Blog Layout

Understanding Service Charges: A Guide for Leaseholders

9 August 2024

Understanding Service Charges: A Guide for Leaseholders

Service charges are funds collected in accordance with your lease and are based on a budget set by the freeholder, directors of a management company, or managing agent. These funds cover all building-related expenditures, such as repairs, decoration, electricity, gas, water for common areas, cleaning services, gardening, management fees, accounting, and more. The list can sometimes seem endless!

Service charges are typically calculated based on apportionments, which are percentages according to the square footage of your flat. Ideally, the percentages for all flats in the building should add up to 100%, though not all do—this is something worth checking as soon as possible. For example, if the annual budget for the building is set at £5,000.00 and your apportionment is 14.87%, your annual service charge would be £743.50. It's important to note that ground rent and service charges are separate and should not be confused.

Your lease will specify when service charges are due, and hopefully, demands are sent out in accordance with this schedule. They could be due annually, bi-annually, quarterly, or on another schedule, so it's worth checking your lease to confirm when yours are due. If you receive a demand on a different date than specified, it's a good idea to bring this to the attention of your freeholder or managing agent.

It's crucial to note that if service charge demands are not issued according to the lease or if they are not accompanied by a ‘Summary of Tenants' Rights and Obligations’ (as required by Section 21b of the Landlord and Tenant Act 1985), a leaseholder is not obligated to pay the service charge under Section 21a of the same Act. Additionally, the demands must include the landlord's name and address as required by Sections 47 & 48 of The Landlord and Tenant Act 1987 (unless payments are made to a management company named in the lease). These are the only valid reasons to withhold a service charge. Once these issues are rectified, service charges become due. However, it’s important to remember that withholding payment can create issues for everyone, as it may lead to a lack of funds for the building. Managing agents cannot legally instruct services without available funds, so it’s vital to ensure the correct procedures are followed and communication is maintained.

In some cases, leases may specify a nominal service charge—say £60 per quarter per flat—with the remainder collected as a deficit at the end of the year. This means that when the annual accounts are prepared, any shortfall in the service charges will be collected from all leaseholders to cover the actual expenditure incurred that year.

Budgeting for your service charge is an essential aspect of property management, which we will cover in more detail in a future post.

If you have any questions or need further advice on service charges or any other property management matters, feel free to get in touch—we're happy to help!

Northmode Properties
T: 0161 676 0084
www.northmodeproperties.co.uk
18 October 2024
Understanding Awaab’s Law: A Detailed Guide for Landlords With the introduction of Awaab's Law as part of the Renters' Reform Bill, landlords are now legally obligated to swiftly address damp and mould issues reported by tenants. The law, named after Awaab Ishak, who tragically died due to prolonged exposure to mould, aims to protect tenant health and improve living conditions by holding landlords accountable for timely responses to these issues. What Is Awaab’s Law? Awaab’s Law ensures that landlords must resolve damp and mould problems within a legally mandated timeframe. This legislative action came about in response to the death of Awaab Ishak, a young child whose health deteriorated due to prolonged exposure to mould in poorly maintained social housing. The law underscores the need for landlords to take tenant complaints seriously, act promptly, and prevent potential health hazards, or risk legal penalties and sanctions. The Importance of Proactive Property Management Landlords must be proactive in managing their properties to stay compliant with Awaab’s Law. Regular property inspections and a detailed inventory are key. This not only ensures that issues such as damp, inadequate ventilation, or potential mould growth are identified early but also provides documented evidence that the landlord is addressing potential problems. Proactive maintenance and regular checks are essential, especially in regions prone to damp issues, such as Manchester and other parts of the North West. Best Practices for Compliance To meet the obligations of Awaab’s Law, landlords can implement the following best practices: Regular Property Inspections: Conduct thorough inspections, particularly before and after the winter months, to identify any potential damp issues that could escalate during colder periods. Comprehensive Documentation: Maintain detailed reports, using property management services to document all aspects of the property’s condition, especially related to damp and mould. Swift Action on Complaints: Act immediately when tenants raise concerns about mould or damp. Quick, effective responses can prevent the situation from worsening and mitigate any legal risks. The Role of Professional Property Management Utilising a professional property management service can assist landlords in staying compliant with Awaab’s Law. Property management firms offer detailed property reports, including mid-term inspections that focus on identifying early signs of damp. These inspections also provide an opportunity to assess other potential risks and ensure the property remains in good condition. This level of detail can help landlords demonstrate their commitment to resolving issues and maintaining safe, healthy living conditions for tenants. Adapting to Awaab’s Law: How Northmode Properties Can Help At Northmode Properties, we understand the challenges landlords face in staying compliant with evolving regulations. We offer tailored property management services to help landlords navigate the complexities of Awaab’s Law. Our team provides comprehensive property reports, regular inspections, and swift responses to tenant concerns, ensuring that landlords meet their legal obligations while protecting both their properties and tenants. With extensive knowledge of the North West housing market, including key cities like Manchester, we are well-positioned to help you safeguard your investments and ensure compliance with these new regulations. Make sure to follow us to stay updated on the latest property management trends, regulatory changes, and how Northmode can support you in ensuring your properties meet the highest standards of safety and compliance.
