By Liam Spender
Liam Spender is a Trustee of the Leasehold Knowledge Partnership. Personally affected by the cladding scandal, Liam is a Solicitor-Advocate and Senior Associate at Velitor Law practising commercial litigation and arbitration in the City of London. Views in this article are personal and do not constitute legal advice.Why not define “ground rent” in the new law?
The government has chosen to draft the bill without a fixed definition of ground rent. The bill merely defines a permitted ground rent as one peppercorn and says any other rent in any residential long lease is not permitted.
The issue is that this definition may catch service charges defined as “rent”. Most modern leases typically define the service charge and any separate insurance charges as “rent” under the terms of the lease. This is done because non-payment of “rent” entitles the landlord to start forfeiture proceedings without first serving a notice under section 146 of the Law of Property Act 1925 and thereby giving the leaseholder a chance to pay up.
The historic advantage of defining a service charge as “rent” is not so clear today because there are various restrictions on forfeiture even if “rent” has not been paid. For example, a residential landlord must demand a ground rent payment in writing and with certain prescribed information before being able to exercise forfeiture. There are other restrictions on the age of a debt and the monetary amount of a debt, including whether it has been admitted by the leaseholder or assessed by a court, which also mean forfeiture for non-payment of rent is no longer as straightforward as it was when the 1925 Act was drafted.
Whilst it is possible to commence the forfeiture process for non-payment of charges other than rent, breaches of non-rent covenants (for example, subletting without landlord consent when not permitted by the lease) does require preparation and service of a section 146 notice in addition to complying with the modern statutory restrictions on rights of forfeiture in residential leases.
The bill as currently drafted appears to catch service charges defined as rent and reduces them to a peppercorn. The easiest way of solving that problem is for future leases to stop defining service charges as “rent” under the terms of a lease. Landlords may object to that on the basis that it makes forfeiture (slightly) harder because they then definitely have to go through the section 146 process, but this particular form of drafting appears redundant given the other restrictions on forfeiture.
A neater solution still would be to abolish forfeiture, thereby avoiding the need for any section 146 notices. This would also obviate any drafting differences between “rent” and non-“rent” charges under residential leases.
Leaving aside whether the bill includes service charges in its definition of “rent”, the key issue with the government’s current drafting approach is that it relies on the commonly understood meaning of “ground rent” as a payment for which nothing is received in return. That understanding may change in the future as case law changes. Case law can also change in the future in ways not intended or foreseen by Parliament.
There are also risks in relying only on current case law because the current case law does not distinguish clearly between ground rent and service charges.
Indeed, in Arnold v. Britton [2015] UKSC 36, the Supreme Court held that a payment that walked like an indexed ground rent quacked like a fixed service charge. In that case, the leaseholders of some holiday chalets in Gower found that a lease term obliging them to pay £90 a year toward the landlord’s costs increasing by 10% each year for the term of their leases was enforceable. The term functioned as a ground rent even though it was described, and found to be, a service charge. The landlord would gradually collect more and more money under the term regardless of the cost of services provided, similar to a ground rent. Leaseholders would end up having to pay more than £1 million per year by the end of their 99 year leases.
Now, the court in Arnold v. Britton was not being asked to decide whether the charge in question was a ground rent subject to a peppercorn cap or a service charge. This bill, when in force, would oblige a future court to consider that issue. That may have produced a different decision.
Any such future decision would depend on both the wording of the contract (i.e. the lease) and the final wording of the bill once enacted. Parliament only has control over one of these variables, being the final wording of this bill. It is therefore vitally important to get the restrictions in the bill right to avoid any risk of them being bypassed later.
It seems that on the current drafting of the bill there is a material risk that a charge of the type seen in Arnold v. Britton, which was linked to services provided by the landlord in exchange for the payment, would not be deemed a “rent” subject to a peppercorn cap. Future leaseholders are currently being asked to take the chance that charges of this nature would be caught by the cap.
As the law currently stands, if such charges are found not to be ground rents subject to a peppercorn cap, leaseholders’ right to challenge the reasonableness of service charge expenditure under the Landlord and Tenant Act 1985 will be of no assistance.
