UNIT 1, SECTION 2

THE LAW RELATING TO RESIDENTIAL BLOCK MANAGEMENT

In addition to the wider, general law which governs so many aspects of the way we live,
work and deal with each other, there is a huge body of law aimed very specifically at
leasehold property. This consists of legislation and case law developed over hundreds
of years and which are still constantly changing.

Over recent years, the balance has shifted so that landlords no longer have the
dominance they once enjoyed. However, there remain many controversial issues
affecting areas of direct interest to landlords, leaseholders and property managers alike.

This section will address the fundamental legal points which dictate how leases and the
leasehold system work in practice.

LEARNING OBJECTIVES

Having completed this section you will know and understand how to

• explain the basic elements of a lease

• explain the difference between a lease and a licence
• describe how leases have come about
• summarise the different types of residential lease
• explain the difference between leasehold and common hold

2.1 Leases: definitions

A lease may be a complicated document, but its fundamental role is straightforward. A

lease (in the context which interests us – a long lease of a residential property) is a
contract whereby one party (the landlord) grants to another party (the tenant or
leaseholder) the exclusive right to possess one or more pieces of land and parts of a
building for a fixed term of years in return for rent (and usually other things, as we shall
see). In most cases which are likely to affect the block manager at work, the property
which is the subject of the lease will be a flat or apartment within a block or an estate
comprising several blocks.

There are many elements to a lease and it is important to understand the definitions.

• Property – the property concerned in a lease is land. “Land” (defined by the Law
of Property Act 1925) includes buildings, parts of buildings and rights attaching to
the land (such as easements which we will look at later). A lease is a contract
which creates a legal estate or interest in land

• Contract – (see 1.6 above) a contract such as a lease which creates or transfers
an interest in land must be in writing

• Landlord – the party entitled to grant the lease, also known as the “lessor”.
Usually this will be the freeholder. The freeholder owns the freehold estate in the
Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
 land which gives the right to deal with the land “absolutely” (without interference)
subject only to the Crown and legal restrictions laid down by Parliament (such as
the planning regulations). Sometimes there will be a more complex structure of
freehold and leasehold titles so that the landlord who granted the lease is not the
freeholder but someone to whom the freeholder has already granted a lease.
This person would be known as the “head-lease”. (As happens all too often,
conflicting definitions may be found in the law. The service charge legislation, for
example, includes within the definition of “landlord” the party entitled to enforce a
service charge which could be a management company having no legal estate in
the property. More of this in Unit 2.)

• Tenant – the party to whom the lease (or “tenancy”) is granted, also known as
“lessee” or “leaseholder” (in law, they all mean the same thing). The leaseholder
takes the leasehold estate in the land which gives similar rights to a freehold.
However, the leaseholder is subject to additional restrictions imposed by the
terms of the lease and by the fact that a lease lasts for a limited period only – a
term of years or “term certain”. (Before Commonhold was created in 2002,
freehold and leasehold were the only legal estates in land; the only forms of legal
tenure or ownership).

• Term of years – the duration of the lease. Leases must be for a fixed term. Even
periodic tenancies are for a fixed term in the sense that they can be brought to an
end with notice and thus their termination date is ascertainable.

• Exclusive possession – this is a required element of the grant of a lease. What it

means in practice is that the landlord must grant the tenant the exclusive right to
use and occupy the property without interruption. It is not necessary that the
tenant takes up occupation personally (he may let the property to his own tenant
for example) but he must be able to exclude the landlord and others connected
with the landlord.

• Rent – any lease or tenancy must include provision for the payment of rent. This
need not be a sum of money (though it usually is). Many leases now state the
rent to be “a peppercorn”. This is a nominal rent intended only to preserve the
status of the lease. Any landlord who attempted to demand a peppercorn would
receive very short shrift.

SELF CHECK QUESTION 1

List the fundamental legal requirements of a long lease.

Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
2.2 Lease, tenancy or licence

Residential property on land owned by a landlord may be occupied by others with the
permission of the landlord in return for payment of rent or some other charge or fee.
They are all contracts which fall into one of three categories: lease, tenancy or licence.

