Christopher Howarth: It’s time to end the great leasehold service charge rip-off
Christopher Howarth is a senior researcher working in the House of Commons. Prior to this he worked for Open Europe, as a Conservative Foreign Affairs Adviser and senior researcher to a Shadow Europe Minister. Prior to 1993, the owners of flats had virtually no rights.
An interesting article today on ConservativeHome by Christopher Howarth, a Conservative party researcher, calling for widespread reforms of leasehold … including: stop creating more of it.
The article makes the point that the rest of the world outside England and Wales does not have leasehold, or has got rid of it, ending long-term tenancies as a form of residential “ownership”.
Like LKP, Mr Howarth appears to be unenthusiastic about the property tribunal:
“It does not have the time or interest for long and complex cases, does not take evidence on oath and is easily swayed by the legal firepower at the disposal of large landlords. It’s a small legal world, and the money and careers (of tribunal judges) are made defending landlords, not small leaseholders.”
Well, that’s spot on.
Similarly, he has noted the unfair cost regime which cost Dennis Jackson his £800,000 Battersea flat through forfeiture (and which LKP and Sir Peter Bottomley successfully overturned).
SCANDAL: LKP stops forfeiture of £800,000 flat … over a £7,000 service charge dispute
He has also noted the more recent scandalous case of the Wellcome Trust, the second biggest charity in the world and a London landlord, spending, in fact, £114,000 to recover £6,000 from a leaseholder.
The case is now closed down with a Non-Disclosure Agreement – following the intervention of LKP, The Guardian and BBC R4 MoneyBox Live. However, we will report it in due course.
We are delighted that this high-handed bullying by the Welltrust, is known to MPs.
So, well done, ConservativeHome.
Mr Howarth also refers to the Parthenia Mundy Case, where chartered surveyor James Wyatt is challenging the flimsy substance behind lease valuation models (commissioned by London’s richest landlords from its most obsequious asset management/estate agency giants).
The Conservative researcher also understands how freeholders use legal costs to smother and silence leaseholder dissent in the courts.
Mr Howarth ends his article on ConservativeHome with a call for a number of fine reforms – including ending the creation of new leaseholds – and then asks whether government will act.
“The property lobby is very well-resourced, and has fought off many previous such attempts to improve leaseholder rights. There are many institutions with property portfolios represented in the Lords, and there is a whole legal industry lobby designed to service them, as well as the prevalence of donations from property entrepreneurs and companies.
“However, there is every hope that this Government will act. There is a big political prize to be had for the Conservative Party to improving the rights of millions of property owners and bringing them up to equality with those who own their own house free from the hold of a Lord.”
On the other hand, the Conservative party is not the only political party interested in addressing leasehold reform.
Labour’s effort in the 2002 Commonhold and Leasehold Reform Act showed a future without leasehold.
But as commonhold was not compulsory for housebuilders – and they make so much working the angles of leasehold – they were not interested.
Related posts:
Our freeholder calls us leasehold owners “a bunch of animals”
All Party Parliamentary Group: this is how to reform leasehold
Justin Madders delays Leasehold Reform Bill and calls on the Government to provide justice for leaseholders
Peter Bottomley MP calls for a debate on leasehold reform
Huw Merriman calls for zero ground rents for retirement leasehold at prime minister’s questions
Guardian reports ‘breakthrough’ deal from Countryside … Pressure on Taylor Wimpey also to offer freeholds
I didn’t get to where I am being optimist. But maybe there is hope? It is the hope I can’t handle.
And then there’s the Parthenia Mundy case. Every little helps.
Not surprisingly freeholders want the highest ‘uplift’ valuation and the lowest existing valuation when agreeing a premium, but the technicalities are interesting how this is argued in court disputes.
Just randomly been reading about a lease extension premium decided by the UT in May 2017. This was a FH’s appeal against an FTT calculation of the premium. Nothing unique – just one example.
1) The uplifted lease value was agreed pre-appeal at £97,300. This figure was therefore used for calculating the marriage value. Except…wait for it…there’s more.
Meanwhile, for calculating the reversion interest, the FH argued at UT the uplifted valuation should be increased further because the extended lease was 99% of freehold vacant possession. The UT added £1K for the 1%. I have seen other cases where this is not argue,d and for the life of me I cannot see how an extended lease includes the freehold, but I am slow.
In a twist against the FH’s wish, the UT then discounted the uplifted lease “less 2.5% allowance for Schedule 10 rights”, taking nearly £2.5K off the uplift valuation. The freeholder’s reversion interest ended at £95,826 before discounting by 5.75% for its PV.
Now we come to the ‘every little helps’ approach…
2) The existing lease was 67.49 yrs. Marriage value increases as a lease goes down. But not enough apparently.
For MV the extended value in this case was not reduced by 2.5% “allowance for Schedule 10 rights” ass in the reversion calculation. Nor was it increased by 1% for freehold vacant possession.
