UPDATE 1 March 2023
https://parliamentlive.tv/Event/Index/0488060e-de0c-46ac-abb4-247297850602
The MPs’ debate yesterday was a small affair, with very few Tory MPs as the prime minister was addressing the 1922 Committee at the same time.
It was called by Barry Gardiner, Labour MP for Brent North, who decried the unfairness of marriage value and named a string of freeholders and managing agents in detailed examples in his constituency, including Freshwater, ABC Estates, FirstPort (“fraudluent” etc) and others.
We will prudently wait for the written record to report in more detail.
Mr Gardiner also paid tribute to leaseholder activists of the 1990s, when he himself was deeply engaged in leasehold, including the late Nigel Wilkins, a former employee of the FSA.
Other MPs who spoke were Justin Madders, co-patron of LKP, who raised insurance issues and unfair legal costs, Florence Eshalomi, Matthew Pennycook and Mike Amesbury (“Abolish, don’t polish leasehold”).
Sir Peter Bottomley pointed out that not all freeholders were aristocratic family trusts and offshore private equity punters: the Wellcome Trust pressed its enfranchisement advantages in the Upper Tribunal, Stephen McPartland, who has been so committed with the cladding issue, Andy Carter, who raised Warrington managed estates issues and criticised the CMA mis-selling investigation and Tom Hunt, who raised Railpen.
LibDem Munira Wilson raised two cases in her Twickenham constituency.
Lee Rowley, housing minister, pledged backing for reform of leasehold, but did not undertake to a King’s Speech commitment.
Full report to follow.
Westminster Hall debate – 28 February 2023 / 4:30pm
Leasehold Knowledge Partnership, the leaseholders’ charity, briefing on leaseholders and managing agents
Background
The vast majority of leaseholders live in blocks of flats where the freehold owning entity is the landlord and it appoints a manager of its choice.
In no sense are the leaseholders the customer of the managing agents in these circumstances: the property manager does its employers bidding, or it gets its marching orders and is replaced.
The freehold owning entity, invariably with anonymous beneficial owners and often based offshore, often employs the managing agent appointed by the housebuilder who built the block.
These property managers are the bigger managing agents with 100,000 – 200,000 flats under management.
None of these companies are big through consumer choice and preference. They have grown through acquisitions and through appointment by commercialising landlord interests and developers.
Some blocks of flats are controlled by leaseholders, either by a residents’ management company set up in the lease, or through a right to manage company, established by the leaseholders themselves. There are only c5,000 RTM companies on Companies House records.
What’s the main job of managing agents for housebuilders?
To serve the interests of the entity that employs them.
Developer appointed managing agents have signally failed to point out build defects in new blocks of flats, as the elementary omissions and errors revealed since Grenfell make clear.
Indeed, one might believe that a prime task of a developer appointed manager is to ensure that the snagging defects of a building are not revealed within the time-scale of the warranty provision – after which date, the bill can be presented to leaseholders.
Managing agents are obliging to housebuilders, as they seek appointment to new sites. There is a clear commercial incentive for them not to highlight build defects.
Similarly, housebuilders expect the appointed managing agent to absorb the management costs of void flats that have yet to be sold. So for a while, the managing agent manages a site at a loss to itself. But it has every opportunity to monetise and put right this loss in time.
What’s the main job of a managing agent for freeholders?
To ensure that the building produces an acceptable income stream to the entity that employs it.
Property management has abundant opportunity under the leasehold system to monetise a block of flats: through padding bills; through preferred contractors (which may be related businesses); through commissions as, say, 15% oversight of major works; energy commissions and organising building insurance.
Insurance in leasehold, where leaseholders pay all the costs but are not party to the contract and cannot see the commissions involved, is being investigated by the Financial Conduct Authority. Others may be surprised this situation has continued as long as it has.
Although billions of pounds of leaseholders’ money sits in “trust” bank accounts, anyone can set up as a property manager in this unregulated sector.
Essentially, a residential building of leaseholders is run entirely at the landlord’s discretion and leaseholders have the protections of going to court (the property tribunal) to dispute service charges, commissions, major works bills etc.
The leaseholders can dispute these sums, which can be for millions, but will never get their legal costs even if successful. On the other hand, the landlord almost always gets his legal costs as administrative charges under the lease.
So the system of legal redress in leasehold is inequitable and there is no equality of arms.
This is surprising, as the collective value of all leases accounts for 97-99% of the value of a block of flats. Yet, the ownership of the freehold, which is worth only of a fraction of the leases, ensures power of management remains entirely the landlord’s.
Are managing agents all bad?
Of course not. LKP actually accredits managing agents that work for leaseholder controlled companies and seeks new business from them.
Professional property managers are essential, especially as modern blocks of flats are now highly complex, in engineering as well as law.