Service charges must be variable before the right under the Landlord and Tenant Act 1985 to challenge the reasonableness of a service charge can be exercised.
In The Anchor Trust v. Waby [2018] UKUT 370 (LC), the Upper Tribunal held that a fixed service charge includes a fixed charge that increases by reference to an index. In that case it was a management charge at 31 December 1994 increased by RPI inflation for each year of the remaining term of the lease.
The risk is that if ground rents are replaced by fixed service charges then, without other reforms, leaseholders will not be able to challenge them.
Won’t developers just give up trying to create new ground rents if this ban comes in?
If there is to be no fixed definition of ground rent in the new law, any repeat of the sort of decisions mentioned above would be welcome to landlords looking to recreate ground rents in another form.
Such charges would be sufficiently certain to offer up as security for loans that would enable them to continue the debt-financed leverages model currently employed by the largest players in the ground rent investment industry.
The workings of the development industry and leveraged finance give a powerful incentive to both developers and landlords to recreate ground rents, if they can.
Developers have an incentive to try and perpetuate the ground rent model because it means they can continue to earn extra profit from the sale of the freehold after residential developments have been completed. As things currently stand, the freehold over a few hundred flats may fetch a few hundred thousand pounds of extra revenue in addition to sale revenues from the flats. These freeholds are only easily marketable if there is a certain income stream, like a ground rent, attached to them.
Developers, who control the drafting of leases offered to buyers, have every incentive to continue to draft them in such a way as to maximise value of the freeholds so long as there is someone willing to buy them.
Not all freehold investors operate a leveraged business model, but some of the largest investors in freehold property do. Some developers prefer to retain the freeholds and pass them over to their own in-house asset management arms to earn both ground rents and service charge. Other investors are not using leveraged finance, but instead are investing all of their own money in freeholds. Each group of investors has different incentives in relation to ground rents.
In the case of large investors employing the leverage model a typical ratio of debt finance to equity is 6:1. Meaning that for every £100 the landlord puts in by way of equity (i.e. landlord money at risk) it can borrow a further £600 from a lender to be able to buy £700 of property. The costs of servicing the interest and repayments on the £600 of debt are met not by the landlord, but by income from leaseholders in the form of current ground rents and other charges, but which in the future could be called service charge.
Freehold investors like this model because, in addition to capturing the surplus income above loan repayments and loan interest, the landlord keeps all of the capital gain when the property is sold. This is a lucrative business model. It is not one that landlords will not be keen to give up easily.
In our example of a 6:1 to leverage ratio above, if the property acquired for £700 using £600 of bank borrowing and £100 of the landlord’s money is sold for £1,000 then, after repaying the £600 of debt, the landlord makes a return of £300 on a £100 investment as well as receiving back the £100 put at risk. That is a return of 300% before any other expenses. In the meantime, the landlord has not had to put in any other money beyond the £100 initial investment because the costs of interest on the £600 loan have been met by ground rents and other charges paid by leaseholders.
The government may consider that the risk of ground rents being recreated in other forms is sufficiently low to justify not taking steps to amend the definition of ground rent in this bill.
That seems to be taking an overly optimistic view of the sector’s behaviour, particularly given the attractive nature of freehold sales to developers and the prospect of leveraged returns for freehold investors described above.
Steps also need to be taken to prevent developers who run their own freeholds and/or investors who do not rely on leverage financed to deter them from attempting to create charges similar to ground rents.
Not acting runs the risk of repeating historical mistakes witnessed in past reforms of the sector. For example, once the government announced an intention to ban the sale of leasehold houses, the sector moved quickly to introduce schemes of estate rentcharges to recreate something equivalent to a ground rent income stream applicable to freehold houses.
Wouldn’t defining ground rent just create an easy target to be drafted around?
The government is right that there are risks associated with creating a fixed definition of “ground rent”. The issue is whether the benefits of a clearer definition outweigh the risks.
If the government were to expand the definition of what counts as a “ground rent” a future court may interpret that as meaning anything not within that definition is not a ground rent and therefore not subject to the peppercorn cap. The risk of that happening varies with the quality of the drafting of the definition adopted. A well drafted definition should defeat any attempt at circumvention.
