry out an inspection (not less than one month or more than two months from the date of the notice).
A notice must be signed by all the tenants.
The landlord must comply with the notice within one month, or serve a counter-notice setting out their objections, or proposing an alternative date for the inspection.
Where the landlord fails to comply or, provides objections, the auditor may apply to the court for an order.
The application to the court must be made no sooner than two months nor later than four months after the service of the section 80 notice.
Appointment of a surveyor
The reason for giving leaseholders a right of appointment of a surveyor is set out in section 84 of the 1996 Housing Act.
to advise on any matters relating to, or which may give rise to, service charges payable to a landlord
This is a wide remit remit for both the tenants and the appointed surveyor. While it may seem that the information that is uncovered is similar to that under a management audit, it is to be used to advise on service charges.
A flexible engagement
Once appointed, the surveyor offers more flexible and ongoing support to tenants. As well as management audit functions, a surveyor may:
carry out regular inspections: annual or quarterly checks of repairs and management practice;
advise on service charges on any other area of property management;
obtain evidence for challenging service charges or applying for a new manager.
The full powers available to an appointed surveyor is set out in Schedule 4 of the 1996 Housing Act.
The right to appoint a surveyor is only available to a Recognised Tenants’ Association.
An RTA must be recognised by the landlord or by the local Rent Assessment Committee.
Where there is already an RTA, the appointment of a surveyor is straightforward and does not require the two-thirds of qualifying tenants as for a management audit.
However, if there is not an RTA, one will need to be established before the right can be exercised. This can cause delays, notably because of the requirement for the landlord to recognise it.
As with an auditor, a surveyor must be suitably qualified. They can be a tenant of the premises. They can also appoint assistants to investigate or advise on particular issues.
As examples, an assistant could be an accountant to give professional advice on accounting systems, or an engineer to advise on heating systems.
Rights of access
The appointed surveyor has greater rights of access. The landlord must:
The rights available to the appointed surveyor are wider and more flexible than for the management audit . He may require the landlord:
give them reasonable facilities for inspections and copying any documents, if sight of which is reasonably required by them for the purpose of their functions; and
allow an inspection of any common parts comprised in the relevant premises or any appurtenant property.
Notice to the landlord
The formal appointment of the surveyor happens by the RTA serving written notice.
There is no prescribed form for the notice, it just needs to state:
- the name and address of the surveyor
- the duration of their appointment
- the matters in respect of which their is appointed
The appointment remains in effect until the service of a further notice cancelling the arrangement.
There is no requirement in the notice to state what information is required.
The landlord must comply within one week 'or as soon as reasonably practicable thereafter'; or give the surveyor a counter notice stating that they object to the appointment for reasons given in the counter notice.
If the landlord fails to comply after one month, and has not served a counter notice of objection then the surveyor may immediately apply to the court for an order (within four months from service of their original notice).