A truly grisly indictment of the way flat owners in this country are systematically cheated by the leasehold system emerged from the parliamentary debate yesterday.
So overwhelmingly negative was the evidence offered from all sides of the House that it is difficult to see how the leasehold system can carry on in the future.
Advancing the Leasehold and Freehold Reform Bill, Housing Secretary Michael Gove said that he realised the leasehold system was “fundamentally broken” in dealing with the fallout from the post-Grenfell building safety crisis.
He expected freeholders to show some responsibility for the buildings that they own:
“But did we find freeholders queuing up to do that? Absolutely not.
“They were there ready to extract income at the highest possible rate whenever they could, through ground rents and service charges, but when they were called upon to discharge their responsibility to the leaseholders within those flats, they were absent.
“They ran away from their responsibilities.
“That is why I have limited to no patience now with the well-funded lobby groups that stand up for those freeholders and seek to ensure that they can continue to extract money from leaseholders.”
DATABASE OF SHAME
Landlord gameplayers named in the debate
7 mentions Coppen Estates – Betts Betts Rowley Rowley Betts Betts Rowley
6 mentions FirstPort – Gove, Doughty, Maclean, Maclean, Cadbury, Foord
6 mentions Persimmon – Blackman Jones Elphicke Jones Betts Maclean
4 mentions Y&Y – Creasey Creasey Creasey Rowley
2 mentions of Estates and Management – Rowley Aiken
2 mentions Triplerose – Creasey Creasey
1 mention Israel Moskovitz – Creasey [Total for Moskovitz related companies: 7]
1 mention Bellway – Blackman
1 mention Berkeley Homes – Aiken
1 mention Rendall & Rittner – Cadbury
Mr Gove added:
“We will … squeeze every possible income stream that freeholders currently use, so that in effect, their capacity to put the squeeze on leaseholders ends. That will mean the effective destruction of the leasehold system.
“[The Bill] will mean the effective destruction of the leasehold system. Do not take my word for it: as Sebastian O’Kelly of the Leasehold Knowledge Partnership has made clear in his writing,
“The Bill is a full-on assault on leasehold’s income streams.”
Of course, the effectiveness of the Bill – which has a rippling effect throughout all its beneficial measures – is the ending of ground rents: setting existing ground rents to a peppercorn, which is under consultation with a new revised deadline of January 17.
What about the human rights of anonymous, offshore beneficial owners of freeholds mounting a legal challenge, which so preoccupied the Law Commission?
Mr Gove continued his speech, which was a bravura performance: “What about A1P1 rights under the European Convention on Human Rights? You are taking property away from people.”
“I respect the ECHR, but if it stands in the way of me defending the interests of people in this country who have been exploited by ground-rent massaging, I am determined to legislate on behalf of those people, because their interests matter more than that particular piece of legislation.”
He paid tribute to “the Father of the House, my hon. Friend the member for Worthing West (Sir Peter Bottomley), who has been the single most consistent voice in standing up for leaseholders.”
Former housing minister Rachel Maclean, who spoke with such enthusiasm for the Bill at the last APPG but was sacked by Number 10, delivered one of the best speeches in the debate (more later).
It was impressive that both Mr Gove gave her generous credit and distanced himself from her dismissal, and that the new housing minister Lee Rowley did the same, expressing regret at succeeding her (they are, in fact, close allies).
Ms Maclean urged Mr Gove to “follow the money”, prompting him to reply:
“I will be looking at the responses to the [ground rent] consultation, and I am sure that some of London’s finest legal firms and most eloquent solicitors will be putting in some very thoughtful contributions, but the question will be: who is paying for them and how much are they being paid?
“To my mind, people can buy silver-tongued eloquence, but what is far more important is actually being on the right side of justice …
“This Bill has many clauses, deals with technical aspects of property law, requires close scrutiny and is likely to face a lobbying exercise from deep-pocketed interests outside attempting to derail it …
“Is it perfect? No, I would not claim for this Bill any perfection of draftsmanship. Is it substantive — does it move the dial, does it change the business model, will it effectively mean that leasehold will become a thing of the past?
“I believe absolutely it will, and I am fortified in that belief by the strong support for this legislation shown by leasehold campaigners.”
