What is a landlord certificate?
The Building Safety Act 2022 (the “Act”), and the regulations which give effect to it, contain a suite of leaseholder protections against the recovery of service charges for the remediation of “relevant defects” (broadly, defects which involve a risk of fire spreading or structural collapse) in “relevant buildings” (over 11 metres or 5 storeys high with at least 2 residential units).
Through landlord certificates, landlords are required to confirm whether the relevant landlord (the landlord on 14 February 2022):
- has a group net worth of over £2 million times the number of relevant buildings in the landlord’s group (the “net worth test”); and
- was (or an associated company was) responsible for relevant defects (the “developer test”).
These two questions are significant because landlords of “qualifying leases” (see below) cannot claim service charge to remedy relevant defects where the relevant landlord met the net worth test.
Landlords are also prevented from recovering service charges from leaseholders (whether they are qualifying or not) where the relevant landlord (or an associated company) met the developer test.
Buyers are now able to request copies of landlord certificates as part of pre-contract enquiries carried out in residential property sales and mortgage providers may also expect to see them, so these documents are becoming a key part of the sales process.
When does a landlord certificate need to be served?
A landlord needs to serve a landlord certificate on qualifying leaseholders when demanding service charge for remediation works to relevant defects, or within 4 weeks of:
- a notice from the leaseholder that it is selling its interest;
- becoming aware of a relevant defect; or
- a request from the leaseholder.
What information does a landlord certificate need to contain?
The landlord certificate needs to set out the details of the landlord, the lease, and any works already carried out to remediate relevant defects.
The landlord must also confirm in the certificate whether the relevant landlord meets the net worth test, and/or the developer test. The regulations as currently drafted then require the landlord to provide a large suite of information to support the confirmations given, including extensive details of the corporate structure and net worth of the landlord group.
For landlords with complex corporate structures, this information is difficult to compile, voluminous and potentially too complex for a leaseholder to review without professional advisors.
The requirement to provide this information each and every time a leaseholder wishes to sell their flat also seems somewhat impractical – not least given that the information to be provided will always be “as at” 14 February 2022 so is unlikely to change. These difficulties have led to discussion in the market as to the best approach to the requirements to provide supporting information, particularly where a landlord has no intention of recovering service charges for remediation works.
The government has introduced new draft legislation to give more clarity about the information which needs to be provided. For more on this see the second part of this series: “Supporting information for Landlord Certificates under the Building Safety Act: What must a landlord provide?”
What is a qualifying lease?
A lease is a qualifying lease where it is a long lease of a single-dwelling, under which the leaseholder is required to pay service charge and which was granted before 14 February 2022 and, as at that date, was either the leaseholder’s home, or they owned no more than 2 additional dwellings in the UK.
How does a landlord know whether a lease is a qualifying lease?
Since some of the leaseholder protections against the recovery of service charge only apply to qualifying leases, it is in the landlord’s interest to establish which of its leaseholders hold a qualifying lease. A landlord can do that by inviting its leaseholders to provide a leaseholder certificate.
A landlord must invite a leaseholder to provide a leaseholder certificate where the landlord becomes aware that a leaseholder is selling its lease, or that there is a “relevant defect” in respect of the building. A leaseholder can also voluntarily complete a leaseholder certificate at any time.
The leaseholder certificate provides the information necessary to understand whether a lease is a qualifying lease.
How we can help you with this process
This is a new and complex statutory process, so it’s important – and necessary - to analyse each property to understand whether the Act and supporting regulations apply, whether leases are qualifying leases, whether defects are “relevant defects” within the meaning of the Act, and whether and when landlord certificates and notices inviting leaseholder certificates need to be served in order to comply with building owners’ obligations under the Act.
It's also pivotal to understanding when service charge can be recovered.
As the legislation currently stands, landlords may find themselves having to comply with the process at the request of leaseholders or their purchasers or mortgage providers even when they have no intention of passing the costs of remedial works through the service charge.
We have experience at every stage of this process, including preparing and serving landlord certificates and notices inviting leaseholder certificates, so please do get in touch if we can assist with navigating these issues.
Authored by Paul Tonkin, Katie Dunn and Lucy Redman.