Leaseholder Deeds of Certificate

As if the law relating to the levying of service charges against right-to-buy leaseholders was not complicated enough, the Building Safety Act 2022 and its associated regulations has added an extra layer of complexity as regards ‘higher-risk’ and ‘relevant’ residential buildings, writes V. Charles Ward.

The first thing to note about the Building Safety Act 2022 is that the terms ‘higher-risk’ and ‘relevant’ are not interchangeable. A higher-risk building is one which is at least 18 metres high or has at least seven storeys. A ‘relevant building’ is one which is at least 11 metres high or has at least five storeys.

For higher risk buildings there is now a registration scheme under the Building Safety act 2022, whether or not the building is really at high risk. For leaseholders in higher-risk buildings, there is also specific information which ground-landlords or building-managers are required to include in rent-demands. Whether a building is ‘relevant’ is an issue for Schedule 8 of the Building Safety Act 2022, which provides statutory protection to qualifying leaseholders against the costs of replacing flammable-cladding and related fire-safety risks associated with external wall-systems, as well as some other risks affecting the stability of a ‘relevant’ building  It follows that all higher risk buildings will be ‘relevant’ for the purposes of Schedule 8 but that not all relevant buildings will be higher-risk. The added complication is that not all residential leaseholders will benefit from the same statutory protections against the cost of fire-remediation works. The fullest statutory protection will only apply to those residential leases defined as ‘qualifying’. Note in particular that under Schedule 8, it is the lease which has to be qualifying not the leaseholder. And even if the lease is not technically ‘qualifying’, the owner may still qualify for some Schedule 8 protections, depending on where responsibility actually lies for the defective work which created the fire risk. It means that no liability for the cost replacing an external-wall system can be passed back to the leaseholder in circumstances where the ground-landlord was personally involved in commissioning or carrying out the original development or as regards any later refurbishment, as happened in Grenfell.

To determine whether a particular residential lease is qualifying for special statutory protection against the costs of replacing the defective external-wall system or associated risk, it is necessary for the ground-landlord to determine how the particular flat was owned or occupied on 14 February 2022, which is defined as the ‘relevant date’ for the purposes of Schedule 8. A lease can only qualify for the fullest statutory protection against the costs of remediation work if it was either in owner-occupation on that date, or, if it is not in owner-occupation, that the leaseholder owned no more than three UK Properties in total.

Leaseholder Deeds of Certificate

To provide a permanent record of how a particular flat was owned or occupied on the 14^th February 2022, the Building Safety (Leaseholder Protections) (information etc) (England) (Regulations) 2022, which took effect 21 July, 2022, has introduced the Leaseholder Deed of Certificate.

This is a legal document which any leaseholder in a relevant building may provide to the ground-landlord at any time but which must be provided in response to a request from the ground landlord. Failing to provide a Deed of Certificate when formally asked to do so means that the ground-landlord may thereafter assume that the particular lease is non-qualifying for the purposes of schedule 8. 

Providing a Leaseholder Deed of Certificate is, for all practical purposes, a self-certification exercise in which the leaseholder answers a number of questions which will enable the landlord to assess whether the particular lease qualifies or not. Questions include: whether the flat was owner occupied on 14 February, 2022; if the flat was not owner occupied, whether the leaseholder owned more than two other UK Properties; the price at which the flat was last sold before 14 February, 2022; whether it is a shared ownership lease and, if so, the total share owned by the leaseholder as at the relevant date. As well as answering these statutory questions, the leaseholder must also provide documentary evidence supporting the answers given. Where the leaseholder did not own the flat on 14 February, 2022, it is incumbent on that leaseholder to make enquiries of the former leaseholder, to establish the qualifying status of the flat on the relevant date. It follows that a Deed of Certificate is also an important title document as it may be the only means of establishing the qualifying status of the flat on 14 February, 2022. It is therefore critical that both leaseholders and landlords keep a permanent record of certificates given and received, including details of the information provided in those certificates.

What protections does Qualifying Status offer?

1. A qualifying leaseholder is protected completely against the costs of remediating flammable cladding in circumstances where the inherent defect resulted from the original construction of the building within the previous 30 years or later refurbishment.
2. Both qualifying and non-qualifying leaseholders are protected against the costs of remediating both cladding and non-cladding related fire-risk, in circumstances where the ground-landlord was also the developer of the building or carried out a later refurbishment or was responsible for commissioning that work within the previous 30 years.
3. A qualifying leaseholder has complete protection against the costs of remediating both cladding and a non-cladding fire-risk in circumstances where on 14 February, 2022 the ground-landlord had a net-worth of more than £2,000,000 per relevant building.
4. A qualifying leaseholder has limited protection against the cost of remediating non-cladding safety-defects in circumstances where the ground-landlord’s net-worth per relevant building on 14 February, 2022 was less than £2,000,000. In those circumstances, each qualifying residential leaseholder can be required to contribute a capped amount of £15,000 in Greater London and £10,000 elsewhere. That cap is set at Zero for properties worth less than £325,000 in London or £175,000 elsewhere. For properties worth more than £1,000,000, the cap is £50,000. If the property is worth over £2,000,000, the cap is £100,000. There are also special rules for apportioning liabilities in shared ownership properties. In all cases payment of the capped costs can be spread over 10 years.

The Landlord Certificate

If it is the leaseholder’s Deed of Certificate which evidences whether a lease is a qualifying lease for the purposes of Schedule 8 of the Building Safety Act 2022, it is the Landlord Certificate which contains the information needed to calculate how much the landlord is entitled to charge for building-safety works. The ground-landlord must provide the leaseholder with a Landlord Certificate in any of the following circumstances:

1. When they want to pass on any remediation-costs on to a leaseholder through the service-charge.
2. Within four weeks from receiving notification from a leaseholder that their interest is to be sold.
3. Within four weeks of the landlord becoming aware of a relevant defect which was not covered by a previous Landlord Certificate.
4. Within four weeks of the leaseholder requesting a Landlord Certificate.

Information to be contained in the Landlord Certificate includes: the name and address of the relevant landlord on 14 February, 2022; the name and address of the current landlord; names and addresses of any superior relevant landlords; information concerning the net-worth of the landlord on 14 February, 2022; questions as to whether the landlord was in any way responsible for the relevant defect or the commissioning of that work; works previously taken to remedy relevant defects and amounts paid for that work. The Landlord Certificate has to be set out in the pro forma attached to the Building Safety (Leaseholder Protection) (England) Regulations 2022.

Suggested action points for local authority housing departments and other registered social landlords

1. Carry out an assessment of the residential estate to determine which buildings are to be regarded as higher-risk for the purposes of the Building Safety Act 2022 and which are to be regarded as ‘relevant’ for the purposes of Schedule 8.
2. For all relevant buildings, invite residential leaseholders to complete and return a Deed of Certificate, to provide a permanent record of which leases are qualifying for the purposes of Schedule 8 and which leases are not qualifying.
3. Set up a system for issuing Landlord Certificates either before passing-on the costs of remediation works to leaseholders, or if otherwise requested by an individual leaseholder or within four weeks from receiving notification from a leaseholder that their interest is to be sold. In other words, whether or not relevant remediation works are imminent, it is suggested that Landlord Certificates should be included within Landlord Packs, whenever requested by the leaseholder’s conveyancer, when a flat is about to be sold.

V. Charles Ward is a Solicitor and Legal Writer. His books include the recently published Fire Safety Law (1st Edition)