Instead, the pre-agreed valuation of £97300 was used. This being higher than (1) above, it increases the MV. All helps.
The sting in the tail came when calculating the existing value to subtract from the (higher) uplifted value to arrive at MV – if the existing valuation could be reduced too, MV would go up even further and the FH’s half cut likewise.
Finally I get to the interesting (to me anyway) point…
Apparently a shorter lease does not simply increase the FH’s reversion interest with the reducing term, there is also a hypothetical ‘benefit of the Act’ to factor in for the MV, and this ‘benefit’ grows as the terms goes down!
Unlike other hypotheses this one does not need proving to win real cash.
UT: “Sales of leases without the benefit of the Act are, to all intents and purposes, hypothetical so there can be no direct comparison between sale prices with and without Act rights.”
but…
UT: “having Act rights is a valuable benefit”
UT: “It is beyond doubt that Act rights confer a benefit which is reflected in the value of leases in the actual market and which falls to be disregarded when calculating the premium payable for a new lease under the 1993 Act.”
So – the hypothesis can’t be tested but it’s beyond doubt true. Takes me back to theology.
UT: “We are aware of an Upper Tribunal Decision where a 2.5% deduction was applied with 78 years remaining and another where 10% was deducted with 44 years remaining, the view of the Upper Tribunal being that the benefit of the Act on value increases as the lease gets shorter.”
UT: “The FTT was an expert tribunal able to express an opinion on the appropriate deduction for the benefit of the Act in this case. It noted that the Tribunal had accepted the FTT’s decision in Sarum that a 2.5% deduction from the Act world existing lease value was appropriate for an unexpired lease of 77.7 years. Using that datum point and its specialised general knowledge it should have concluded that for an unexpired term of 67.4 years, i.e. 10 years shorter than the lease in Sarum, the deduction for the benefit of the Act should have been higher. {FH expert’s} straight line interpolation which gave a figure of 4.6% was based upon an unidentified Tribunal case said to have allowed a 10% deduction for an unexpired term of 44 years. Taking a more cautious approach given the lack of clear evidence I consider that an allowance of 3.5% is appropriate. I determine the benefit of the Act in this amount…”
Sadly I don’t understand any of this. The words yes, the concept no.
The FTT had valued the existing lease ‘with Act rights’ at £87,000. The UT reduced the valuation by £3K (3.5%) for this hypothetical benefit. This increased the MV, so the freeholder got a higher cut.
The net increase in premium over the FTT’s was £1550. Who knows how much legal costs came to for both tribunals? All this for a legal right, mind.
How, I ask, can the fact an Act gives a right to a lease extension, itself give a right to increase the premium as the term reduces? MV only kicks in after 80 years. The Act apparently gives no benefit if the extension is claimed above eighty years?
Seems like cake and eat it. Who decided this ‘benefit of the Act’ malarky?
Paddy-My head is spinning with all that complexity. How ridiculous that ordinary folk who just want to enjoy their homes are subject to a spider’s web of leasehold law which even m’learneds struggle with.
Shame none of the political parties included leasehold reform in their manifestos. A few million voters can make a difference.
Your head head is spinnng and mine too. Why would anyone think that this system is fair for the average flat/house owner who has a day job other than try to understand what in gods name is going on? No wonder for years now, most leaseholders kept quiet and sold on to another lamb for the slaughter…
As someone who has conducted his own research into the extortionate cost of lease extensions I am of the opinion that nothing less that the abolition of leasehold is the order of the day.
Reversal of the Mundy case will help but Parliament ought to go a step further and consider why freeholders or their successors are even entitled to any form of compensation when the orginal freeholders (in many cases building companies) have already received 99% to 100% of the freehold value of a flat at the original point of purchase. The existence of the requirement to pay for a lease extension is the leasehold equivalent of the PPI scandal. Is it not time for Parliament to admit that it got it wrong in 1993 and 2002 and have the courage to admit that many leaseholders have paid over the odds simply to extend the lease on a property that ought to have been theirs in the first place.
There are indeed a few million votes up for grabs. C’mon Parliament, wake-up and act decisively without fear or favour.
That is an informative article that finally tells it how it really is. I conqur about tribunals being mostly a waste of time. It took our case about almost a year to get to a hearing, and the judge could not wait to point out that I was only a tenant and the freeholder (who lives ‘abroad’ and never showed up, or even showed ANY signs of life) could (mis) manage as he saw fit. I thought we were caught in some horrific time wrap with a powerful & evil overlord.
I would vote for any party that promises meaningful reform, preferably abolishion of this fiasco of a system that allows such a horrific degree of opacity and corruption to flourish.
I once applied to the old LVT with neighbours seduced by the ‘inexpensive capped cost’ nonsense. Never again. It was a modest application to challenge service charges and perceived discrepancies in accounting. As the selected ‘representative’ case (guinea pig) I researched and prepared a skeleton argument, statement of case and bundle of evidence. Everyone prepared witness statements. I scrupulously followed the Chair’s directions but got nowt back from the agents in the timelines. I queried this with the LVT office and was told just to crack on regardless.