17 October 2024
Effective property management, especially in winter, requires thorough preparation to avoid costly repairs and maintain tenant satisfaction. Here's a more in-depth guide for landlords: 1. Heating Systems & Boilers Ensuring your property's heating systems are functioning properly is essential. Regular boiler servicing should be carried out by a qualified engineer, as this prevents breakdowns and ensures efficiency. Checking thermostats early in the season is important to avoid issues when temperatures drop. Encouraging tenants to test the system early helps identify problems sooner. 2. Insulation & Draught Proofing Proper insulation is critical in reducing heat loss and energy consumption. Inspect lofts and walls to confirm they’re adequately insulated. Also, address any draughts around doors and windows using draught excluders or weatherstripping. These steps can significantly reduce heating costs and make your property more energy-efficient. 3. Roof & Gutter Maintenance Heavy rainfall, snow, and ice can place a strain on roofs and gutters. It’s important to inspect roofs for loose or missing tiles that could lead to leaks during winter storms. Clearing gutters of leaves and debris prevents water from seeping into walls and foundations, which could cause significant structural damage. 4. Pipe Insulation Frozen pipes are a common issue in winter and can result in costly repairs. Insulate exposed pipes in unheated areas like basements, attics, or garages. Additionally, advise tenants to leave the heating on at a low level during extended absences to prevent pipes from freezing. 5. Smoke & Carbon Monoxide Alarms With heating systems and fireplaces in greater use, the risk of fire and carbon monoxide (CO) poisoning increases during the winter. Ensure all smoke and CO alarms are tested and functioning. It’s crucial to replace batteries and provide tenants with clear instructions on how to maintain these devices for safety. 6. Ventilation & Condensation Control As windows stay closed to keep the property warm, the risk of condensation increases, which can lead to dampness and mold growth. Encourage tenants to ventilate regularly by opening windows briefly or using extractor fans, particularly in kitchens and bathrooms. Installing extractor fans can help to maintain air quality and reduce the risk of damp issues. 7. Emergency Contact Information Landlords should provide tenants with clear instructions on who to contact in the event of emergencies such as a burst pipe or boiler failure. Prompt action can reduce potential damage to the property and maintain tenant satisfaction. Conclusion Winter property management requires proactive steps to ensure heating, insulation, and safety systems are fully operational. By conducting these essential checks and fostering open communication with tenants, you can avoid costly repairs and maintain a positive landlord-tenant relationship throughout the season. For expert assistance in property management across Manchester, Liverpool, and the Northwest, reach out to Northmode Properties to see how we can help you prepare your property for the winter months. Stay updated on property tips and market trends by following us on social media or visiting our website. www.northmodeproperties.co.uk
20 October 2024
Although the economy has found a more stable footing, boosting consumer confidence in the housing market, significant challenges lie ahead. Base rates are just starting to improve, and the government’s goal of building nearly 2 million homes in the next five years demands a significant upscaling of the workforce. A long-standing shortage of available properties continues to impact both sales values and rental prices across many regions, including the Northwest. In the coming years, the housing sector will undergo a major transformation driven by evolving regulations on planning, safety, and sustainability, as well as new legislation like the Renters’ Rights Bill. It's crucial that these changes balance the needs of residents and investors, ensuring housing remains accessible. Stay updated by following Northmode Properties, where we share regular insights into the housing market.
