‘Drive your MPs mad to change leasehold,’ Gardner tells FPRA

Baroness Gardner says agenda is moving towards leasehold reform, with FPRA chairman Bob Smytherman (right)

Full speeches have been added to the end of this article

Around 250 leaseholders met in London tonight to hear Baroness Gardner of Parkes say that reform of the troubled sector is very much on the political agenda.

“But to see this through you must keep on campaigning: make a real nuisance of yourselves,” she told the audience. “You have to drive MPs nearly mad but in the end they will have to listen. And the best ones of all to contact are those in marginal seats.

“Politicians need to understand that there are nearly two million leaseholders in this country and that is a significant number of votes.”

Baroness Gardner was speaking at the annual meeting of the Federation of Private Residents’ Associations, and the event was sponsored by News on the Block magazine.

The event followed last week’s highly successful Carlex / LKP Westminster briefing for MPs, hosted by Sir Peter Bottomley.

Present in the audience was former Labour MP Keith Hill, who is the new ethical regulator for the trade body the Association of Residential Managing Agents.

“That is a good scheme but it will only be of use if your managing agent is a member of that organisation. What we need is statutory regulation of this sector where we have seen such scandals.”

The 250 packed leaseholder audience included ex-Labour MP Keith Hill (second row, right), who is the new regulator of ARMA. ‘That’s good, but not enough,’ said Gardner, who wants statutory regulation

Baroness Gardner also referred to the appalling case – shortly to be revealed on LKP – of a Battersea resident who faces having his flat forfeited on November 28 because he made a stand against service charges that he thought were excessive and unclear.

Having lost the LVT he now faces legal bills of £50,000.

“This is a really tragic case,” said Baroness Gardner. “It was always intended for LVTs to be a low cost system of redress, but something has gone very badly wrong with it.

“We discussed the risks of this back in the 1990s. The LVT system is now very far from what we intended.”

The meeting, which was chaired by Bob Smytherman, chairman of the FPRA who is a board member of LKP, also heard from Chris Paterson, of the Westminster think tank CentreForum.

Paterson was the author of an authoritative report on residential leasehold that was published in August:  “A new lease of life: making leasehold fit for the 21st century”.

Paterson, a former City lawyer who specialised in competition and regulation, said that when he began researching leasehold he was “absolutely flabbergasted by practices that are borderline scandalous”.

Referring to the “structural vulnerability” of leaseholders, he cited inter-company deals and other kick-backs enjoyed by many managing agents.

“The more some managing agent spends the leaseholders’ money, the more he earns.”

Chris Paterson, of think tank CentreForum

Paterson, a political insider, was also convinced a change in leasehold regulation is now a very real possibility.

The meeting offered a more convincing expression of leaseholder opinions than that provided by LEASE, the Leasehold Advisory Service, whose chief executive, Anthony Essien, was in the audience. In May it annual conference included hardly any leaseholder representatives and was held in a swanky Mayfair hotel.

The audience on that occasion were representatives of leading solicitors and barrister outfits involved in leasehold, managing agents and ARMA. In short, a taxpayer funded trade fair for the vested interests in the leasehold sector … rather than those who pay for it all.

Full speeches to follow

Full text of Baroness Gardner’s speech:

 

8th November 2012    FPRA                                              Baroness Gardner of Parkes

Good evening   Keynote speech   -    privilege  for me  and yet a cause for concern at the same time.

When I was told that the event was fully subscribed with an attendance of 250 and a waiting list of a further 100,   I was impressed but also rather shocked as I realised that each person here is expecting answers to problems  -  problems for which I have no answers yet. The good news is that enough people care about these issues to really want to see improvements.

What we all need and are waiting for are actions to deal with the enormous degree of confusion,  lack of clarity,  and general unhappiness existing at present.   This particularly  applies to leaseholders but also a very large number of other people who do not know how to deal with the residential problems they are now facing.

I must declare an interest as the owner of leasehold property for over 20 years.   My husband and I bought a flat not  far from the house we were living in,  for the days when we would no longer be able to manage the stairs.  I have therefore had some personal experience as a leaseholder and I have seen changes for the worse,  over that period of time.

Our block had a live in caretaker for many years.   Then the time came when the value of that flat rose to a point where it was worth selling and after this a non-residential porter/cleaner came in for a few hours a day.