Angela Rayner, for the Opposition, responded to Mr Gove’s eloquent speech with an intelligent deployment of irony and amusement, saying to laughter:
“He might be the only functional cog in a dysfunctional Government”.
Her compliments were double-edged: “He talked a good talk today, and he is theatrical.
“I love the passion — it is really there — and I love the “squeeze” [on freeholders]. We want to see the squeeze, but frankly I have lost count of the number of times Ministers have promised to finally put Britain in line with other developed countries across the world that have all ended this medieval system.”
The Bill was “better late than never”, but what about Mr Gove’s promise to ban leasehold, reported in the media earlier this year?
Ms Rayner applauded again the “squeeze” on landlords’ income streams, adding:
“Why make those promises, only to produce a Bill that does no such thing?”
The Bill’s long delays, and modest scope in not ending leasehold and introducing commonhold, all had a simple explanation, Ms Rayner argued:
“The truth is that the time wasting and backtracking all go back to the Prime Minister’s desperate attempt to extend the lease on No. 10 Downing Street.”
She ended on a rousing note and a pledge:
“I hope that he [Mr Gove] will face down his Prime Minister and his own Back Benchers and accept Labour’s proposals to make the Bill meet the challenges of the moment [ie replace leasehold with commonhold]. But if he does not, a Labour Government will.”
Apart from some tiresome schmoozing of “good landlords” by some MPs during the debate – it does not matter how nice they are, they have unjustified, imbalanced powers – Sir Edward Leigh offered the only consolation to them:
“… What about the Duchy of Cornwall? There are excellent freeholders that have traditionally maintained properties and done wonderful work in ensuring that properties are well maintained and in looking after their tenants.”
Leaseholders should be in no doubt that the freehold lobby will fight this Bill with every resource they can muster: some will be overt in the Lords, but most will be detailed legal briefings.
The proposal to make existing ground rents a peppercorn is leasehold’s death knell, and they will do everything they can to stop it.
They were many really good contributions to the debate – from Lee Rowley, Clive Betts, Rachel Maclean, Stella Creasy, Matthew Pennycook – which we will report later.
From 5.12pm:
https://www.parliamentlive.tv/Event/Index/049c012d-0c14-4997-bfcb-c4c1a1c1ac69
Related posts:
Freeholders cried crocodile tears for old ladies and said the pensions sector would be destabilised, says former housing minister. (And commonhold is ready to roll …)
At last a housing minister who seems to want to reform leasehold, and knows legal costs are being gamed to keep freeholders on top
Outrageous: Persimmon builds leasehold houses – for the never ending income stream
Galliard and Lendlease were quick to get leaseholders on the hook for building safety bills, now they won’t sign Michael Gove’s agreement to pay up
FCA finds ‘significant shortcomings’ in leasehold insurance. While Michael Gove urges it to look further
Our parliamentary briefing on the Leasehold and Freehold Reform Bill
It is always a pleasure to read factual, relevant up to date information. The message from Government to the Freeholder is clear, concise and to the point. The aim is to effectively end Leasehold & Freehold and consign it to history’s dustbin. Strangling off the numerous income streams is a logical start especially ground rent. I seriously doubt that the Freeholders will achieve anything by pursuing their alleged case through the Courts.
This archaic feudal system only has one ultimate beneficiary the Freeholder, often offshore who pay either no or minimal tax. I appreciate that other secondary beneficiary’s of this racket may experience a reduction in turn over, so diversification is always worthy of consideration.
The enactment of this Law will greatly improve the United Kingdoms standing on the World stage, other Country’s may well view Freehold – Leasehold to be more suited to a third World Country including Banana Republic’s and the like.
I don’t understand how peppercorn rents are the death kneel. My landlord who own the MA (they pretend they dont) extract far more money in bogus services and management charges than the small rent I pay. This bill does nothing about that.