16 October 2024
The anticipated removal of Section 21 has sparked considerable concern among landlords, especially regarding their ability to manage properties effectively. Without the option to evict tenants easily, many landlords worry about their options if a tenant damages the property or fails to pay rent. In this article, we’ll explore what this legislative change means for landlords and how it may impact the lettings market. Fortunately, insights from the recent English Housing Survey, published on July 18, 2024, should help ease these worries. The data reveals that Section 21 evictions are actually quite rare in today’s market. In fact, 63% of private renters who moved in the last year did so on their own terms. Common reasons for these voluntary moves include job changes, the need for a larger home, or relocating to a different area. Evictions made up only 9% of tenant relocations, with most driven by landlords looking to sell their property or move in themselves. Among the few tenants who were evicted, more than half were asked to leave informally, 37% received a Section 21 notice (which allows landlords to evict tenants after a fixed-term tenancy ends or during a tenancy with no fixed end date, without needing to provide a reason), and just 2% were served a Section 8 notice (which is used if a tenant has violated the terms of their tenancy). These figures should offer some reassurance to landlords. Most tenancies come to an end at the tenant's discretion, and even in cases of eviction, it’s often because the landlord has a genuine need to reclaim the property. The use of Section 21 notices remains relatively low. A positive example of this system can be found in Scotland, where Section 21 was abolished several years ago, and the market has adjusted well since. Kevin Fraser, Director of Property Management for our Scottish brand, DJ Alexander, shared his perspective: “Since the ‘no fault’ eviction ban was implemented in Scotland back in 2017, we've seen the market adapt smoothly, with minimal impact on our clients. The new legislation provided sufficient alternative grounds for issuing notices to tenants, which we've utilized when landlords need to regain possession. Most landlords tend to issue notices when tenants stop paying rent, or when they want to sell or renovate their property. These reasons can still be used instead of Section 21, so the removal of this provision in England shouldn’t cause major concern for those in the sector.” For landlords who remain apprehensive about this change, an additional safety net is available: rent and legal protection insurance. This affordable insurance, costing around £1 a day (or a percentage of the rent in some cases), provides peace of mind by protecting against potential damages and rent arrears, thus safeguarding the security and profitability of your investment. You can learn more about Rent and Legal Protection here. While the abolition of Section 21 may seem intimidating, the reality is that most tenancies conclude without issues. As evidenced in Scotland, having the right alternative grounds for issuing notices continues to work effectively. With the proper protections in place, landlords can manage their properties with confidence and ease.
16 October 2024
At Northmode Properties, we're proud to be part of the Northwest community, managing properties and blocks in vibrant areas like Manchester, Salford, Didsbury, Stockport, Bolton, and Bury. Our solid reputation comes from our passion for property management and lettings. We genuinely love this region and care deeply about the people in it. Over the years, we’ve built strong relationships with local contacts, which helps us understand the property market in a way that’s personal and relatable. We're here to support our community and make property management a positive experience for everyone involved. What is Block Management? Block management involves overseeing and maintaining residential buildings with multiple units, such as apartment complexes or housing developments. Typically, these properties are leasehold arrangements, where residents have the right to occupy a unit for a specified period but don’t own the land it sits on. Leaseholders are often represented by Residents’ Management Companies (RMCs), while block management companies work with RMCs or on behalf of freeholders. Block management includes a range of services outlined in the lease, such as: Scheduling and completing maintenance and repairs, including painting, decorating, and gardening. Collecting service charges and ground rent from residents. Arranging necessary insurance coverage. Ensuring contracts for services (like cleaning and maintenance) offer good value. Preparing and reviewing annual budgets. Conducting routine inspections to keep the property in good shape. Advising unit owners on leases and relevant legislation. Acting as a neutral party for dispute resolution when needed. Complying with legal and safety regulations and staying updated on legislation. A block management company requires a diverse skill set, including knowledge of health and safety, law, accounting, insurance, and construction. The monthly fee varies based on the number of units, responsibilities, and property location. What Northmode Properties Offers Northmode Properties delivers a comprehensive range of block management services, covering properties with as few as two units to those with up to 120 across the Northwest. We proudly manage and cater to investment landlords, RMCs, and right-to-manage companies, which empower leaseholders to take control of their building’s management. For RMC and RTM clients, we also provide an additional service where we act as your Company Secretary. Client