For years,  the building structure was inspected annually by a qualified surveyor who was able to advise on works that would be needed and when.  This meant that work was planned and scheduled and the building maintained to a safe standard.

About 3 and a half years ago,  the roof immediately above my flat collapsed in a storm and the flat was uninhabitable.   The new roof required special payments from each tenant,  my share was suddenly £25,000  but what was worse was that supposedly on grounds of health and safety no temporary repairs to the roof were instigated and as the water ingress continued the flat immediately below mine was also badly damaged.    For more than two and a half years, my flat could not be used.  Those opening comments are simply to make my own position clear.   I have no doubt that each person here tonight will know someone who has had a major and  unforeseen  problem.

Most modern leases have what is called a sinking fund to cover major unexpected building repair costs.   Our block has no such fund and I find it is a disadvantage to say the least.     Others write to me stating that they resent having to pay in to a sinking fund.

The same important issues regularly arise.   Over 2 million leaseholders pay more than half a billion pounds annually  in service charges -   half a million of these people are in London alone.     Who is holding the money?    how secure is the fund ?  and how transparent is the handling of such money?

In March the London Assembly produced an excellent report  “Highly Charged”  80 pages on residential  leasehold service charges in London.     Their foreword states  “the complexity of the service charges regime comes as a shock”  and looks in particular  “at the way the transparency of service charges can be improved and leaseholders can be given greater control over the way services to their homes are provided”    That is an excellent document and the GLA is clearly an ally in our battle for regulation of Managing Agents.

Residential tenants’ deposits are protected by the law but the much larger amount, the leaseholders’ money held by managing agents has no protection.   The Government does not seem to have sufficient data on the workings of Leasehold law.  For instance, the British Property Federation wrote to the then Government in 2009 stating that they fully supported better regulation,  yet they are often quoted by Government Ministers as opposing regulation.   Sections 152 & 154 of the 2002  Act were due to in force by now but the Government has not implemented these protective clauses.

Leaseholders are entitled to know how their money is spent and to be confident that they are getting what they have paid for.    There are too many cases where intermediate landlords or management responsible for arranging for services such as insurance have agreed contracts which mean that they are pocketing money themselves to the detriment of their tenants.   Transparency is necessary to reveal these situations and stop this abuse.  

Is there a chance of persuading the Minister to consider the case for regulation of Lettings and Managing Agents?  Mark Prisk,  the Housing Minister is on record as suggesting Regulation of Managing Agents and never has it been more needed than now.

It was in 2007 that Mark Prisk put down an amendment to the Consumers Estate Agents and Redress Bill to bring lettings agencies within the regulation relating to estate agencies; he talked about “rogue agents” and “unscrupulous agents” in an industry that “now handles over £12 billion of people’s money annually and yet, ironically, is without the redress”     which the Bill required.  He sounds like the right man for us now!

Estate Agents have now been brought within a measure of regulation.  Under the Consumer and Estate Agents Redress Act 2007, every estate agent must belong to an Ombudsman scheme.  Most – about 95% – belong to The Property Ombudsman scheme (which charges about £160  a year, per agent’s office).  The Property Ombudsman service (TPO) has an independent Council of eight members. The Chairman of the Council is Lord Best who is regarded in the House of Lords as a real expert with wide experience and knowledge.

All Estate Agents know they will be judged against an industry Code of Conduct if a complaint goes to the TPO for investigation.  This arrangement has worked well.

However, the definition of “Estate Agent” excludes managing and letting agents.  Although The Property Ombudsman would like to cover all of these agents, only about 60% have voluntarily joined an Ombudsman scheme. Where the firm has joined, any tenant or landlord can bring forward – without cost – a complaint for the TPO to investigate.  Although in about one quarter of the cases it is established that the problem is not the agent’s fault and the landlord is entirely to blame – so the Ombudsman is powerless – in the other cases, TPO is able to resolve the issues. If necessary, the TPO will make awards against the agent, up to a maximum of £25,000.  In all cases, the complainant can reject the Ombudsman’s judgement and take their case to Court.

The problem is that this voluntary scheme for Managing/Letting Agents does not cover the most ineffectual or dodgy firms.  The first step toward greater regulation, for the Minister to consider, would seem to be to extend the valuable requirement to belong to an Ombudsman scheme, to letting and managing agents as well as to selling/estate agents.

