Leaseholder. Freeholder. Director. RMC. Landlord. What are all these terms? How do I fit in? And what do I need to do to avoid being caught short.
Owning the freehold means owning the land, including any buildings on that land. As such, the freeholder is the person or entity that owns everything included within that land, whether it is a small cottage and garden on a country lane or the plot containing 500 flats across 10 different buildings.
Freehold and Leasehold
When buying a house, in most cases you would buy the freehold of the plot so that you own the land (gardens) and the buildings on the land. With flats, these are more commonly purchased as a leasehold property. This means you buy a lease, which is like a long term tenancy agreement (usually between 100 - 999 years) which gives you the right to occupy the property. The lease agreement will define how much of the property you own, who is responsible for repairs and maintenance, and also your rights to access various communal areas or common parts. In both cases, there is normally an obligation for the main freeholder to maintain shared areas which can include roads, grounds and communal hallways, stairwells and shared facilities.
The legislation relating to property ownership typically refers to a Landlord and a Tenant (such as the Landlord and Tenant Acts). This generally means the Landlord that owns the land (freehold) or has a Head Lease for the property, from which they grant Under Leases to individual leaseholders. Normally the Tenant would be individual property owners / leaseholders in the development.
Chain of command
This can be confusing, for example if a Tenant lets their flat to a tenant on a regular tenancy agreement. This can lead to multiple tenants in relation to a single property. In these cases, it helps to use universal terms to be clear who you are referring to:
Freeholder - Landlord
Head Tenant - Head Lessor (not often applicable)
Leaseholder - Under Lessee - Tenant
Renter - Sub Lessee - tenant
This chain is important to understand because of the contractual obligations between the different parties. While a tenant / renter may be living in a flat for years and made it their home, not every problem that arises will be directly repairable by their landlord (the leaseholder) as the roof for a block of flats is often maintained by the Landlord (freeholder). This chain can be frustrating, but it helps to understand the steps involved with resolving various issues.
RMC, RTM, are we sure?
In addition to the above, many leases (or transfer agreements) will include a Manager. This is normally a Residential Management Company (RMC), and all the leaseholders/freeholders on the development would normally be shareholders or members of this company. The RMC can often In some cases, if there is no RMC it is possible for leaseholders (but not freeholders) to create a Right To Manage (RTM) company, which serves a similar management function to an RMC and takes the management obligations away from the Freeholder and passes them to the leaseholders.
For both an RMC and an RTM company, these limited companies require Directors. Most of the time the Directors will be volunteers chosen from the shareholders / members i.e. the property owners at the development. The Directors are responsible for the actions of the RMC / RTM and any works undertaken, and should act in the interests of the majority of owners.
Managing Agents
Freeholders, RMCs and RTMs often find it best to employ a managing agent to perform their duties under the lease or transfer agreement. Managing agents are rarely a party in the lease, but are employed like any other contractor to undertake specific tasks on behalf of their client. They must act professionally and in the interests of the majority, but ultimately must take instructions from their client.
While the ownership structure can be confusing, both in terms of day to day maintenance as well as dealing with property sales, major works or shared spaces, it is a dependable system for handling the various elements and challenges of property ownership. If you have any doubts or concerns about your current setup, you should be able to seek advice from a capable managing agent (like our team at LovePM based in Kent!) or a leasehold solicitor to assist you further. As always, there is also further advice available at the Leasehold Advisory Service: https://www.lease-advice.org/
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