Fund Protection and Professional Standards At Northmode Properties, your financial security is our priority. As a proud member of Client Money Protection (CMP), we protect our clients against the loss or misuse of funds, including rent and deposits held by letting agents. In the unlikely event that client money is lost or misappropriated, CMP ensures that you can recover the full amount. We safeguard client funds in dedicated, secure accounts, providing you with peace of mind. As an accredited member of The Property Institute (TPI), the leading professional body for residential managing agents in England and Wales, we uphold the highest standards of leasehold management. TPI promotes excellence in the industry through expert advice, training, and ongoing guidance, ensuring professionalism and best practices across all aspects of property management. Why Choose Northmode Properties? Local Expertise: We know the Northwest property market inside and out, allowing us to foster strong communities and deliver value for our clients. Clear Communication: We prioritise open communication through various channels, including email updates, newsletters, and residents’ meetings, keeping everyone informed about decisions affecting their homes. Personal Touch: We prioritise accessibility, ensuring our clients’ needs are met and the safety and well-being of residents are always front of mind. You’ll have a dedicated property manager and assistant property manager, along with support from a skilled and responsive team, including an emergency out-of-hours contact. Industry Affiliations: We take pride in our connections with key industry bodies like The Property Institute and The Property Redress Scheme. These affiliations signify our commitment to upholding the highest standards in property management and continuous professional development. Accountability and Compliance: We adhere to strict ethical codes and best practices, ensuring we are accountable to our clients and industry regulators. Our comprehensive professional indemnity insurance offers added protection for your peace of mind. Community Commitment: We are deeply rooted in the Northwest and are dedicated to giving back to the community through various local initiatives. Northmode Properties Says At Northmode, our focus is on building strong communities while providing exceptional value for our clients. If you’re a current RMC director or property manager, you know how demanding block management can be—it can quickly become overwhelming. Let us handle every aspect of your block management, allowing you to focus on other priorities. We are a trusted, local team with extensive experience, always placing residents’ safety and well-being at the heart of our operations. Whether you're a landlord seeking reliable property management or a leaseholder in need of a trustworthy block manager, choosing an accredited agent like Northmode Properties means choosing a partner dedicated to your success and peace of mind. Discover more about our outstanding service. Get in touch today and chat with a member of our friendly, professional team. T: 0161 676 0084 E: info@northmodeproperties.co.uk
15 October 2024
The first reading of the Renters Rights Bill in the House of Commons has provided us with valuable insight into the Government's plans to reform our sector. While we await more details as the bill progresses through Parliament, our Lettings Specialists and expert teams are fully prepared for these changes and are ready to support you every step of the way. Most of the bill aligns with the previous proposals, and we’ve highlighted the key points for you: Ban on Section 21 Notices: Once the bill becomes law, Section 21 notices will be banned. Landlords can still regain possession using Section 8 grounds for specific reasons, such as wanting to sell the property or move back in. A notice period of four months will be required after the first year of tenancy. Government Support: Matthew Pennycook has assured us that the Government will collaborate with the courts to ensure they can handle the additional workload when the bill is enacted. Tenancy Changes: Fixed-term tenancies will transition to periodic or month-to-month agreements. Tenants will have the flexibility to give two months’ notice to end their tenancy from day one. However, it's worth noting that the average tenancy length in the UK is currently 20 months, driven by tenant preferences, so we don’t expect to see a significant increase in shorter tenancies. Rent Increases: Rent can still be increased annually with a two-month notice period, using the existing Section 13 notice. Tenants will have the right to challenge the initial rent within six months of starting the tenancy or any proposed rent increase by taking it to a tribunal, which will decide based on current market rates. Pet Policy: As before, landlords cannot unreasonably refuse consent for tenants to have pets. A valid reason for refusal could include breaching the head lease of a leasehold building. Additionally, landlords may charge extra premiums to cover potential pet damage. Ombudsman Membership: The requirement for landlords to belong to an Ombudsman scheme remains in place, and properties must be registered with this membership before being marketed for let. Bidding Wars: New provisions will prohibit bidding wars, meaning that rents must be clearly specified in advertisements, and landlords cannot accept offers above that amount. We believe that once all the details of the bill are finalized, the market will adapt and continue to thrive, just as it has following previous legislative changes. In the meantime, if you have any questions or concerns, please feel free to reach out to us.