Many managing agents are professional, knowledgeable and highly trained.
The problem is that they are not employed and held to account by the people who ultimately do all the paying: the leaseholders.
In what other area of business would the majority shareholders be so completely disempowered?
This arrangement astonishes foreign nationals who own leasehold properties in England and Wales, which alone in the world persist in this flawed system.
Are freeholders all bad?
They are completely unnecessary. In the past, pension funds were attracted to the long term modest incomes of ground rent portfolios. Private equity has pushed the pensions funds aside over the past two decades.
This is a regressive and damaging arrangement. Affluent, often offshore, private equity punters are hitching a ride on the homes and aspirations of millions of people.
As billions has been spent via Help To Buy to get first-timers on the housing ladder, it could be argued that these punters have been helped by taxpayers with their investments as well.
Are there any good freeholders?
The otherwise saintly Wellcome Trust spent £114,000 to get back £6,000 of unpaid service charges by a litigant in person in this case in Onslow Square:
Forfeiture was avoided because of LKP’s intervention. The matter was closed down with an NDA.
The case perhaps indicates the state of mind of professional property managers. The only person in court who did not know that she was going to be ruined by this case was, sadly, the litigant in person.
Does leasehold need to be reformed?
No, it needs to be ended.
All previous reforms have not succeeded in making leasehold work properly. We need to stop creating more of it and adopt the commonhold tenure that exists, with variation, in virtually all other jurisdictions.
The Leasehold Reform (Ground Rents) Act 2022 was a fundamental reform: ending the creation of new ground rents, which are the only unarguable income streams in leasehold.
It also ended the entire racket of informal lease extension: negotiating extensions to leases with (often very ill informed) leasehold owners, and introducing punitive new ground rents. That is stopped.
The remaining reforms are outlined by the Law Commission and need to be enacted: the reform the enfranchisement process of buying freeholds and extending leases and ending current nonsense such as leaseholders presently have to pay all the landlord’s legal costs in this process.
Right to manage requires reform as does draconian forfeiture, whereby leaseholders lose the entire asset and landlords obtain a massive windfall. Finally, commonhold needs to be made the only form of tenure under which flats can be sold, giving flat owners security of tenure, ending the current position of them being tenants in law, and ensuring that they have equal rights with owners of freehold houses.
| Calls to action Statutory regulation of managing agents Bring in the leasehold reforms outlined by the Law Commission Urge the Financial Conduct Authority to be robust in its investigation into leasehold insurance |
Related posts:
Views of Tory MP Crispin Blunt: Government should ‘nullify’ ground rents. End ‘feudal’ leasehold. Bring in commonhold. And stop developers’ and solicitors’ ‘unconscionable’ cheating of the naïve
ARMA: prepare for a regulated leasehold management world
Bottomley tells BBC R4: Clear out sector stooges from LEASE. Stop barring LKP trustees. Bring justice quickly to leasehold house owners.
Stella Creasy MP backs leasehold reform … and Kirstie Allsopp is Tweeting to stop leasehold house sales
MPs told of the murky world of leasehold service charge accounts … by an accountant
New Estate Management thrown out of Property Ombudsman for not paying £1,000 award
An excellent article which makes clear why the leasehold/freehold form of tenure of property must be abolished and replaced by commonhold, as in the rest of the world. I would add that enfranchisement is not a solution at all: just today I read a case of a leaseholder in a block of just a dozen flats who has to take to court his fellow leaseholders who are also directors of the company managing the flat as they are refusing to provide the accounts he is entitled to by law. And this is just one of the many cases I have heard of a tiny minority of leaseholders getting on the board of the enfranchised freehold company or RMC just to take personal advantage to the detriment of their fellow leaseholders with the help and advice of the property managing agent, creating a situation of complete lack of transparency and fobbing off any leaseholder trying to obtain information. Landlord and Tenants Act various iterations are difficult to navigate, most leases are arcanely drafted, in some cases draconian rent charge deeds are applied to common areas, but when you add the complexities of company law, then the system is totally impervious to most leaseholders. Only with commonhold you can remove all these legal hurdles to the peaceful enjoyment of the property that leaseholders (thought they) had bought.
If a leaseholder has to take his fellow leaseholders in a block to court, it will make no difference is leasehold is abolished. If that block turns to commonhold, the same problem will arise and he will have to take his fellow unit holders to court.
It’s not ground rents (aside from a very small number of cases) that are the problem or indeed the lease term, it is the management of the process that is where the problems arise and where there needs reform.
Of course, there will be – and there is – litigation under commonhold. But the commonholder is not a tenant and the commonhold association / condominium is not a landlord. There is no lease, under which the latter can regain legal costs. In short, litigation between the two is equitable, like every other area of civil law.
