One issue that continues to arise on the sale of leasehold flats is whether a Landlord Certificate under the Building Safety Act 2022 must be provided.

Conveyancers acting for buyers will often raise enquiries regarding the Building Safety Act 2022 and request a Landlord Certificate as part of the LPE1 process. Whilst this is understandable, there are circumstances where the statutory Landlord Certificate regime does not apply at all.

One such circumstance is where the building is owned by the leaseholders themselves.

What is a Landlord Certificate?

The Landlord Certificate regime forms part of the leaseholder protections introduced by the Building Safety Act 2022.

The purpose of the legislation is to protect qualifying leaseholders from the costs of remediating historical building safety defects.

Broadly speaking, the Act limits the circumstances in which landlords can recover the costs of remediating relevant defects through the service charge and, where appropriate, transfers liability to developers, landlords and associated entities.

To facilitate this process, landlords of certain buildings may be required to provide information concerning ownership, group structures and potential liability by way of a Landlord Certificate.

Does the Regime Apply to Every Building?

No.

The regime only applies to “relevant buildings” as defined by the Building Safety Act 2022.

Broadly speaking, a relevant building is one that:

• is at least 11 metres high or has at least five storeys; and
• contains at least two residential dwellings.

However, the Act also contains a number of important exclusions.

One of those exclusions relates to leaseholder-owned buildings.

What is a Leaseholder-Owned Building?

Section 117(3)(c) of the Building Safety Act 2022 provides that a building will not be a relevant building where the freehold is leaseholder-owned within the meaning of regulations made by the Secretary of State.

The Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022 provide that a freehold is leaseholder-owned where the freehold estate is owned solely by one or more qualifying tenants of dwellings within the building.

This commonly arises where the freehold is owned by a residents’ freehold company or a residents’ management company which itself owns the freehold, and whose membership is restricted to the leaseholders within the development.

Why Does the Exclusion Exist?

The exclusion reflects the fact that, where leaseholders collectively own the freehold, they are effectively both the landlord and the persons whom the statutory protections are intended to benefit.

In those circumstances, applying the Landlord Certificate regime would often serve little practical purpose. Parliament therefore excluded qualifying leaseholder-owned buildings from the definition of a relevant building.

What Does This Mean in Practice?

In many conveyancing transactions, the buyer’s conveyancer will request a Landlord Certificate as a matter of routine before the ownership structure of the building has been investigated.

Where a building falls within the leaseholder-owned exclusion, the company may properly take the view that the statutory Landlord Certificate regime does not apply because the building is not a relevant building for the purposes of the Act.

Accordingly, it may be appropriate to respond to enquiries by explaining that:

• the building is leaseholder-owned;
• the company considers that the building falls within the leaseholder-owned exclusion under section 117 of the Building Safety Act 2022;
• the statutory Landlord Certificate regime is therefore not applicable; and
• no statutory Landlord Certificate will be provided.

Providing a concise explanation at an early stage can often avoid unnecessary correspondence and delays during the conveyancing process.

Key Takeaway

If the freehold of a qualifying building is owned solely by the leaseholders, whether directly or through an appropriate company structure, the building is unlikely to be a “relevant building” for the purposes of section 117 of the Building Safety Act 2022.

In those circumstances, the statutory Landlord Certificate regime will generally not apply.

A Word of Caution

Whether a building falls within the leaseholder-owned exclusion will depend upon its particular ownership structure and the facts of each case.

Not every residents’ management company owns the freehold, and not every building managed by leaseholders will satisfy the statutory requirements.

Management companies and freehold companies should therefore ensure that the ownership arrangements are carefully reviewed before concluding that the exclusion applies.

Understanding when the Landlord Certificate regime does and does not apply can help reduce costs, avoid delays and keep transactions progressing.

If you are unsure whether your building falls within the leaseholder-owned exclusion, feel free to get in touch.