The main distinguishing feature between them is the security of tenure they bestow on
the leaseholder, tenant or licensee. (“Tenure” means the holding of something: in this
context, the holding of the continuing right to occupy the property of the landlord.) The
other differences effectively flow from the degree and duration of the security of tenure
of the property.

Bearing that distinction in mind, the question of whether a particular contract to hold and
occupy the landlord’s property is a lease, tenancy or licence needs to be broken down
into two stages:

• lease or tenancy?
• lease or licence?

Lease or tenancy?

Strictly speaking, there is no fundamental distinction in law between a lease and a

tenancy. Just as “leaseholder”, “lessee” and “tenant” are interchangeable terms from a
legal point of view, so are “lease” and “tenancy”. The difference between them is one
of usage.

A “lease” has come to mean a tenancy lasting for a long term of years (typically anything
from 21 to 999), something which has its own intrinsic value meriting the payment of a
premium on its sale quite apart from the rent or other charges made under it. Holding
the lease has the connotation of ownership of the land in question (albeit for a limited
time) and consequently much more freedom from interference by the landlord in the way
the property is used and enjoyed. Rent is usually relatively low and the leaseholder
tends to have the burden of repairing and maintaining the property itself.

By “tenancy” we tend to mean a shorter term - often months rather than years – or a
periodic tenancy with rent payable regularly (monthly is most common but it could be
weekly, quarterly or even annually) but with no definite end date. The rent payable under
such arrangements will be considerably higher than for a long lease but the landlord
retains a more direct role in repair and maintenance.

(From the point of view of this programme, we are interested principally in long leases
but, of course, a single property can have both types of tenancy if the long leaseholder
sub-lets the flat to a tenant on a short-term agreement.)

Lease or licence?

Parliament and the courts have intervened over the centuries to protect leaseholders
and tenants by enhancing their security of tenure and by granting a wide variety of
other rights and remedies. This guidance will look at a number of these and consider
how they affect long leases.

It has always been recognised, however, that there are circumstances in which a
landlord gives others a licence to occupy his property where it would be
Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
inappropriate, impractical and unhelpful for legislation to regulate the terms of such
agreements. Examples of such cases include

• lodgers
• employees living-in with their employers or other employees
• family members occupying part of the family home
• living accommodation which is not sufficiently self-contained to permit
exclusive possession
• someone occupying as a result of an act of friendship or generosity

Licences create no legal estates in land. Licensees have no security of tenure against
their landlords and enjoy none of the statutory rights and protections enjoyed by
leaseholders and tenants. Licensees are not completely at their landlord’s mercy
however. The Protection from Eviction Act 1977 prohibits unlawful eviction or
harassment of licensees by landlords (as it does for all occupiers of residential
premises). In particular, the Act stipulates that it is unlawful to evict a residential
occupier without the benefit of a court order unless they occupy under an excluded
tenancy or licence (excluded licences and tenancies cover situations such as the
occupier sharing accommodation with the landlord or the landlord’s family members,
holiday lets and hostels).

Given what can be at stake, there is unsurprisingly a huge body of case law whereby the
courts have sought to define the precise dividing line between leases and licences. The
principal point which has been established is that if there is no right of “exclusive
possession” (see 2.1 above) there can only be a licence.

SELF CHECK QUESTION 2

Give an example of when it may be important for you managing a block of flats to know
the distinction between lease and licence.

2.3 Leases: context

Although blocks of flats are not unique to England and Wales, the leasehold system is.
Globally, there are many different structures for the ownership and management of
blocks, estates and other types of property. Even our close neighbours in Scotland
and Northern Ireland do not share the leasehold concept.

This open learning programme is concerned simply with the management of residential
property let on long leases so we will resist the temptation to delve at length into the
much wider history of leasehold. The type of lease in which we are interested is that
Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
which has developed over the centuries to cater for the situation whereby the leasehold
property is in a block or within an estate where the common parts and amenities of the
building and grounds are the responsibility of others.

The details of the set-up on the ground will differ from property to property according to
the history of the site.

The classic scenario is for a freeholder with no connection to the residential

leaseholders (a property company or developer perhaps, a social landlord or a family
trust) to own the land and the structural fabric of the building which is divided into flats
let on long leases to the individual leaseholders.