You lost the argument on ground rents, thankfully, so there is no need to address that point.
You are suggesting that the winning party being unable to recover its costs makes it a more equitable system.
If that was the case, there will be numerous cases where unit holders will challenge the commonhold charges with sometimes frivolous or vexatious claims in the hope that the commonhold association will write off the debt rather than pay more in legal costs
I think on further reflection you will see that legal costs should be recoverable either from the defaulting unit holder or from the service charge fund provided the common holder association has acted properly.
I am saying the opposite: winning parties should be able to claim costs, on the merit of the case only.
The vast majority of legal disputes are won by landlords because they can automatically claim their legal costs under the lease, whereas victorious leaseholder never get their costs.
You will see from Liam Spender’s litigation against (essentially) FirstPort, that in a case against a disabled leaseholder which it lost it allegedly put its legal costs – and the award as well – on the service charge! We await the ruling with interest.
https://www.leaseholdknowledge.com/mr-spender-goes-to-war-over-st-davids-square-service-charges-and-landlord-caves-in-over-more-than-100000-buildings-insurance-commissions-on-eve-of-tribunal/
It is not the case that there are frivolous cases against commonhold associations / strata / condominiums, any more than there are in other areas of civil law. Because if you lose, you MAY face legal costs from the winning side.
Of course, homeowners are very emotive about these issues, hence the £100,000s they spend over disputes over boundaries or leylandi heights etc.
By the very nature of there being a landlord and tenant relationship in the leasehold world it creates an automatic conflict on all sites. As far as I am aware there is no evidence we have the same level of litigation in any other jurisdiction where leasehold has been replaced. Of course there will still be problem unit owners in the same way we have some leaseholders who create problems but the systems of redress in commonhold are designed to defuse conflict while they often escalate in leasehold. Commonhold removes is the automatic conflict that exists in the leasehold system. There can be no logic in a system where a landlord is someone owns a small ground rent income for profit but is somehow deemed to “own” the entire building yet has no interest in the buildings condition. The landlord is just someone who spends the tenants money keeping the building in the condition the lease tries to impose. It’s up to the landlord if they try to make extra profits from doing this work. Let’s not go near the argument that having paid the full price for the flat the landlord gets to sell it back to the leaseholder again when the lease runs down.
Our Off Shore Landlord
Peel Holdings offered us the purchase of of lease’s at Liverpool Waterloo Quay.
After hundreds of leaseholds went through the legal proceedings setting up Associations/Company’s etc
Peel Via ‘Hand delivered’ letters to our Solicitors and Apartment owners Overnight!! on March 2nd/3rd 2023 the virtual last minute Withdrawing the Offer..
This has cost thousands of pounds of our pensions, in our case and the hard earn money of hundreds of others.
This Dockland area was built and worked on by myself and generations of Scousers and people of many others of our mixed raced great City.
Mersey Docks and Harbour Board became Mersey Docks and Harbour Company, a Liverpool City Asset in the hands of a company that then sold the Asset of to the Off Shore Landlords Peel Holdings.
This last minute withdrawal of the Freehold Offer costing ordinary, Council tax and Income Taxes thousands of pounds and disappointment would have been amazing in any other country in the World.
IN RE : STOP REFORFMING LEASE HOLD
Good day Honourable Gardiner
My name is Lionel Greenberg from South Africa.
Further to the article published on the Lease Holder Knowledge website and the National Leasehold Campaign that reads –
“Stop Reforming Leasehold just bring it to an end.” See🔻
I am equally appalled that people are being denied of their basic human rights to own their property unencumbered. I shall be succinct and nor will I rehash, labour the long history of leasehold, the few who benefit and the disengenius shenanigans that have been canvassed.
As you are a veteran campaigner against leasehold since the 1990s my stance name and shame freeholders and management companies as being unscrupulous and opportunistic as do you.
Is there any remedy for civil action groups to challenge parliament – “force their arm” to abolished forthwith.
Should Parliament fail to debate and dispose of Leasehold, a Court of law should be approached to direct parliament to and time lines to abolish Leasehold.
Please be so kind as acknowledge receipt hereof and your thoughts going forward.
Kind Regards
Lionel Greenberg
6 Dell Close
Chesham
HP5 2TP
07515161256
🔻https://www.leaseholdknowledge.com/mps-briefing-stop-trying-to-reform-leasehold-just-bring-it-to-an-end-and-join-the-rest-of-the-world/
Exactly
I totally agree with the contents of Mr. O’Kelly’s article, It pretty well says it all in a very well written and balanced way.
