After begging to keep ground rents, why is McCarthy and Stone saying it now supports commonhold?

Why is McCarthy and Stone’s head of legal writing today in Inside Housing and saying “we are supportive of commonhold”?

This from a company – for the moment, owned by Texas-based private equity Loan Star Real Estate – that is historically responsible for turning retirement housing in the UK into the dismal failure that it is. And leasehold is at the heart of it.

It is the all-giving gift in a one-way direction from consumers to providers and leasehold explains why so many people of retirement age shun designated retirement housing.

Only 2% of over-65s live in retirement housing here, against around 15-16% in Australasia and North America.

Consumers here tend to be very wary of retirement flats: when new, they are more expensive than average equivalent non-retirement properties; high service charges are a routine complaint and the re-sale values of these properties as evidenced on the Land Registry can be appalling.

The Times reports that families ‘lost £3 billion’ on resale of leasehold retirement flats, while developers and freehold speculators made millions

McCarthy and Stone and Churchill: are you blackmailing government over the ground rent ban and is your business model broken? Asks BBC R4 MoneyBox

And then there were ground rents, which LKP was primarily responsible for ending with the Leasehold Reform (Ground Rents) Act 2022.

Until the end, McCarthy and Stone was urging government to let it keep on charging high ground rents: typically £450-£500 and way beyond 0.1% of the property’s sale value in most cases.

Our ground rents are fair, says McCarthy and Stone (even though they go up to £600 and are for no service whatsoever)

McCarthy and Stone says ground rents essential, but why sell freeholds to murky Adriatic Land?

Further in the past, it flogged its entire portfolio of freeholds to a financier, Vincent Tchenguiz. These days the company retains management via a head lease.

It gifted the leasehold world Peverel / FirstPort, which began life as a Hampshire estate agent in New Milton but went on to become the biggest property manager in the country. It ended up being owned by Tchenguiz, until it was pitched into administration following the arrest of Vincent and Robert by the Serious Fraud Office in 2010 (a subsequent judicial review found the arrests were wrong). It is now owned by private equity investors.

Complaints about service charges, particularly at the older sites which McCarthy and Stone does not manage, have been frequent, not least when Peverel’s subsidiary Cirrus orchestrated a bid-rigging scam over electronic door entry systems.

This prompted an Office of Fair Trading investigation that reported in 2014; a £100,000 “payment of goodwill” to affected sites and prompted Peverel to change its name to FirstPort. No one was punished, however, on the generous grounds that Peverel had co-operated.

Ripped-off pensioners, betrayed Campaign against Residential Leasehold Exploitation whistleblowers, four-year tokenistic OFT inquiry, cost: £500,000, craven trade bodies, Cirrus unpunished, stooges go into ‘liquidation’ … one minnow fined £1,777

More here https://www.leaseholdknowledge.com/tag/cirrus/

So why on earth is McCarthy and Stone talking about commonhold?

The short answer to that is: because it thinks it is coming. And it wants to look good.

The article is positioning in anticipation of an announcement by the government very shortly to introduce commonhold.

Indeed, Inside Housing reports in a separate article that “it understands that ministers are targetting 22 November for a leasehold related announcement”.

The company’s lobbyists have doubtless got wind of this, and Harry Jeffries’s article is the result.

The article demonstrates what a gulf there is between McCarthy and Stone’s idea of commonhold and that advocated by tens of thousands of leaseholders, such as those who are members of the National Leasehold Campaign.

It is commonhold in name only, for many sites.

McCarthy and Stone operates 540 sites in the UK, and 28 of them are in non-leasehold Scotland, where residents do occasionally contact LKP – with issues of delightful simplicity.

The company says “all our developments in England and Wales generally work well under leasehold, and where there is an established body of landlord and tenant legislation and codes of practice providing consumer protection”.

OK, LKP and McCarthy and Stone are not going to agree about whether these consumer protections are adequate under leasehold.

In fact, McCarthy and Stone quickly makes clear that the kind of commonhold that it supports applies to the sites where there is basic “support” (a visiting house manager, say) where the flat owners would own the entire site including the communal areas.

This is the independent living retirement model that McCarthy and Stone has sold for years: sell the leases to gleaming new flats; sell the freehold and its income to a punter; include some extras: 1% exit fee (discontinued 2008) and ground rents (ended 2022), which are for no service whatsoever.

The model was reformed, as a result of criticisms in the older sites no longer controlled by the company, in that McCarthy and Stone directly controls its sites today by retaining a head lease and appoints its own company to manage.

But even when considering commonhold, McCarthy and Stone’s general counsel is not that keen on handing over instant control:

“The operator would remain in place while the development is established, say for three to five years, and residents could then change the operator should they wish.”

So, no chance of those tiresome commonhold-owning pensioners deciding, say, to get in a surveyor to check the building for any defects.

On the other hand, an attraction for the company of commonhold at these sites is that in time it severs any responsibility.

At present, we have seen cases of disputes in older McCarthy and Stone housing over building defects, for issues such as fire compartmentation in lofts or crib walls.

This results in wrangles with the freehold owner, who certainly will not be paying for repairs, and the residents, who can’t afford them. McCarthy and Stone has made “goodwill” payments to resolve these issues even though it is under no legal obligation to do so, as here:

McCarthy and Stone makes ‘goodwill’ payment of £40,000 to Oak Court, but leaseholder drops article for LKP after phone call from the company’s lawyer

But would it do so with sites in a commonhold? In such situations there would be no wrangle: the commonhold owners are even more overtly on the hook.

For the McCarthy and Stone sites with care provision, the commonhold envisaged is more restricted and does not really amount to commonhold at all. Nor should it, as a matter of fact:

“The ownership of the shared areas of the development that provide the communal facilities and services are retained by the operator and developer, again with a new standard retirement housing contract in place that governs how the services and shared areas are to be managed and charged. The operator would then work jointly with the residents’ commonhold association.”

Frankly, in retirement sites offering care, or at retirement sites where there is a significant provision of service – club house, restaurant, gym, possibly care as well – commonhold is not that relevant.

Consumers here are buying an array of services from the provider, which is investing in the site for the long term. The form of tenure is very likely to remain some form of tenancy.

Finally, one must not be too cynical.

LKP has long argued that McCarthy and Stone, the leading retirement housebuilder, is reformable.

Its business is increasingly long term management, rather than the cut-and-run housebuilder model.

Long-term management and commitment is infinitely preferable to handing over control of leasehold sites to a remote financier simply interested in the income streams.