10-point Leasehold reform manifesto

by Property118.com News Team

9:05 AM, 4th November 2019
About A year ago

10-point Leasehold reform manifesto

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10-point Leasehold reform manifesto

Prominent leasehold reform campaigner Louie Burns has published a 10-point manifesto to drive forward leasehold reform, following the delay to the publication of the Law Commission’s report on improving the lease extension process.

Louie Burns, Managing Director of enfranchisement specialists The Leasehold Solutions Group, said: “Empty promises on leasehold reform are all leaseholders have heard over the last three years. Despite numerous proposals there have been no changes to legislation and the timetable for reform continues to slip, with the Law Commission’s long-awaited report on valuation, expected in October, the latest deadline to be missed.

“Leaseholders deserve the reforms they have been promised, to make leasehold enfranchisement quicker, easier and cheaper. Our manifesto proposes the radical reforms that are necessary to quickly end the leasehold scandal and we hope that the Law Commission will follow suit by publishing similarly bold recommendations for the Government to consider.”

There are 10 key areas where the Leasehold Solutions Group believes changes are required immediately:

  • Ban the sale of all leasehold houses, as the law has not been changed and developers are technically still able to sell houses on a leasehold basis.
  • Set ground rents on new build flats to zero, as leasehold properties are still being built with onerous ground rents.
  • Prescribe the valuation elements for lease extensions and freehold acquisitions, to make the process of enfranchisement easier and cheaper for leaseholders.
  • Stop leaseholders paying for the removal of flammable cladding, as leaseholders were not responsible for choosing the construction materials for their block and bought their properties in good faith.
  • Regulate managing agents, to ensure that leaseholders receive fair treatment at an acceptable cost and in a transparent manner.
  • Change the qualification criteria for freehold purchases, to ensure that all buildings can legally qualify for a freehold acquisition by the leaseholders or the Right to Manage process.
  • Ban the AST loophole, to ensure that freeholders can no longer force leaseholders into forfeiture of their property by converting the lease into an assured shorthold tenancy.
  • Introduce Right to Manage for estate charges, to give leaseholders on estates the right to challenge unfair charges, ensure that charges are reasonable and change their rent charge owners where necessary.
  • Ban informal lease extensions and freehold purchases, to ensure that leaseholders use and are protected by the statutory enfranchisement mechanism.
  • Make forfeiture of leasehold properties illegal for minor infringements, to protect leaseholders from disproportionate punishment if they owe small amounts of ground rent (e.g. £350) or cannot pay fees for major works.

Burns concluded: “Leasehold is an anachronism and a hangover from feudal times; it defies logic and fairness and is utterly unfit for the 21st century. We are now at a crucial point in the battle for leasehold reform and, with an early election now inevitable, leasehold reform is a real vote winner. Leaseholders need to make their voices heard now by petitioning their MPs harder than ever, or face losing the chance for significant leasehold reform for another generation.”


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Ian Narbeth

15:13 PM, 4th November 2019
About A year ago

Some of these comments betray a lack of understanding of how the market works.
"Set ground rents on new build flats to zero, as leasehold properties are still being built with onerous ground rents." Fine in theory but it means the freeholder has no net income and can build up no reserves. Unless the directors are willing to put in their own money the freehold company may become insolvent if any tenant fails to pay their service charge.

"Stop leaseholders paying for the removal of flammable cladding, as leaseholders were not responsible for choosing the construction materials for their block and bought their properties in good faith." This misses several points: in the vast majority of cases the current freeholder also did not choose the construction materials and bought in good faith, the value of the freehold may be a tiny fraction of value of the leases (and with zero ground rent will be), if the freeholder is not able to pay, who will?
"Change the qualification criteria for freehold purchases, to ensure that all buildings can legally qualify for a freehold acquisition by the leaseholders or the Right to Manage process." Which means that if there are one or two flats in a multi-storey block that the owners of the flats have the right to buy. That will affect the viability of the development of that building. In most cases it will be impracticable for the resi owners to raise umpteen million to buy the whole building.
"Ban informal lease extensions and freehold purchases, to ensure that leaseholders use and are protected by the statutory enfranchisement mechanism." Why shouldn't parties avoid the expense of the formal procedure?
"Make forfeiture of leasehold properties illegal for minor infringements, to protect leaseholders from disproportionate punishment if they owe small amounts of ground rent (e.g. £350) or cannot pay fees for major works." There is a case for a de minimis exception but ultimately if a tenant cannot afford to pay for "major works" then either someone else (who?) must pay or the works won't get done (or the freeholder organising the works will become insolvent - see above) or the tenant will have to sell.