“Does leasehold need to be reformed? No it needs to be ended. Reform of the current system will achieve precisely nothing, the current racket is by design modelled to maintain the status quo, in other words the Leaseholder pays out for pretty much everything, has virtually no say on who maintains the communal areas of their homes, and will pay whatever the Managing Agent decides it will cost, presumably including fee’s, commissions and any other “improvised costs that pops into their heads”
I have been part of a RTM for almost a Year, and we have achieved a good business relationship with the Managing Agent of our choice (HMG Ltd), and will continue to reap the financial benefits of that business relationship for Years to come. The MA of our choice works for us not the Freeholder / Landlord, and that is the cornerstone of a RTM Company.
Abolish Leasehold & Freehold entirely, erase it, consign it to history’s dustbin and replace it with Commonhold, something that will actually work.
The regulation of Managing Agents is long over due, the few, have in the past got away with business dealings, that In other Industry sectors may well be found to be unlawful. And this is despite all the hard and productive work of LKP and others. I consider myself to be very new and relatively inexperience in Leasehold & Freehold matters, what I have quickly understood is the current system is worse than a loaded dice when it comes to Justice for Leaseholders. I fully understand why Freeholders spend Millions of pounds lobbying Governments and others to maintain the present racket (using money derived from Leaseholders).
Does leasehold need to be reformed?
No, it needs to be ended. END OF.
Absolutely; Tell your MP and their party to Abolish Leasehold..or face losing their (tax payer funded) seat.
The ARHM (Association of Retirement Home Managers) is another shameful example of abuse of the imbalance regarding costs.
The ARHM make a mockery of having Parliamentary approval for their ARHM Code of Practice by refusing to even consider leaseholders complaints about their managing agent members. The ARHM now instruct leaseholders they must take legal action to the First Tier Tribunal before they will even consider any complaint!
Edward,
Any Industry can create an Industry body to represent the Membership of said “Industry” The first priority of any “Association” is to secure an income from the “Associations” membership by way of a subscription to fund the “Associations” financial existence.
The aim of the “Association” may be solely be to protect its membership from scrutiny from those that they “derive their income from” in this example the Leaseholder.
This is called being given the “Run Around” or “Sent In Circles” My first experience of this came about many decades ago. I could never understand why my employer at that time kept winning Industry awards for their products, till I discovered they owned and were the leading “Industry Association” for that Industry, according to Company’s House.
You really could not make this up
Stephen,
You are absolutely right in what you say.
What makes it worse with the ‘Association of Retirement Home Managers’, is that the ARHM Code of Practice has Parliamentary approval, but in reality is used for advertising purposes only by ARHM Managing Agents without any intention whatsoever of compliance or enforcement.
Bottom line is that for retirement housing leaseholders the ARHM Code of Practice is worse than useless, and needs to be replaced by properly enforced regulation.
Unless there are radical changes to be made before the next election, the Tories will also be starkly reminded of its failings by the about 200,000 Park Home owners, large numbers of whom remain under an expanding number of obscenely exploitative regimes, whilst the evidence of fraud and other forms of criminality is systematically buried, presumably in the name of `business`, howsoever done and regardless of the consequences that befall the almost always elderly victims. From the outside, it seems instead, that the government is intent upon turning crooked millionaires into crooked trillionaires !
That said, we are always appreciative of the eduring support of LKP and of Sir Peter Bottomley – but disappointed that unlike leasehold debates, so far, not one MP of any policial colour appears to have the guts to exercise the same parliamentary privilage and name the worst offenders, a task left to those daily being taken to the cleaners.
We don`t yet despair – but it has to be said that so far, no other party has set out how it might tackle the problems in either sector, meaning that the next choice of voters might come down to `Eenie, Meenie miny, mo` likely facing another policy of `If he hollers, let him go`,
MP’s and their parties must stop protecting the interests of parasitic Freeholders and ground rent investors in Parliament.
Abolish Leasehold. Introduce commonhold as the NORM for ALL flats.
Our Off Shore Landlord
Peel Holdings offered us the purchase of of lease’s at Liverpool Waterloo Quay.
After hundreds of leaseholds went through the legal proceedings setting up Associations/Company’s etc
Peel Via ‘Hand delivered’ letters to our Solicitors and Apartment owners Overnight!! on March 2nd/3rd 2023 the virtual last minute Withdrawing the Offer..
This has cost thousands of pounds of our pensions, in our case and the hard earn money of hundreds of others.
This Dockland area was built and worked on by myself and generations of Scousers and people of many others of our mixed raced great City.
Mersey Docks and Harbour Board became Mersey Docks and Harbour Company, a Liverpool City Asset in the hands of a company that then sold the Asset of to the Off Shore Landlords Peel Holdings.
This last minute withdrawal of the Freehold Offer costing ordinary, Council tax and Income Taxes thousands of pounds and disappointment would have been amazing in any other country in the World.