There is certainly room for amendments to prevent circumvention of the laudable aim of banning cash ground rents and any cash payment equivalent to ground rent. Some of the work can be done by amending the text of the bill itself.
Other improvements could be made by making simple changes to the definition of service charge under the Landlord and Tenant Act 1985. This could make fixed service charges either subject to a ban altogether or else subject to the same reasonableness criteria as variable service charges.
The risks of allowing the sector to get away with are too great not to act in improving the definitions in the bill.
Why not abolish current ground rents?
Lord Blencathra made the point yesterday that the government should be protecting current leaseholders by abolishing ground rents in all residential leases, not just future residential leases.
It is within Parliament’s power to abolish all residential ground rents. It would be a welcome reform solving, at a stroke, all the terrible burdens associated with doubling ground rents and inappropriately indexed ground rents. The issue is whether there is a liability for the taxpayer in so doing.
Under Article 1, Protocol 1 of the European Convention of Human Rights (“A1P1”), an income stream is deemed to be property. A1P1 provides that an owner of property is not to be deprived of that property except in the public interest and according to law. A1P1 is binding on the UK government under the Human Rights Act 1998.
The case law created by the European Court of Human Rights since A1P1 was introduced in 1948 has recognised that depriving a property owner of his property requires the payment of at least some compensation (see: https://www.echr.coe.int/Documents/Guide_Art_1_Protocol_1_ENG.pdf)
If this bill is to abolish current ground rents then it is likely going to have to provide for at least some compensation payable to landlords for loss of their future income. It could set out a fixed formula for this compensation, perhaps payable by leaseholders. Any payments from leaseholders would have to be modest to make it worthwhile.
There are ways of doing this in line with suggestions already made by the Law Commission in relation to leasehold enfranchisement, for example severely limiting the multiples that can be applied to future ground rents and fixing very high discount rates to reduce the effect of loss of ground rents over 999 year term leases.
This “abolition plus compensation” solution has already been deployed twice in Scotland in the past 20 years. Once in 2004 when the annual feu duties were abolished by the Abolition of Feudal Tenure etc (Scotland) Act 2000 (see the explanatory notes to the law: https://www.legislation.gov.uk/asp/2000/5/notes/contents and this report of the Scottish Law Commission explaining the issue: https://www.scotlawcom.gov.uk/files/1712/8015/2730/26-07-2010_1458_725.pdf).
The same model was deployed again when Scotland’s few remaining leaseholds were converted to freehold under the Long Leases (Scotland) Act 2012 (see this briefing note from the Scottish Parliament: https://archive2021.parliament.scot/ResearchBriefingsAndFactsheets/S4/SB_12-11.pdf)
In both Scottish cases, compensation for loss of ground rent equivalents was calculated by multiplying the lost income by the interest yield that could be earned on 2.5% Consolidated Stock, a form of government debt, on a certain date. The former landlord had to apply for this compensation to be paid by 27 November 2006 or else lose the right to receive the payment.
Both Acts provided for this compensation to be paid by the former tenant, but with fixed repayment terms depending on how much compensation was owed, with larger amounts automatically spread interest free over several years.
Any attempt to abolish current ground rents in England and Wales would be very welcome and long overdue. The abolition of ground rents would, however, leave the current leasehold structure in place. That would still leave leaseholders at the mercy of freeholders and their managing agents, with no meaningful control over how their money is spent.
The same freeholders who would lose their ground rent incomes would doubtless scour current leases for ways of replacing some or all of their lost ground rent income, perhaps by massively increasing the commissions already charged (typically 15-20%, but sometimes more than 40%) on buildings insurance premiums.
Any attempt to abolish current ground rents is also likely to provoke a strong rear-guard lobbying and legal action from the sector and its current investors, who would stand to lose potentially billions of pounds in value from their freehold investments. They would therefore have little to lose by spending millions on lobbying and litigation against any abolition.