14 October 2024
As a UK property owner, effective block management is crucial. While navigating residential property administration can be challenging, the right guidance helps maintain your investment and keep tenants satisfied. This guide offers essential insights and strategies to enhance your property’s performance, equipping both experienced landlords and new owners with the tools to make informed decisions and maximise their assets. Block Management in the UK: An Overview Block management is a vital part of property management services in the UK, particularly for owners of multi-unit residential buildings. This specialised approach to estate management involves handling the daily operations, maintenance, and finances of apartment complexes or housing estates. Key Responsibilities Property management in Greater Manchester and throughout the UK generally includes: Keeping common areas and building exteriors in great shape Coordinating repairs and renovations Managing service contracts (like cleaning and landscaping) Collecting service charges and ground rent Ensuring compliance with health and safety regulations Benefits for Property Owners Effective block management can significantly boost the value and attractiveness of your property. It ensures that shared spaces are well-maintained, financial matters are handled professionally, and potential issues are addressed swiftly. This comprehensive approach not only protects your investment but also fosters a harmonious living environment for all residents. Choosing the Right Block Management Company in the UK When selecting a block management company, it's crucial to consider how they can help maintain your property’s value and ensure tenant satisfaction. Here are some key factors to keep in mind: Experience and Expertise Look for a company with a solid track record in block management. Experienced firms understand the nuances of managing various property types, from historic buildings to contemporary developments. Accreditation and Compliance Choose a property management service that is accredited by respected associations. This ensures adherence to industry standards and best practices, safeguarding your investment. Tailored Services Every property is unique. Seek a company that offers customized property management services capable of adapting to your specific needs. Communication and Transparency Clear communication is key to effective block management. Opt for a company that prioritizes transparency and keeps you updated on your property’s management. By carefully assessing these factors, you can find a block management company in Yorkshire or anywhere in the UK that aligns with your property goals and enhances your investment’s value. Frequently Asked Questions About Block Management in the UK What is Block Management? Block management refers to the professional oversight of residential buildings, usually apartment complexes or estates. This all-encompassing property management service ensures the smooth operation of shared spaces, the upkeep of common areas, and compliance with legal requirements. In regions like Yorkshire, property management involves coordinating repairs, managing finances, and liaising with residents to maintain a pleasant living environment. Why is Estate Management Important? Estate management plays a crucial role in preserving property values and improving residents’ quality of life. Professional property management services handle various tasks, including: Regular maintenance and repairs Financial management of service charges Enforcing lease terms Compliance with health and safety regulations By entrusting these responsibilities to experienced managers, property owners can protect their investments while ensuring residents enjoy a well-maintained living space. Conclusion Choosing the right block management company is essential for safeguarding your investment and ensuring a smooth, hassle-free experience. Northmode Properties stands out as a trusted partner, offering transparent, professional services tailored to your unique needs. With their extensive experience, accreditations, and commitment to excellence, you can be confident that your property is in good hands. By partnering with Northmode Properties for your block management needs, you’re gaining a dedicated ally in property management. Don’t settle for less – contact Valor Properties today and experience the difference that true expertise and customer-focused service can make for your property. We offer a free initial consultation for all new clients, so if you're exploring your options please don't hesitate to call us at 0161 676 0084 or drop us an email at info@northmodeproperties.co.uk and a member of our team will be happy to assist you.
13 August 2024
