Leaseholder Protection Glossary
An A-Z guide that defines the common terms and phrases for landlords and leaseholders in relation to The Act and high-rise residential buildings.
Read moreLeaseholder protections may be relevant to both existing leaseholders and those looking to purchase a new or existing leasehold interest in a higher rise building. This briefing gives an overview of the application and availability of leaseholder protections. Further transaction specific advice should be obtained where appropriate.
The leaseholder protections detailed in this briefing apply only to relevant buildings where there is a relevant defect relating to relevant works and (save where the developer test is satisfied) where the lease is a qualifying lease. These terms are key:
The nature and availability of leaseholder protections will depend on whether the building owner was the developer of the building (or deemed to be so – see below) the nature of the defect, the status of the building owner and leaseholder and the value of the lease.
Developer test
Leaseholder protections may apply where the building owner (on 14 February 2022) was (or was associated with) the developer responsible for a relevant defect in a relevant building. Where leasehold protections apply, the building owner will not be able to pass the cost of remediating the relevant defects to the current leaseholders via the lease service charge.
The leaseholder does not have to be a qualifying leaseholder to benefit from this leaseholder protection. This is known as the developer test.
Cladding defects
Leaseholder protections may apply where the relevant defect in a relevant building relates to the remediation or removal of unsafe cladding. Where leasehold protections apply, the building owner will not be able to pass any of the remediation costs relating to cladding defects to the current leaseholders via the lease service charge.
The leaseholder must be a qualifying leaseholder to benefit from this leaseholder protection.
Non-cladding defects
Leaseholder protections may also apply where the relevant defect in a relevant building relates to the remediation of non-cladding defects. Where leasehold protections apply the remediation costs that the building owner may pass on to the current leaseholders via the lease service charge in respect of non-cladding defects may be capped or reduced (see further below).
The leaseholder must be a qualifying leaseholder to qualify for leaseholder protection in each of the following scenarios.
When buying a lease in a relevant building the buyer should ensure that its survey includes investigations to ascertain the existence of any relevant defects that may require remediation and, where applicable, the building owner should be asked to provide details of any planned works to remedy any such defects.
Notwithstanding that leaseholder protections may operate to limit or cap service charge contributions, works required to remedy relevant defects may cause considerable disruption and disturbance to the occupation of the property.
The exercise to ascertain whether and to what extent leaseholder protections apply can be quite complex. Care should be taken to ensure that all appropriate documentation is in place to benefit from any applicable leaseholder protections. Details of the two key documents required to ascertain the existence of and claim leaseholder protections are detailed below:
Claiming leaseholder protections
The Leaseholder Deed of Certificate (LDOC) is the document setting out the information that a landlord will need to identify the extent to which a lease is a qualifying lease. This will vary from case to case but should include a copy of the Land Registry title to the property and evidence confirming whether or not the property was the only or main home of the person that was the tenant in occupation on 14 February 2022.
It may be worthwhile preparing an LDOC even if you do not intend to sell your property in the short term (and even if you know that the lease will not be a qualifying lease) as the information required to complete the LDOC is set at 14 February 2022 and will not change.
The Landlords Certificate (LC) is the document used to demonstrate whether the building owner (on 14 February 2022) satisfies the developer test or the contribution condition and is prepared in respect of a LDOC to confirm if the lease is a qualifying lease.
Transfer of benefit
Where leaseholder protections are available and have been documented as detailed above, the benefit of the protections stays with the qualifying lease and will therefore transfer automatically to a purchaser on the sale of the qualifying lease who will become the qualifying leaseholder.
A lease that does not benefit from leaseholder protections is not defective. However, the leaseholder will be liable to pay its full share of the service charge due under the lease without any exemption or cap that may otherwise be available. This may have an adverse impact on the value of the lease, particularly if other leases in the building are qualifying leases.
It is possible for a building to contain both qualifying and non-qualifying leases. Non-qualifying leaseholders cannot be required to pay any shortfall in the service charge that may arise because of the leaseholder protections afforded to qualifying leaseholders in the same building (this liability falls to the landlord). However, as noted above, this may have an adverse impact on the value of a non-qualifying lease.
Four common examples are set out below.
Seeking legal advice at the start of your transaction will help you ascertain the existence of and, where relevant, the appropriate steps to take to claim leaseholder protections.
JULY 2024