SimonD

19:58 PM, 5th November 2019
About A year ago

Fast rising grounds rents for no service, excessive permission, enquiry and admin fees, high costs to enfranchise or do a lease extension. Freeholder appointed managing agents with high service charges who may be impossible to remove in some circumstances, for example if a Housing Association, more than 25% commercial in the building, or an estate of houses. Long leasehold is an unjust, feudal relic, now unique to England and Wales. Everwhere else uses Commonhold, and manages without a remote freeholder, some who are offshore entities, and usually care nothing for the leaseholders other than extracting as much money from them as possible. A freeholder who may have paid just 1% of the building's value for the freehold interest, and yet has near 100% control of leaseholders lives. Freeholders like this will cause more conflict in the building, not less, because leaseholders have to deal with an uncaring, profit motivated entity, which should have no part in their lives or homes.
Leaseholders can make their own decisions about their destiny. If leaseholders cannot or will not agree, then the court can appoint a managing agent from an approved list. The freeholder is often an unnecessary expense and obstruction for leaseholders.
Mortgage lenders should avoid toxic leasehold, look forward, and embrace Commonhold. Leasehold takes longer during property conveyancing and is more expensive, because there are 3 parties in a transaction including the unnecessary remote freeholder.
The "pledge" is useless because many agents and freeholders have not signed up to it, or even if they have, fail to follow it. It is also useless because moving a high starting ground rent to RPI can still make the lease onerous. Ground rent above £250 per year can make the property an assured tenancy, and who knows what inflation will do in future. Many thousands of properties have a ground rent greater than 0.1% of property value which is regarded by some lenders as onerous.
The bigger elephant in the room is out of control service charges, and the great difficulty many leaseholders have in challenging them and holding managing agents to account.
Buildings insurance - another scam where commissions are paid both ways to agent / freeholder and insurer at leaseholders expense, or the freeholder fails to insure the building at all, leaving leaseholders exposed.
Buildings and contents insurance for a 3 bed freehold semi, £130 per year. Buildings insurance for a 2 bed flat, £460 per year. Leaseholders add all the value to the building and their flats, yet suffer from corruption like this.
Clear information at point of sale is needed so home buyers can make an informed decision, not buried in a complex lease document which only lawyers can understand.

No freeholder means -

No unnecessary permission fees
No ground rent
No lease extension or enfranchisement costs.
No speculators controlling peoples' homes and lives.
The lease is a wasting asset for leaseholders which will no longer apply.
No potential forfeiture of the lease.
No mis-selling of houses as leasehold where the freehold was sold on to a 3rd party, and failure to warn home buyers this could happen at point of sale.
Less work for expensive lawyers which has to be good in reducing costs for millions of leaseholders.

A giant ponzi scheme, where a few benefit at the expense of 6 million leaseholders. It is incredible such a system as long leasehold still exists in the 21st century.

SimonD

20:44 PM, 5th November 2019
About A year ago

Contradiction in Ian's comment.
Implies freeholders are caring, long term custodians of the building (which in most cases they are not, just in it to extract as much money as possible from captive leaseholders). But at the same time they have no obligation to pay to replace flammable cladding.
From a leaseholder's point of view the freeholders are a useless obstruction to progress on the cladding issue. The government because of poor regulation and oversight, developers, and their insurers are responsible for paying to get these buildings safe.
The flammable cladding issue highlights the absurdity of leasehold.

Ian Narbeth

9:52 AM, 6th November 2019
About A year ago

Reply to the comment left by SimonD at 05/11/2019 - 20:44SimonD, you are falling into the same trap as many people do. I am not for a moment defending bad landlords or bad practice.The point is that an impecunious landlord is not able to pay hundreds of thousands of pounds to replace cladding. Nor is it right that a person/company which was not responsible for installing the cladding should be expected to pay for replacing it, even if they have deep pockets. If surveyors acting for purchasers did not raise the issue, why should the freeholder bear responsibility?
What about the many cases where leaseholders have shares in the freehold company? Who do you blame then? If a substantial percentage of the leaseholders don't want or say they cannot afford to pay for the work, what happens? That's a rhetorical question. There is often no easy answer. Simply criticising "landlords" for not stumping up as the Prime Minister did in his remarks on the Grenfell report just demonises landlords.
We live in an imperfect world and sadly, sometimes a loss (or a cost) must lie where it falls.
As to reform of leaseholds generally, commonhold is available but in the 15 years since the Commonhold & Leasehold Reform Act 2002 came into force it has not caught on: https://www.newstatesman.com/spotlight/housing/2019/01/just-20-commonhold-properties-have-been-created-2002

SimonD

10:36 AM, 6th November 2019
About A year ago

Most of the leaseholders trapped with flammable cladding do not have shares in a freehold company, they are innocent buyers. Their surveyor on purchase was not going to ask about the exterior of the building unless made aware that the cladding was dangerous. It is more obvious where wooden cladding has been used on tall buildings, which seems very stupid when it has been known since 1666 that wood buildings usually burn easily.
I have suggested to ministers how money could be raised to improve necessary, carefully costed social infrastructure including this problem (Bank of England creates the money free of interest, so called Peoples Quantitative Easing. Govt does not want to do this because it is in the pockets of banks and big investors who want to rent money at interest, so government has to raise taxes, sell public assets, rely on unlikely economic growth, or do austerity)
The government is paying for ACM cladding, so should pay to sort out other flammable cladding rather than this continuous damaging delay in the absence of Peoples Quantitative Easing.
Commonhold has not caught on because the sector discourages it including lawyers, and there is a steady existing income stream to freeholders and their associate agents and lawyers from ground rents, lease extensions, permission fees and so on.
I don't want to get into a long dialogue Ian, because we will never agree and you work for freehold interests. Defending long leasehold is like trying to defend slavery, because many leaseholders are captives in a financial sense, or unable to sell their property for a fair price. It would be great if more lawyers would look forward and embrace fairness and justice, rather than defend the indefensible.


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