I s It a Good Time to Become a Landlord? It’s an excellent time to become a landlord, particularly in the Northwest of England. There are several factors to consider. The first is the significant demand for rental properties in the area. If you own a property that you’re able to let out, you’ll find a large pool of tenants eager to rent, making your property highly desirable. This demand typically translates into a strong return on your investment. What Are the Most Common Mistakes First-Time Landlords Make? The most common mistake new landlords make is assuming they can manage the property themselves simply because it’s in good condition. They might underestimate the responsibilities they have and the expectations of their tenants. What Should First-Time Landlords Consider Before Searching for a Tenant? The first consideration is whether you have the time, knowledge, and expertise to manage the property. Another key factor is understanding that there are over 150 pieces of compliance legislation that govern the industry. The health and safety of your tenant and the tenancy are crucial. Are you familiar with all the necessary certifications? Do you understand the implications if your property is in a licensed area? Do you have the time and know-how to handle maintenance issues promptly? Meeting tenant expectations, especially in terms of response times, is essential. What Factors Should First-Time Landlords Prioritise When Setting a Rental Price? We always advise landlords to consider more than just the rental price when setting it. There are four key factors: Price: The obvious first consideration. Timing: When the tenant moves in versus when the property is available, as vacancy periods can be costly. Tenant Quality: Consider the type of tenant—whether they are a family, professionals, or sharers, as this can impact the number of applicants. Duration and Conditions: A tenant willing to move in quickly and sign a long-term contract may be more valuable than someone who offers more rent but has conditions or delays. Where Can First-Time Landlords Find Information and Resources? While a quick online search can provide some basic information, such as the “How to Rent” guide, which explains the obligations of both landlords and tenants, first-time landlords shouldn’t rely solely on Google. There are trade bodies like the NRLA and ARLA that offer valuable resources. However, managing a property effectively requires expertise that can only be gained through experience and in-depth knowledge. A qualified estate agent can help protect your investment, ensure tenant safety, and manage the tenancy from start to finish. How Does Northmode Properties Cater to Tech-Savvy First-Time Landlords? For years, Northmode Properties has been at the forefront of the property market, and we’ve embraced technology to enhance our services. We can find tenants quickly, sometimes in just a few hours, and offer a platform where landlords and tenants can manage the entire process digitally if they prefer. How Can a First-Time Landlord Attract a High-Quality Tenant? To attract high-quality tenants, we have three tips: Use a Reputable Agent: A good agent will attract the right tenants and screen them thoroughly. Presentation Matters: Ensure your property looks immaculate. A well-presented property is more likely to appeal to quality tenants. Be a Good Landlord: Respond quickly to any issues. While using an agent can help with this, if you choose to manage it yourself, you must be proactive and responsive. How Can I Screen Potential Tenants to Find Someone Reliable? The best way to screen tenants is through a third-party referencing company. At Northmode Properties, we use one of the leading referencing companies in the UK. Their advanced technology helps detect forged references, ensuring that we only approve reliable tenants. This approach has helped us maintain low arrears rates. What Tips Do You Have Regarding Communication with Tenants? FG: Effective communication is often overlooked by landlords. The key is responsiveness—addressing issues quickly is crucial. At Northmode Properties, we use advanced technology to track response times and resolve issues efficiently. It’s also important to be knowledgeable about your obligations as a landlord, so you can handle tenant queries appropriately. What Are the Essential Elements to Include in a Tenancy Agreement? Our advice is simple: don’t attempt to draft or modify a tenancy agreement yourself. Legislation changes frequently, and tenancy agreements need to reflect these changes. At Northmode Properties, we update our agreements multiple times a year based on new legislation and our experiences, ensuring landlords are fully protected. How Can I Prepare for and Handle Maintenance in a New Tenancy? Prevention is better than cure. Before moving a tenant in, conduct a thorough health and safety check of the property. Ensure everything is in good condition, from the sealant around baths to the boiler servicing. Compliance is key, especially if the property is an HMO. At Northmode Properties, we have a comprehensive move-in and compliance checklist that we audit before allowing any tenant to move in. How Can First-Time Landlords Keep on Top of Legislation and Licensing? The only reliable way for first-time landlords to stay on top of legislation and licensing is to work with a high-quality estate agent. The regulations are complex and constantly changing. When you receive a license, you must thoroughly understand and comply with all conditions. Local councils can conduct spot checks, and non-compliance can lead to hefty fines or even criminal charges. It’s crucial to be fully prepared and knowledgeable! If you have any questions or need further advice on service charges or any other property management matters, feel free to get in touch—we're happy to help.