A second aspect of protection for the sector could be an obligation on letting and managing agents to have Client Money Protection insurance to safeguard landlords. Since insurance companies will only provide this for reputable agents, such a measure would keep out the worst agents thereby protecting tenants as well as landlords.

Since 60% of all of the properties in the private rented sector are in the hands of managing agents, greater regulation of agents would make a big difference to standards throughout the PRS. There are 1.2m private landlords, half of whom own only one property; these are dependent upon good quality letting and managing agents and landlords need protection as well as tenants.

When it comes to leasehold properties, managing agents have no obligation to join an Ombudsman scheme nor to take out Client Money Protection insurance despite the large sums they hold.  Of course, there are very good agents; but protection for leaseholders is at a low level – a lower level than for tenants in rented properties who have their deposits protected, by law, through Tenancy Deposit schemes. Accountability and transparency are essential aspects of any regulatory system for agents managing leasehold property.

This seems to me to be the moment when,  if enough leaseholders make clear the need for Regulation of Managing Agents,  along the lines of the Estate Agents scheme,  it is possible that the Minister of Housing could be persuaded to look at this issue again.

Personally I am a great supporter of Commonhold developments.   I was directly  involved in getting Commonhold in to the 2002 Commonhold and Leasehold Reform Act .    I did so because I still have my flat in Australia where what we call Commonhold here is Strata Title.    It is a much better way of dealing with flats than the Leasehold system here.    Only the UK and Hawaii, it was stated in the Lords,  still use the Leasehold system.

Under the Strata Title system, the block of flats is held by a body corporate and each flat owner has a share in the freehold.   An Annual General Meeting of the all the shareholders is held and decisions are made by all those present and voting  -  and proxy votes can also be counted if a shareholder was not able to be present.

Management is usually done by a firm appointed by the Body Corporate but they are free to choose the company and to replace them if they prove unsatisfactory.

One of the provisions in the 2002 Act is to permit the leaseholders in a block to opt to change over to Commonhold.     It is impossible at the present time as 100% of the leaseholders have to agree.    With many non-resident owners 100% cannot be achieved and could be so easily prevented where a head lessee did not want to lose control.   They have only to buy off one leaseholder to defeat the 100%.     This target should be accepted as completely impractical and action should  be taken to make the percentage required to make the change,  more realistic.

Reduction to a simple majority would make a great difference.   When residents see the benefits,  as I have myself  in my homeland,  they would appreciate the great advantages  of such a system.   I support the views in favour of Commonhold of (C.A.R.L)  The Campaign for the Abolition of Residential Leasehold

I am told that Commonhold as set out here in the 2002 Act has some flaws and does not follow the New South Wales system precisely.   This should be looked into more closely  -  as indeed should the whole of the legislation covering  residential property in particular.

It is high time that we had a consolidation Act.   We have,  since 1985,  had over a dozen  new housing related Acts,  each one changing some parts of previous Acts.   It has reached the point where even solicitors specialising in these matters,  have to consult Act after Act to be sure of the present legal position.

I have taken an active part in many of the debates at the Bill stage of what are now Acts, including proposing and debating amendments.    The role of the Lords is to scrutinise the legislation in great detail and looking back through records,  I was surprised to find that I had actually raised points of possible concern which now have become just that.

Is it surprising ?-  in many ways it is understandable  - that ordinary buyers often proceed with a property purchase without appreciating  the obligations they are undertaking at that time?   People who are happy to have found the home of their choice,  tend to not study fully their future commitments.    Nowhere is this more evident than in retirement home purchases.   It is essential for intending buyers to have good independent advice and never to just accept comments made by or on behalf of the vendors without themselves having consulted someone qualified to give sound assessment of the contract they are entering into.

So many people have told me of the shock they have received when the time has come for them (or their heirs) to sell their retirement property and they have discovered that they have to meet a heavy “exit fee”  or “transfer fee”  -  the name varies but it is a charge they have to pay as part of the right to sell.

McCarthy & Stone wrote to tell me that they had dropped these charges in 2008 and had encouraged other firms to do the same.   Clearly the practice is continuing as the letters I am getting are about current cases.

It is hard for those reaching the final stages of their lives to be faced with these serious worries and it is time that people understood clearly,  in advance,  exactly what their future commitments will be.