That said, the government has accepted a similar legal risk in other leasehold reforms it proposes to make. The government promised in January 2021 that it would implement the Law Commission’s recommendations on wider leasehold reform, including that marriage value should be abolished. This reform engages the same A1P1 issues. Currently anyone seeking to extend a lease with under 80 years to run has to make this often substantial extra payment to the freeholder as part of the price of an extension. Abolishing marriage value carries with it the risk of an A1P1 challenge.
The Law Commission obtained a legal opinion from Catherine Callaghan Q.C. on the legal risk of a challenge by landlords to abolition of marriage value, which discusses the A1P1 issues and is available here: https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2020/01/Opinion-of-Catherine-Callaghan-QC-on-valuation-reform-FINAL.pdf. The Opinion concludes that the risk of a successful challenge by landlords to most aspects of the Law Commission’s leasehold enfranchisement proposals is no more than around 50%.
Why is this bill in the Lords first?
Bills can be started in either House but must go through all stages in both Houses of Parliament to become law. The government of the day typically manages its legislative business so that each House is kept fully occupied without waiting for the other House to send legislation.
What is a Grand Committee?
In the House of Lords, each bill passes through 5 stages: First Reading, Second Reading (which happened yesterday), Committee, Report and Third Reading. If both Houses cannot agree the same text then there is a further stage called “ping pong”, which we saw for several months over the Fire Safety Bill and attempts to protect leaseholders.
A Grand Committee is open to any member of the House of Lords. Grand Committees proceed by unanimity, meaning there are no votes on amendments. This means a backbench amendment can more easily make it into the bill.
This differs from procedure in the Commons where bills are typically sent to public bill committees of a fixed number of MPs mirroring the political make-up of the Commons. The Commons public bill committees are open only to the MPs selected as members and vote on amendments.
You can read further information about the passage of a bill through Parliament here: https://www.parliament.uk/about/how/laws/passage-bill/
When will the Grand Committee take place?
The Committee stage normally happens about 2 weeks after Second Reading. We do not know the dates for this bill at the moment.
The bottom line?
There is much to do to improve the bill before it reaches the statute book. The indication in yesterday’s Second Reading debate of strong cross-party support for the measure generally and the particular improvements discussed above suggest that improvements can be made to further enhance leasehold protection.
LKP will continue to report on the bill as it proceeds through Parliament.
Related posts:
The Leasehold Reform (Ground Rent) Bill: opportunities and challenges
Justin Madders Bill: 10x annual ground rent and the freehold is yours … Anyone got a problem with that?
Taylor Wimpey more greedy than the ground rent ‘Mr Smallweeds’ (and so are other plc housebuilders)
Have lenders refused mortgages on doubling ground rent properties?
Ground rent speculator Robert Steinhouse cuts and runs from Nova House, but who pays £4m Grenfell bill?
Freeholders and housebuilders have plucked the leasehold golden goose, and now the path is clear for commonhold
If the landlord demonstrated that the premium received for granting the lease was lowered because of the imposition of a ground rent, then the argument that the rent was for no service would be defeated it would be argued that it is part of the overall consideration the landlord gets for the granting of the lease.
If I sell a flat ordinarily worth £300k for £50k with a ground rent of £10k per annum linked to the RPI, I am offering a clear service for my rent – what is wrong with that rent and in the commercial world this would not be uncommon. I have seen recent lease extensions done outside of the Act where the deed of surrender and regrant recites that the landlord would have granted a lease pursuant to the 1993 Act for say £25,000 but has agreed to a compromise deal where a lower premium of say £10,000 is received for a ground rent of £500 linked to the RPI every 10 years – what is wrong with that arrangement IF the parties are professionally represented ?. Why should retrospective amendments be made to such a deal?
Whilst it can be argued that a purchaser may not have considered the implications of the ground rent when signing the lease, I think to suggest that even the initial figure before any doubling or indexation is applied should be lowered would seem a highly provocative stance to make. And further to suggest reviews linked to inflation as onerous is again somewhat over dramatic
The imposition of a stream of income to which no service is received is of course a burden on the property and should lower the premium the landlord receives.