Thanks to LKP for their work on this and a very clear summary of the reforms, as ever. It is progress but let’s be honest that these are several years overdue and quite watered down in some key respects. Still it should be celebrated and the attention fleecehold /managing agents are getting on national media is creating a tipping point and hopefully further changes will come in the next government which may be (slightly) less under the influence of developers and freeholders, Another area where reform is badly needed is in respect of Resident management companies and residents’ associations. I have a network of hundreds of people at many developments managed by Rendall and Rittner due to the petition I have led (4200+ signatures)
https://www.change.org/p/rendall-and-rittner-and-odevo-group-enough-is-enough-residents-demand-change-and-an-answer-to-our-petition
and a common theme, as well as the usual abuses by R and R, is the dysfunctional nature of many RAs/RMCs. It is very common for a few people grab power and hold on to it at any cost. They make decisions in an undemocratic way and are unaccountable. RMCs are not obliged to have elections for directors (although there is nothing to stop them doing that). and RAs are not regulated at all. Bullying is rife and the relationships of RMCs and RAs with managing agents are often very opaque and excluding residents. On some developments residents are living in fear of their own RA/RMC. Regulation is needed so that residents do not go from frying pan to fire when they achieve Right to Manage.
RTMCs by design have no requirement in model articles to hold general meetings or, as you say, for directors to re-stand after a period of time. No wonder there are abuses. Here’s what happens:
(a) Canny commercial cove gets self elected to board at a general meeting to find out the private details of flats. Helps to expand portfolio of sublets and have own contractors given work. Nice little earner.
(b) Canny commercial cove overrules ‘dad’s army’ volunteers who have no stomach for unpleasantness, so resign, leaving canny commercial cove free to appoint aged granny as other director – anyone can be appointed an RTM director. No requirement to have appointments ratified at a GM.
(c) Canny commercial cove and aged granny, or other business partner, have nice little earner and never consult or call meetings. Why bother.
Oh yes, leaseholders can remove directors if they jump through hoops: find out who the members are, get contact details etc, insist on GM and call one if not called. All beyond the stamina of elderly leaseholders who thought RTM offered a better life where Santa came down and made everything okay because people are by nature kind.
Who drafted the RTM model articles? Not a leaseholder in sight, I bet?
All flats in E & W are sold under leasehold title because the lease requires the flat buyer become the leaseholder and pays annual ground rent and maintenance charge to the freeholder. Many years ago, the Council of Mortgage Lenders decided the building ( block of flats ) must be covered by a maintenance agreement , and all leases entered between freeholder and leaseholder include this requirement.
Most freeholders appoint a managing agent to provide the building maintenance, collect the annual service charge contribution from leaseholders and provide the summary of annual accounts for service charge to leaseholders. The managing agent is required to provide service complying to RICS Residential Management Code.
This means that 51% or more leaseholders can form an RTM Company to take control of the service charge administration from the freeholder and then appoint their managing agent who works to the RICS code.
Michael & Paddy,
I obviously agree with your observations and comments about the need to Legislate the way RTMC, RMC & RA’s conduct their business.
I make the following few suggestions:
1. All meetings (of the above) or future meetings must be notified in advance to all eligible Residents at least fourteen days before the meeting takes place, including details of the agenda / or order of business. The date time and place of the meeting must be made clear and ideally be held at the Residence of the majority of attendee’s.
2. A minute of meeting must be recorded at the meeting and be made available and posted to all notice boards before the next meeting takes place.
3. All Directors must be elected or re elected on a annual basis by a majority vote of eligible Residents, and that must be recorded on the minute of meeting and name the proposer and seconder along with those for and against that proposal.
4. The quorum for a meeting must be the exact same as that contained in a RTMC articles of association.
5. Precise and documented details of the financial state of the RTMC, RMC or RA must be disseminated at least once per Annum at that meeting and be recorded in the minute of meeting.
6. Future agendas must include “Item 1” the minute of the previous meeting was read out and approved as a accurate account of that meeting or otherwise.
7. All decision taken at the convened meeting must show precise detail of how and by who decisions where made. All decisions arrived at must be by a majority.
The above are just my thoughts on how try improve on the present and are not exhaustive, I am sure that those better qualified than me will contribute more.
The building is managed by an agent , who is appointed by freeholder or RTM and works to the standard complying to RICS Residential Management Code ( 2016 ). You can find a copy online to view.
So if you have some ideas on “holding meetings” , you should send your ideas to RICS
Ollie,
Not one meeting that took place with our inherited managing agent followed my points 1, 2, 5, 6 & 8, which covers a period of about four Years. That leads me to believe or suspect that either a. Non of my suggested points are contained in that 66 page document, or b. They did not read the document or c. Possibly did not understand the contents of that document or d. Choose to ignore the contents of that document in relation to my comments on here.