It is increasingly common for the freehold to the land and buildings to be owned by a
company whose members are the leaseholders of the flats. Notwithstanding that the
personnel may be the same, the company (known as a “residents’ management
company”) is an entirely separate legal entity from the leaseholders.

In the social housing sector, many landlords have estates where its tenants have
exercised their statutory “Right To Buy”. The fundamentals of the leases used are the
same, but the social landlord still has responsibilities to its Right To Buy leaseholders
and to its remaining secure and assured tenants to continue to manage the estate and
buildings. Thus, mixed tenure blocks have been created in the social sector.

Beginning in the 1980’s, social landlords have also used “shared ownership leases” to
assist first time buyers into home ownership and older people to release equity from
their homes. In these developments, the leaseholder buys a share of the leasehold
property, paying rent in the respect of the remaining share which is usually held by a
housing association. The leaseholder will be entitled to buy an increasing share until the
property is acquired outright. Shared ownership schemes are intended to help those
who need to get on to the property ladder and they are generally provided as part of
affordable housing schemes.

Another alternative is where the freehold is owned by one party but the management of
the building and common parts is the responsibility of a third party. This third party is
frequently a residents’ management company.

These are the simple possibilities. Many estates contain much more complex structures
including

• a system of head leases and under leases

• an estate with several blocks under different management
• a mixture of leasehold and freehold dwellings and so on (we shall be
looking in greater depth at such eventualities later)

Whichever situation it is, there must be provision for someone to be responsible for the
services which are essential to protect the interests of the freeholders and the
leaseholders (whether as residents or investors). Essential services include

• repair and maintenance of the buildings

• buildings insurance
• cleaning and gardening
• general management

Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
It is the job of the leases to cover these services and how they are to be paid for.

SELF CHECK QUESTION 3

Can you think of two ways in which the leaseholders of a block could have acquired the
legal authority to manage their building?

2.4 Leases and Commonhold: The future

The leasehold system and the way it is sometimes operated has been subject to
criticism from leaseholder groups and from across the political spectrum. Parliament
has enacted legislation to tackle abuses and remove anomalies.

Politicians and the media focus on extreme cases of abuse by landlords which are
genuine but rare. This publicity can make it difficult for good managers who may find
leaseholders sceptical or even hostile because of this reputation.

Parliament will doubtless continue in its efforts to reform the leasehold system. For
example, it is likely that legislation will be introduced to abolish the landlord’s power of
forfeiture and replace it with something along the lines of the draft Landlord and Tenant
(Termination of Tenancies) Bill proposed by the Law Commission in 2006.

Commonhold

Meanwhile, the Common hold and Leasehold Reform Act 2002 (“the 2002 Act”)
proposed an alternative to leaseholds. Previously, freehold and leasehold had been the
only forms of legal tenure in land. As we have seen, this perpetuates the landlord and
tenant relationship and the perceived imbalance between the two. It did, however,
ensure some sort of workable arrangement for ongoing management of the land and
buildings affected.

The 2002 Act started to change that by introducing common hold – a new form of land
ownership.

Common hold is very similar to the systems of common ownership of the shared fabric,
land and facilities, which operate elsewhere in the world. Unlike a leasehold
development, a common hold development has to adopt prescribed standard rules and
procedures and requires that all unit owners become members of the common hold
Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012
association that owns all the common parts. There will no longer be a separate
freeholder.

Leasehold schemes already in existence will remain so unless all leaseholders, the
freeholder and other interested parties (such as mortgage lenders) agree to convert to
common hold. New developments may be created as common hold but this is still only
an option and new leasehold properties will still be built. But new common hold
developments will appear and management organisations will find themselves
managing developments on behalf of common hold associations. At present,
Parliament does not intend to replace leasehold with common hold as the take up of
this new form of land ownership has been poor as there is little benefit for purchases
and therefore developers.

SELF CHECK QUESTION 4

Ask around at work or with nearby practices and see if anyone has direct experience of
a commonhold development. What conclusions do you draw?

Residential Block & Estate Management © ARLA, ARHM, ARMA, ASSET SKILLS, CIH, NAEA, RICS
2012