Understanding Freehold and Leasehold

There are three ways you can own your property: freehold, leasehold or with a share of the freehold.  A freeholder owns the property outright, plus the land it has been built on.  There’s no lease to run out, no dealing with a landlord and no need to pay ground rent, service charges or any other fees. If you are a leaseholder on a development you can serve a Section 13 Notice on the freeholder and buy a share of the freehold - as long as at least 50% of your fellow leaseholders agree to participate. Buying a share of the freehold effectively extends your ownership up to 999 years. That’s usually long enough for most people!

As leaseholders with a share of the freehold, it means you take on certain financial and property maintenance responsibilities so you’ll collectively need to set up a resident management company (RMC) . FirstPort assist over 200 RMCs in the UK so are well placed to help you. As a leaseholder, you own the property and the land it is built on for the specified length of the lease agreed with the freeholder – often a lease is for 99 years. When the lease ends, ownership reverts to the freeholder although you may be able to extend that lease through negotiation.

When you buy property leasehold, it’s worth checking how long the lease has still to run and what the service charges, management fees, ground rents, and related costs may be. The leaseholder may also pay ground rent to the freeholder (landlord).  As a managing agent, FirstPort can collect this on behalf of the freeholder or the freeholder can invoice the leaseholder directly.

What is the difference between a Landlord and a Managing Agent?
In simple terms, Landlords own property while a Managing Agent (or Property Manager) is instructed by a property owner to supervise and manage properties. Your Landlord (sometimes known as a Freeholder) is first and foremost a party to your lease. They are the person who owns the land that your property sits on.  This could be an individual or a company. You have a right to know who owns the freehold of your property at any given time. 

The Landlord has an obligation to maintain the communal areas at your development. In most circumstances (where allowed by the lease) they instruct a managing agent to do this on their behalf.

Your Managing Agent is not a legal party to your lease (except in exceptional circumstances), but is instructed through a formal arrangement known as a Management Agreement.

Why is FirstPort named in my Lease?
A normal lease only has two parties, a Landlord (or Freeholder) and Lessee (or Owner). In these circumstances the Managing Agent is appointed by the Landlord who has the responsibility for maintenance. Under some historical arrangements, a number of developers put in place what is known as a ‘tri-party’ lease which includes the name of the Manager. Sometimes this is a resident run management company (RMC), and sometimes this is a third party management company which is why FirstPort owned companies appear in some of leases. 

The reason for the tri-party lease was partly to make sure there was a direct relationship between the residents living at the development and the Manager. It was also a way of introducing stability and continuity of the Manager from the ‘build phase’ onwards so that more effective maintenance could be achieved. 

We do recognise that this gives us a privileged position and security of tenure in our management . We don’t take this for granted and we work with residents and landlords to ensure we meet all our obligations under this type of agreement.

Is FirstPort a Landlord?
No. Owning properties is not part of our core business, which is about managing properties and looking after our residents. We do not buy freeholds. FirstPort does own a small number of properties and leases from historical arrangements. Our focus now is on providing expert property management services to landlords and customers across both the general residential market and the specialist retirement housing market. 

As part of a historical arrangement, FirstPort does have an interest in small number of Development/House Manager flats (approx. 75).

What is a Management Agreement? 
The Management Agreement is the formal arrangement between FirstPort as Managing Agent and your Landlord/Freeholder. It sets out all the responsibilities that we carry out on behalf of the Landlord, the services we provide to as residents and the management fees that are payable as well as any additional fees for one-off services such as subletting consent.

We need the permission of the Landlord to share these. Sometimes the Management Agreement is included in a broader commercial document which contains commercially sensitive information, preventing it being shared. In these circumstances we always endeavour to share appropriate parts of the agreement. 

Why are you changing the residential status of our Development Manager? 
We open discussion with residents when there is the potential to change the residential status of the Development Manager – this might be because there is a vacancy, or the personal circumstances of the current Development Manager have changed.

We start the process by giving residents the opportunity to discuss what this would mean before being asked to vote on whether or not to change to having a non-residential Development Manager.  It’s entirely the resident’s choice whether or not to vote for a non-residential development manager and we carefully consult with residents before they make their decision through an independently managed ballot.

We only change Development Manager status if the majority of residents vote in favour of the change.

What is the difference to residents when the residential status of a Development Manager changes?
The role of the Development Manager and their working hours, whether residential or non-residential, is exactly the same: residents still benefit from the same high levels of service, with the peace of mind that ‘after hours’ support will still be provided by an out-of-hours monitoring service.

The only difference is that a residential Development Manager lives on site at the development within the dedicated Development Manager’s flat.  Residents normally benefit from ongoing savings too.  For example, a reduction in their service charge as the development’s costs would be spread over an extra apartment and because residents no longer need to pay for the maintenance of that flat.  They should also expect more candidate choice when recruiting for a development manager in the future.

FirstPort normally makes a contribution to the development as a goodwill gesture (typically to the development contingency fund).  

What is a Transfer Fee (now commonly referred to as an Event Fee)?
An Event Fee is acknowledged as being an important element of the developer model for providing specialist affordable housing for retired people. They are a way of deferring build and/or maintenance costs to make living in a leasehold property more affordable.

These fees can take several forms but the most common are a Transfer fee or a Contingency Fee. They are set out in the lease by the Developer when the property is built. If included, a Transfer Fee is payable to your Landlord and is normally a percentage of the sale price of the property, payable on completion of the sale. 

Otherwise (and in some cases as well as) there may be a Contingency fee payable when the property is sold. This payment is a contribution to the Contingency or Reserve Fund at the development. This fund is key to ensuring the development is prepared for sudden or unplanned expenditure and normally ensures lower service charges during the period of ownership than would otherwise be payable. 

What happens to the Transfer Fee (now commonly referred to as an Event Fee) money I pay? Does FirstPort get some of the money?
Where a Transfer Fee is payable, this is owed to your Landlord. FirstPort collects this fee as part of the property sales process and passes this onto the Landlord. 

FirstPort also collects any Contingency Fee that may be payable at the same time. We deposit this directly into the development bank account. This account is held under the terms of a statutory trust, it accrues interest and is only used for the purposes of that development (see Where do you keep the money I pay you?).