I believe that codes of practice are ineffective in this Industry and “are for the birds” Legally enforceable regulation will be the only remedy in my view, you only need to glance at the articles on LKP to know that.
We conduct all our meetings in line with points 1 to 7 shown above, by our own choice and agreement, and by following the rules or advice of the Company’s articles of association.
Shareholders who are unable to attend meetings can either read a copy on the Company notice, receive one by email or have one placed in their letter box. We also send the Managing Agent of our choice a copy of the minute of meeting so as to keep them informed of our business including decisions made.
It really is quite simple and straight forward procedure (s) to follow and assists in the smooth running of a properly convened meeting.
Ollie,
I forgot to point out that our former managing agent features on the “DATABASE OF SHAME” I wonder if that will attract an award at future Industry gatherings?
In its excellent work on Commonhold, the Law Commission has looked at some of these aspects. Their international comparison is very interesting, as it shows that in all other jurisdictions, both civil and common law ones, the entity owning the building is not governed by Company Law with no adaptation or dedicated provisions, like in England: specific rules apply to simplify the various procedures, bearing in mind that flat owners bought a dwelling to live in it, not to become shareholders of a company for business purposes. In a separate consultation paper, the Law Commission considered concerns raised similar to those mentioned here, and made some proposals on how to deal with them. It is really worth reading, although I must admit that the amount of documentation produced, which amounts probably to over 1,000 pages in total, is daunting and can be found here https://lawcom.gov.uk/project/commonhold/
This man, Gove, has been an MP for at least 18 years!! He had 18 years to introduce a Bill and reverse the shameful leasehold laws this very parliament passed. He is probably a lame duck in a totally discredited government; Problem is the oppoistion party is no better and cannot be trusted either; Abolish leasehold= get re-elected.
It has to be said that the existence of ground rent has enabled poorer people to become home owners. The prices they have paid for their properties being lower than the market price. The difference between the lower price and the market price being collected through ground rent over time – clearly less burdensome than paying the full price at outset.
In the absence of the famous ground rent investor, Stephen, I thought it necessary to point this out. No story concerning leasehold/ground rent is complete without Stephen’s ad nauseam point being made. The fact that this point is completely erroneous is neither here nor there. Even slave traders and Nazis were allowed their viewpoint before the latter were hanged. The former were not hanged, they were compensated for the loss of their chattel. Should freeholders be hanged or compensated?
David,
Chattel (Slave) and Serf (better described as a Leaseholder) are in my view one and the same. Serfdom was, after slavery, the most common kind of forced labour – Serfs (Slaves) were bound to the land they occupy from one generation to another
Serfdom (Serf or Leaseholder), was a condition in medieval Europe in which tenant farmers was bound to a hereditary plot of land and the will of his Landlord.
We in England & Wales still endure that medieval archaic feudal Law, the question is how long for?
Your valid question of “Should Freeholders be hanged or compensated?” I believe the solution must be a a “Peppercorn” Or a possible medieval answer could be they can have the “muck off the soles of my boots”
I genuinely believe that many Landlords and their specially selected managing agents, have absolutely no idea how much they are genuinely despised, hated and loathed by the vast majority of Leaseholders in the United Kingdom and the ever increasing number of Freeholders.
The present housing disgrace is a direct result of the aforementioned in my opinion.
All replies eagerly anticipated and welcome?
Stephen,
When what is right collides with self interest, self interest wins in most instances. And certainly wins when those with power and wealth have to make the choice. The base reason that leasehold has clung on for so long in this country is down to individuals and organisations making a jolly good living from its existence – not just freeholders, but also a cohort of professionals, not least the legal profession. Psychologists say that those who climb above the masses and succeed in their vocation tend to be more committed and ruthless. These successful climbers – in politics, in business, in the law, in everything – are less principled, and overwhelmingly corrupt in the moral sense of the word. Parliament, business, the law (including officers at the Law Commission, high ranking judges) and others, are full of this type. These are the people who say what goes. Leasehold will not be abolished due to these grand people, Leasehold will (eventually) be abolished despite these grand people.
David,
I read your words of wisdom intently and agree with you.