It comes back to my point that the root of the problem with the imposition of a ground rent is that the value of that burden is not shown in the lease. If it was then the buyer would be reflecting correctly on the price they should pay for the property. This could so simply be achieved by having the government fix a discount rate and then the NPV of the ground rent shown next to the premium in Box LR7 of the leases with SDLT payable on the combined total.
The Scottish model used the yield on 2.5% consolidated Stock and in England for redemption of rent charges the yield is from “over-30-, not over 30.5-year” National Loans Fund interest rate published by the UK Debt Management Office – the yield currently as of yesterday was 1.45%. Therefore, capitalising a long-dated ground rent stream would require the lessee/government to compensate the freehold using a multiple of around 69 years purchase. So, what would be the logic for applying a differing yield rate to other types of ground rent as we already have a formula? Bear in mind that the rate of 1.45% applies to fixed rents, rents providing a hedge against inflation may well have to be discounted back using negative rates
Maybe rather than reduce ground rents to a peppercorn maybe the process I have suggested would ensure that ground rents would become a great deal less as the correct treatment of them would allow the consumer to negotiate more strongly.
Stephen..
So let me get this right then… you say.. .”If the landlord demonstrated that the premium received for granting the lease was lowered because of the imposition of a ground rent, then the argument that the rent was for no service would be defeated it would be argued that it is part of the overall consideration the landlord gets for the granting of the lease.
As I see it then, the landlord is given a reduced payment for the granting the lease, because he is to be given another payment by way of ground rent,.. ‘an imposition’ and the ever so charitable landlord sees this as a …’consideration’… so tell me where is the ‘service’ in all this? what is the actual service he has provided? don’t tell me the landlord will be out of pocket due to his ‘consideration’.
The gravy train is about to be derailed.
If the freeholder takes less of a premium on the understanding that in each of the future years he is going to receive ground rent then his ground rent is clearly not for no service
If a flat ordinarily would sell for £300k with a nil rent but sells for £270k with the freeholder receiving £1000 per annum indexed linked – the lessee capital is greater by £30,000 than if the LG bought the flat for £300k without any ground rent . The lessee may well find a home that £30,000 and paying the ground rent of £1000 may be beneficial
What is not acceptable would be for the lessee to throw up their hands a few years later saying it’s all unfair and written in legal speak and that now they want the rent slashed to £250 and then subsequently get rid of the rent for perhaps £5000 – therefore making a windfall from the transaction
Well said George!
…..therefore preventing an unscrupulous freeholder from “making a windfall from the transaction”.
Historically, Ground Rent was never an income stream for freeholders or ever intended as one. It was a “peppercorn” imposed by the Crown when granting freehold title of land to us serfs. Thankfully, the serfs in the Lords now recognise this as following on the recommendations of the Law Commission, CMA, the Housing Committee, and Sir Peter Bottomley et al. the current legislative proposals have finally exposed how this centuries old land use system was in relatively recent times usurped by a handful of money grubbing carpetbaggers (and more often criminally).
You are incorrect.
There are swaths of leasehold houses in industrial areas of this country where the ground rent was created at around the end of the nineteenth century / beginning of the twentieth century when the rent reserved was around £1 per annum. Whilst we may think this is a token sum / peppercorn today as a proportion of an industrial wage it was far from insignificant.
The sum far exceeded 0.1% of the value of the property and represented the vast majority of a weeks pay of an industrial wage
Why does the campaign to get ground rents slashed to £250 per annum not apply to commercial property?
Recently a pub owned by a national brewery was being sold but was subject to a ground rent of £21,000 per annum. The value of their property was clearly affected by the imposition of such a rent – why was the brewery not supporting the campaign to have ground rents reduced to £250 advancing arguments that the lease was in “legal speak” and all they wanted was a home for the punters to drink in – the reason of course was that they were professionally represented by valuers and solicitors and of course the obligation to pay such a rent would have been carefully considered at the time of purchase. Expressions such as “NPV” and “yields to redemption” would have been talked about during the negotiations before signing the lease. They would appear foolish trying to run with arguments that it is all profoundly unfair.
In the case above the ground rent is very much part of the overall consideration. To suggest that the landlords ground rent is for “no service” would be wrong as is very much an integral part of the overall consideration he agreed when granting the lease.
Stephen,
you are obviously very knowledgeble of the leasehold system and deserve due credit for it, and on face value your reasoning appears to be quite reasonable.
I can only give you my ‘man in the street opinion’ and will stand corrected if necessary.
In the example you give for a property selling at £300k and the buyer giving £270k, if the rent was just £1000 p/a even with it indexed linked (which seems to have doubled recently) it would be better than any loan and would take over 30 or so years to be paid off if it were considered as a loan.
The problem is….as noted by many leaseholders is not the ground rent in itself if it is a reasonable amount and is not going to increase by ridiculous amounts, it is the conditions applied that come with it, for your example the landlord has a stake now of 30:270 ie ~ a 0.1 share in the property and yet this is used as a means of imposing restrictions on the leaseholder and defining the landlord as the legal owner.
This ownership of the legal rights and the fact that they could be sold on to 3rd parties who can increase the value of the purchase of the freehold, or use other means, sometimes unscrupulous, but in most cases the freeholder demands the maximum payment under laws which have been biased and are still biased in my opinion for the benefit of the freeholder, and not only that but the legal fees are, I hear, payable by the leaseholder even if he wins a case, these things cannot be right and have given the whole leaseholding business and the laws set up for the leaseholding scheme a bad name, not to mention mis-selling and other under hand dealings.
And now we have politicians who have decided that the freeholder can erect further stories on flats with dire consequences for the leaseholder and massive benefits for the freeholder who’s only compromise is to say that service for communal areas will be cheaper for the renters but no compensation or reduction in payments, ie they only benefit by default.
Many people as myself have heard horror stories of the plight of leaseholders whose human rights in my opinion have been thrown aside as if they were indeed serfs, the terrible situation suffered by many because of the cladding scandal is, again in my opinion, due to the leasehold system and the cosy relationship that politicians have with developers and the construction industry, then there is the ‘pledge’ a government scheme voluntary set of rules for freeholding management companies which have been agreed to by many of them in order that underhand methods of dealing with leaseholders would cease, however thanks to the internet we now see that it seems that these agents think it is some sort of joke and have carried on as before.
Is it any wonder that prospective purchasers are wary of being trapped in the leasehold scheme and now it seems to be common knowledge that the whole system is a moneymaking scam which has ruined the lives of many people and to this day still is ruining lives.
No doubt in future we will see leasehold tenure under another name, indeed it is already here….’shared ownership’ where the ‘sharing’ is rather one sided.
When Mr Jenrick stated recently that when purchasing a property ‘caveat emptor’ what he was really saying was that the rules in purchasing a home are a complete nightmare.
Is it any wonder that ordinary folk get quite emotional about the leasehold schemes, they are taking to the streets in a few weeks time.
The ground rent issues aside from those that double every ten years or so are not the problem. Ground rents seem to be the lightning conductor acting as a conduit for all the other problems with leasehold.
There is in place legislation whereby the lessees can take control of the management and thus taking away many but not all the problems with leasehold.
The problem of cladding being on the building is not the fault of the leasehold system. I am not sure whether if the building was commonhold or leasehold (but controlled by the lessees) that it would make any difference to the speed of resolving the problem. The roadblock is of course, who is to pay and how is to be structured
I think it is wrong that a flat worth say, £250k with a ground rent of £350 linked to the RPI is now blighted and needs to be corrected – the property will not meet the underwriting criteria of a number of lenders and its value is reduced. Yet, in absolute terms, the amount by which the ground rent exceeds what many lenders will accept is about £100 per annum, which is absurd. This knee-jerk reaction by lenders imposing these conditions to ground rent terms has caused a great deal of stress to lessees who four years ago did not think there was a problem. I do attribute this to carless lobbying by various pressure groups – claims that a ground rent linked to the RPI or double every 25/33 years are onerous are without foundation. We need calm measured debate.