13 August 2024
Leaseholders often feel disconnected from the management and finances of their building, particularly when a third-party investor with no real connection to the property handles these responsibilities, focusing primarily on collecting payments from flat owners. While many freeholders manage their buildings and financial budgets effectively, there are instances where leaseholders find themselves dissatisfied with the level of management provided. How to Take Over the Management of a Block of Flats Disgruntled leaseholders have a few options: Enfranchisement: Force the freeholder to sell the freehold through a process known as enfranchisement. Right to Manage (RTM): Take over the management of the building from the freeholder. Enforcement Action: Seek legal action to compel the freeholder to address specific issues. However, this doesn’t prevent similar problems in the future. How Does Enfranchisement Work? Enfranchisement allows at least 50% of the flats in a building to join forces and compel the freeholder to sell the freehold to them. This process not only enhances the value of the flats but also gives owners control over the building’s management and finances. Additionally, once the freehold is acquired, flat owners can extend their leases, further increasing the value of their properties. The cost of purchasing the freehold is determined by enfranchisement legislation. At Northmode Properties, we can connect you with a specialist valuer to estimate the likely cost of acquiring your freehold. It's important to note that flat owners are responsible for covering the professional costs of both the freeholder and their own. How Does Right to Manage Work? Alternatively, flat owners can band together to take over the management functions of their building from the freeholder, provided at least 50% of the flats are on board. This process allows leaseholders to control the service charge budget, maintenance contracts, building insurance, and other management responsibilities outlined in the flat leases. While the flat leases remain unchanged and the freeholder retains ownership of the freehold (and may even become a member of the RTM group), leaseholders gain significantly more control over the management of their building. Unlike enfranchisement, there is no purchase price for the RTM process. However, leaseholders are still responsible for the professional costs incurred by both the freeholder and themselves. How Does Enforcement Action Work? Our Dispute Resolution Team can assist with resolving service charge disputes and other issues between leaseholders and freeholders. The relationship between freeholders and leaseholders is typically governed by the flat lease but is also subject to additional legal regulations. Depending on the situation, legal applications to the Court or Tribunal may be necessary. Points to Consider Both enfranchisement and RTM have specific criteria that must be met, and there are additional considerations for enforcement actions. In rare cases, enfranchisement does not necessarily result in leaseholders taking over management of the building. We can provide estimates of the costs involved in any of these scenarios so that you and your neighbors can plan accordingly. Specialist Leasehold Property Advisors Our experienced team at Northmode Properties specialises in Right to Manage, Enfranchisement, and enforcement action procedures from start to finish. We offer a free initial consultation for all new clients, so if you're exploring your options for taking control of your building’s management or need more technical advice, please don't hesitate to call us at www.northmodeproperties.co.uk or contact us at info@northmodeproperties.co.uk.
23 July 2024
Why Are Landlords Setting Up Limited Companies for Their Rentals? Since 2017, the number of landlords forming limited companies for their properties has surged, with 300,000 registered in 2022 alone. Today, approximately 40% of new buy-to-let purchases are made through a company structure. This shift stems from the 2015 tax reform known as Section 24, which altered how landlords are taxed on rental income. Previously, landlords could deduct mortgage interest and other costs before taxation, but Section 24 now requires landlords to pay tax on their total rental income, with mortgage interest relief capped at the basic income tax rate of 20%. In this blog, we’ll explore why landlords are transitioning to limited companies and weigh the advantages and drawbacks of this approach. What Is Section 24 and How Does It Affect Landlords? Implemented fully in 2020, Section 24 changed the tax relief landscape for landlords. Under the new rules, landlords are taxed on their full rental income, with mortgage interest relief capped at the basic income tax rate of 20%. This change has driven many landlords to set up limited companies to manage their tax liabilities. However, it's important to consider whether this move is beneficial for your situation. Benefits of Setting Up a Limited Company Reduced Tax Bill Limited companies are taxed at the corporation tax rate of 25%, which can be lower than the personal income tax rates for higher earners. This can result in significant tax savings. Limited Liability A limited company structure separates personal and business finances, protecting personal assets from business liabilities. Increased Flexibility with Profits Profits in a limited company can be reinvested, used to pay down debt, or distributed as dividends, offering more flexibility in managing income and investments. Easier Ownership Transfers and Inheritance Tax Benefits Transferring ownership and managing inheritance tax is simpler within a company structure, potentially reducing stamp duty and capital gains tax liabilities. Potential Drawbacks of a Limited Company Structure Not Ideal for Lower Rate Taxpayers For landlords in the basic income tax bracket or with only a single property, the benefits of a limited company may not outweigh the costs. Transfer Costs Existing properties must be sold to the company, incurring stamp duty and other costs, which may lead some landlords to retain personal ownership of their existing properties. Increased Administrative Responsibilities Running a limited company involves more paperwork and compliance, including company tax returns and detailed financial records. This may require hiring an accountant, incurring additional costs. Double Taxation Concerns While a company pays corporation tax on profits, any salary or dividends taken by directors are subject to personal income tax. Limited Capital Gains Tax Allowance There is no tax-free allowance for capital gains when selling properties through a company, though the lower tax rate and other efficiencies may compensate for this. Higher Mortgage Costs Mortgages for limited companies may come with higher fees and interest rates, and fewer products may be available compared to personal buy-to-let mortgages. Complex Equity Release Releasing equity from a property is more complicated in a limited company structure, as funds withdrawn must be declared as income and are subject to tax. How Should You Proceed? Deciding to form a limited company involves several factors and should be tailored to your specific financial situation. For landlords in higher income tax brackets, consulting with a financial advisor can be beneficial to determine if this structure is advantageous.
More posts
Share by: