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.
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.
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.
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:
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.
Related posts:
McCarthy and Stone says ground rents essential, but why sell freeholds to murky Adriatic Land?
McCarthy and Stone: Ground rents are not the future of retirement housing
Our ground rents are fair, says McCarthy and Stone (even though they go up to £600 and are for no service whatsoever)
ARCO snubs McCarthy and Stone / Churchill by saying there is no need for ground rents
Housebuilders shares crash over ground rents, with McCarthy and Stone down 10%
Leaseholders in Ilfracombe can claim legal costs against wideboy freeholders over £2.6m wrongly demanded service charges, says Court of Appeal
I notice that the article states that in Retirement Complexes offering extra care and a degree of extra service and facilities, then a change to Commonhold would not be relevant.
We are in a Social Housing complex where the Management and Landlord is MTVH.
The above situation applies to us and also over 50% of the flats are Tennanted, the remainder being Leasehold purchased. That’s another barrier to changing to Commonhold. There must be many other Social Housing complexes in the same situation and even some of the McCarthy and Stone and Churchill developments provide similar situations.
I have always assumed that Commonhold is not for everyone and have been criticised for saying so.
I do hope however that with the changes coming we do not get forgotten and in addition we also get the current leasehold system reformed and with much more control over the Landlords and Management Companies who control it.
These are good points. Retirement housing for many people should be a short lease in a managed complex. Tenure is less the issue in these circumstances.
Seb,
You have been arguing for leaseholders who have a lease in a block with shops, restaurants, gyms etc to increase the non-residential limit from 25% to 50% for mixed-use buildings, thus making more buildings eligible for enfranchisement. I`m sure to at some point you will support these leases being converted to commonhold where possible / or support future new builds that have this mixed-use arrangement to be commonhold?
So why not retirees blocks under a similar arrangement?
I agree in an ideal world that short lease managed complex is the way forward. Maybe govt should legislate for this and end the lottery on re-sale values. Clearly, the long term leasehold model has failed; not McCarthy and Stone and not the freeholders but the elderly tenant leaseholders. However, the like of McCarthy and Stone want it both ways. If they cannot sell the overpriced leases thanks to us, the cat is out of the bag), they open it up to short term lease agreements. A much different approach than leave them empty until sold. As you know, we now have a mixed tenure on these developments now and something else to muddy the waters. Futhermore, why the hell should having a restaurant onsite stop the change to commonhold?
McCarthy and Stone`s own study showed the average age of the leaseholder to be 82 in their developments. This a very vulnerable age group, an easy monetisation target for the likes of nefarious builders like M&S and BVI freeholders. I believe the more services McCarthy and Stone incorporate on a development the more difficult it is to untangle a complex arrangement. It gives them more control and in future, short term leases will make tenure arrangement less an issue.
But for now, you need to come up with ideas to untangling the present situation in retirement blocks with the current tenure arrangement and with consideration for the average age of the tenant being 82. I have not seen any plausable comment about this. How are we going to protect this group. We cannot lump them in LAFRA24 and expect that to solve the unique vulnerabilities this group faces.
Or maybe LAFRA24 is just going to be the panacea to BTL investors who made a bad financial decision?
Vinny,
1. I believe that property managing agents must be qualified to at least a minimum basic level of professional competence and pass the test of being a “fit and proper” firm.
2. This industry sector must be regulated and be accountable to a Professional body with the Legal authority to take corrective action against under performing firms upto and including strike off.
3. A National table of all managing agents should be made available to the public rating all firms using simple key performance indicators, such as overall service charge per apartment per annum by location and by cost header.
4. No doubt other better qualified contributors will add or take away from the above suggestions.
Lease for life might be the answer, some will do well if they live longer than expected but some less so if they leave early – same with annuities
But would avoid all the hassle of selling the flat on death, the leaseholder keeps more of their capital for living
May make the managers more mindful on service charges as they of course would be selling on after a few years and vicious service charges would not make for good sales where they of course will take the hit
With the benefit of hindsight I would not of not touched a Leasehold property with a bargepole.
In my opinion it is a complete “rip off and highly thought out scam” that has stood the test of time and has made a significant contribution to the current housing market complete and utter shambles.
I believe that introduction of Commonhold will make a significant contribution to economic growth and create signicantly more demand for Flat Ownership from those of a certain age and younger people including those with Familys.
Stephen. I wish you every success in getting the introduction of Commonhold.
But please do not forget those current leaseholders who are in circumstances where Commonhold would not help them and only cause more aggravation and confusion.
We have been campaigning for major reform and regulation of Landlord/Managers since 2010 when Grant Shapps scrapped the reforms that were then in the pipeline. It should be possible to reintroduce those reforms now.
Michael,
Thank you for kind words.
Today, I read a copy of the the statement made by the Minister of State for Housing and Planning.
That statement exceeded my expectations. It was, in my opinion, clearly thought out, structured with a broad time frame. I could not find any issues concerning the Fleecehold – Leasehold “rip off” that was not addressed.
I hope that statement addressed any issues that you or your Neighbours are faced with?
It would seem to me that the Minister received exemplary council, and more importantly has taken that on board.
Stephen
I agree it, the statement does sound a lot more promising than what we have heard before. Katie and the Ladies at NLC have been working hard for us, I think we have a lot to be grateful for.
May have missed it in the past, but I think it worthwhile to highlight the potential advantages of leaseholders acquiring the right to mange (RTM) under the current legislation. From direct experience, as a director of an RTM company for the past 7 years, the retirement property we have responsibility for is better managed, is financially sound, has probably the lowest service charge rate in the area, and residents whose opinions are sought and acted upon.