It is the failure to appreciate the financial burden a ground rent puts on the property . That is not the fault of the leaseholder it is the failing by government not to extend the consumer credit act to cover cases where a discount is given in return for an obligation to pay into the future. Until 1974 loan agreement did not have to state the APR and so deals such as borrow £100 and pay it back over 13 weeks at £10 per week did not carry the warning that the APR was 660%. Knowing what the APR is on a loan helps the consumer make an informed choice between loans and is a reminder of what they are entering. In my examples you will see that if the Net Present value of the ground rent was shown in the prescribed clauses in the lease using a defined discount rate a purchaser could evaluate the deal of £300k with a peppercorn rent v £270k and a ground rent of £1,000 per annum linked to the RPI. In my opinion the purchaser should be indifferent between the two.
It’s true that ground rent are not the most egregious problem with leasehold law. We don’t know why the government has chosen that as its priority rather than say, regulating service charges, or reforming the FTT system, or simply a sunset clause that requires all new builds to adopt commonhold.
Some say abolishing ground rents is necessary to remove the incentive for freeholders to invest in leasehold properties in the first place. But it seems to me it’s the whole package – of rents, inflated service charges and permission fees that are expensive to challenge – that provides their revenue stream.
As Liam says the obvious solution here is to scrap forfeiture – a nuclear option which leaves the leaseholder with no home yet a mortgage still to pay, and a terrible credit rating. The stigma of forfeiture is greater than that of a prison sentence – and if judges are reluctant to use it for that reason then all the more reason to scrap it altogether!
Thanks again Stephen,
I think you are right in saying that “ground rents seem to be the lightning conductor acting as a conduit for all the other problems with leasehold” and that there is in place legislation for lessees to take control of the management, although there is no guarantee that this cannot be circumvented as shown by the case of the ‘Scourge of RTM’s’ where the freeholder sits as director of the RTM group even though he is not a leaseholder in the property.
So it seems there is always a way for those that understand the system and laws to navigate their way to control the situation for their benefit, probably clever lawyers as always are the spanner in the works.
You are of the opinion that it is the Governments fault that the Consumer Credit Act was not extended, and that the cladding problem is not the fault of the leasehold system, but here I disagree.
The leasehold system is controlled as I understand it by management companies, who look after the interests of investors, who have no interaction with the people who are paying for their investments, so there is no interest in making sure that what they own is looked after in a safe and efficient manner, they have only one agenda in place, make money, .. I am all for making money! but not when there is no consideration as to how it is being made.
Now the managing agents who should be looking after the interests of both parties have had the clever lawyers put in place a scheme whereby whatever happens, the management companies will not be held responsible. So there is no compulsion to be accountable.
Then we have the developers, builders and suppliers, and as I understand it the Government removed those who oversaw building standards, and I would ask ‘who told them that this was not a necessity?’. I would hazard a guess that its those who would benefit most from it.
So because those who benefit from the leasehold system cannot be held responsible, then they need have no respect for the people whose well being depend depend on them, and in my opinion it is the clever lawyers and those who made irresponsible rules and laws who should be made accountable.
So… the Leasehold system is the root cause of the cladding scandal.
A chain of irresponsibility.
Is the problem here one of a conflict of interest? The freeholder wants as much from his investment as he can possibly get after doing as little as possible to respect his repairing covenants, whilst the leaseholders want the property to be maintained at as little cost to them as they can get away with. Where the freeholder is a company in which all leaseholders hold one share this conflict is eased, although not entirely removed, as not all shareholders do, or even can (afford to?) agree.
The latter arrangement is similar to the french system of “Copropriétè” which resembles, I believe, our common hold. There is a “Syndic” which is made up of some shareholders who hold AGMs and instruct managing agents. They, as here, have a somewhat chequered record of underperformance. But at least there is no landlord whose interests are directly opposed to those of the leaseholders.
Perhaps we could at least look at their system, which is not perfect I admit, and take from it what might be of advantage here in UK, or should that be England and Wales?
I have heard on many occasions that ‘British Law’ is the envy of the world…!
My question is this… Which world are they talking about? it must be in outer space…, if the leasehold system is anything to go by I would hazard a guess that ‘British Law’ is the most biased system, set up for an elite who just couldn’t give a toss for those who pay for it all.
The laws for leasehold tenure markedly show that …… JUSTICE IS NOT BEING SEEN TO BE DONE !!