Just before the hearing a huge bundle came from the agents containing loads of alleged contemporaneous documents we had never seen before. We had already submitted our case. We were about to learn the catch 22 of trying to prove a negative. A landlord and agent are taken to be professionals who would never mislead the panel. To claim otherwise needs proof they didn’t send you that alleged document. How to do that?
The agents had a barrister. A very good one. I was not permitted MacKenzie or any other Celtic sounding person to assist me with my notes.
The Chair sounded rather miffed when I started to refer to my statement of case and gave an impression none of the detail of case had been read – just the summary application form. This proved a tough challenge to present orally from scratch.
The barrister proceeded from my viewpoint to run the hearing. If I tried to say anything, he just ruled me out of order. The lay Chair simply stared passively. Must be a legal pecking order?
I tried to challenge the failure to follow directions and the barrister ruled that out too. I was not able to present our case due to regular interruptions every few minutes, so no flow of facts could build. Meanwhile the barrister could expound at length uninterrupted as to what ‘in any view’ was his view. Once I tried to object and the Chair said this was no place for Perry Mason acts. He did not explain how a barrister could legitimately be stopped at a tribunal. It seemed there was no mechanism?
I was denied cross examination of our witnesses because the panel said they already knew the case ( a matter of opinion), and they were ‘sacrificed’ into a slaughter by good barrister techniques (all this over service charges, not murder).
The agents submitted no witness statements to allow us to cross examine, and gave no oral evidence, but their rep stood next to the barrister with a mobile device and, according to neighbours close to the spot, appeared to be in direct communication with the mother-ship, feeding back live tips to the barrister. Not that he needed any help.
I would never go back to a tribunal. Nor my neighbours. What is described as an informal inexpensive system seemed to be designed to deny the layperson any ‘parity of arms’. It seemed like a ‘club’ where the ‘industry’ work together on a regular basis, and leaseholders are a nuisance who pay the lunch ticket.
I shook the barrister’s hand at the end in admiration at a job expertly done. You have to play cricket. We could never have afforded him for the costs ‘at issue’.
The final write-up bore some, but not much, familiarity to our case – such as we had been allowed to express it. The landlord was allowed to charge his costs on the service charge. Given this was not a s146 case, we were never told which clause of the lease permitted this recharge and since RTM have been advised there is no such clause that we could employ if taken to FTT by a leaseholder.
Such is leasehold. But you have to admire barristers. Just not cricket.
This is very interesting to read thank you for the accurate synopsis. I am going to put one together myself outlining my experience with FTT. There is something going on here. I am beginning to think that the judge was biased against leaseholders. He kept asking what I would refer to as leading questions. Also little things like absence of accounts, managers failure to comply with RICS code, hell even failure to consult about service charges, were glossed over and did not seem to bother him much.
I guess if you are a man of the world you’d know there is no point in taking on the freeholder, but the system is there just to pretend that leaseholders have a form of redress.
Oh Paddy, can I tell a story of utterly disreputable Managing agents’ of even more disreputable. ‘Freeholders being appointed RECEIVER MANGERS by LVT/ FTT. There must have been sleight of hand in appointing these gangsters. CORRUPTION AT PLAY. I will do my upmost to shine a light on this filthy practice!! WATCH OUT!
To clarify the above post:
I have never been to Tribunal / own a flat in.a shared Freehold property which has been managed in house for 20+ yrs. we employed a ‘managing property agent’ in 2014. In my view this outfit is as bent as a corkscrew. Blimey, have they picked the wrong gal- YES!
Let us not forget, that some of the most “respected” trade bodies actually arrange seminars for managing agents/freeholders to better present their case before a tribunal.
Let us not forget the deliberate tactic employed by managing agents/freeholders to produce vast quantities of documents immediately before any hearing (If this happens request an adjournment, do not fall for the Judge is going to look more favourably on me if I go ahead argument)
Let us not either forget the case of Benjamin Mire who sat on the same tribunal panel that was listed to hear cases against his firm Trust Property Management until Colin Dennard, a brilliant and principled resident, challenged this and got the cases moved..
Exactamundo Mr Epstein! I commented in a previous post that these so call “Respected” trade bodies are as much use as a eunuch in a harem/ orgy take yer pick.I am also utterly bewildered that ‘Managing agents who have been severely reprimanded at Tribunal are subsequently appointed receiver manager to other properties albeit under a differen guise. HOW is that allowed to happen. Stooge directors perhaps? It is like putting Herod in charge of a kindergarten.. It must stop!
Reassuring comments (47 as of now) below Mr Howarth’s article on Conservative Home, compared to many BTL under any Guardian article on leasehold!
Generally positive comments (if you are a leaseholder) with a minority view that you get what you buy and, interestingly, the circular line that leasehold is the only way to manage flats because commonhold did not take off. Hardly the fault of commonhold.