Developer/Investor Freeholders

When blocks of flats are built, they automatically create two forms of tenure, that of freehold and leasehold. A freeholder landlord is the entity that owns the land on which the building stands, as well as the structure of the building. There are a number of different types of freeholder. An investor or a developer freeholder will retain the freehold and take overall management responsibility, even if they appoint a managing agent. They may also choose to write a professional management company into the lease (a tri-party lease). If they do, it will be the management company that is responsible to both the freeholder and the leaseholders for the overall management. Commonly the management company will be a managing agent but it can also be a maintenance trustee.

If it is a managing agent then such an agent is an outside contractor engaged by either the landlord or the maintenance trustee to deal with routine management. The agent will have a contract with the landlord and the maintenance trustee but no contract with the leaseholders.

A maintenance trustee on the other hand is a company that will have both contractual duties and contractual rights imposed on it by the lease. These will be to manage (duties) and collect service charges (rights) and means that it has a contractual relationship with each leaseholder and the landlord.

Other types of freeholders are leaseholder-owned i.e. RMC's (Resident Management Companies.

PROFITS VIA THE LEASE

It is important to note that for the investor freeholder the lease is a profit-making document with 4 main areas of capital growth:

1. Collecting ground rent which on its own can generate an annual return of around 6%.
2. Arranging buildings insurance where there is no legal requirement to disclose what percentage of commission can be made on the premium, and which is paid for by the leaseholders;
3. Through lease extensions, particularly lucrative when leases drop to less than 80 years remaining and a buyer is not advised about this at the time of sale.
4. Through granting consent for alterations via a Deed Of Variation.

Modern leases will also contain allow the collection of administration charges which are neither service charges or ground rent.