________________________________________

Having served as a lay member on an Industrial Tribunal for over 20 years,  I was strongly supportive of the introduction of a simple system whereby individuals could,  at low cost,  could have their complaints heard and resolved by a Tribunal.

The 1996 Housing Act  made so many of the decisions  about the introduction and functions of  Leasehold Valuation Tribunals.

I was the first to ask a question of the Minister,  because of some comment he had made,  as to the costs for which an applicant would be responsible.   The Ministers reply as reported in Hansard of 17th July 1996 was “ the costs will include every penny down to the cost of the milk for the office cat.”

Members of the House were stunned by this reply and many amendments to change that situation from the suggested £2000 per day were tabled.    

The Minister in charge of this Bill was Lord Lucas and he said  -  and I quote:

I should like to remind the House why we have decided to give this important new jurisdiction to  leasehold valuation tribunals.

 The measures in the Bill to help protect leaseholders were prompted by the unscrupulous actions of a minority of landlords who were imposing unreasonable and in some cases outrageous service charge demands.

Any leaseholder who contested those claims was faced with the immediate threat of forfeiture and an action, usually in the High Court. There are measures in the
Bill which deal with that abuse, and forfeiture proceedings can no longer be taken until the disagreement over service charges is resolved. That is a very significant step to assist leaseholders.

Leaving the problems of forfeiture to one side, leaseholders currently have the right to challenge unreasonable service charges or to seek to have a newmanager appointed if they can show fault with the current manager, but those jurisdictions lie with the county court. Because of the complexity and cost of court proceedings–in court proceedings there are lawyers’ fees which are likely to be far in excess of those payable in a tribunal-those remedies have been little used. The second stage of our proposals is therefore to switch those cases to the tribunals. That move has been widely welcomed because leasehold valuation tribunals offer a less formal procedure, can bring their expertise to bear, and as my noble friend Lord Coleraine said, do not award costs. It is very important not to lose sight of those key advantages. “   End of quote.

Reading again that Hansard,  makes me wonder where the Leasehold Valuation Tribunal has gone so wrong.   The intention was to make it a simple and inexpensive system.   Now I constantly hear from people who find that the owner or the intermediate lessee  or  their managing agent is employing expensive legally qualified staff to oppose the leaseholder’s LVT application and if they lose their case,  then costs can be awarded against them.

We are always told that the intention of the law,  as reported in the Hansard debates,  can be taken into account by a Court or Tribunal.   So I have been back to see what was said in the debate in 1996.    I quote from my own statement at column 865 on 17th July 1996:

“If there is to be a fee-whether it be £150 or £500-

it-is essential that people know in advance what that fee
is. The fee should be the same whether the case lasts
one day or many days. As has been said, anyone who is
skilful enough or who thinks that it is in their interests
to do so can easily prolong a case. Indeed, my
experience of industrial tribunals is that some chairmen
take very much longer to hear a case than others because
they are not so good at ensuring that those who give
evidence keep to the point. It is most important that,
even if there is a fee, it should not be levied on a daily
basis.

Tenants must know where they stand. They must know the cost of having a case heard so that they can

decide whether it is worth having it heard at all. There
is no doubt but that at a later stage tenants, particularly
tenants who lose, will have to pay their landlord’s costs
because those costs will be included as a legitimate
expense and will be added to the next service charge.

That point has not previously been made, but I am sure
that that is likely to happen. 
I have no direct interest to declare, but there is nothing to say that some day I shall not want to use the tribunals. That is why I want to see a fair system. We have heard some effective arguments about whether we want justice to continue in the tradition of the United Kingdom – at low cost, not at the cost of providing the service. That is why I support the amendment in the name of the noble Viscount, Lord Bledisloe.”

Lords Ackner,  Coleraine ,  Selsdon,  Renton and Earl Russell were among the number who spoke in favour of Lord Bledisloe’s amendment and when the House divided,  the amendment was passed by 136 votes to 119.

Yet,  just this week I have seen a pile of pages of judgments against a man who with another leaseholder took on his own case in a Tribunal.  He  found himself facing Counsel,  solicitors ,  management and others.   He had withheld service charges disputed because they considered no clear accounting for expenses was provided.      This began in the Central London County Court in 2009 and was transferred to the Tribunal.  It has now reached the point where the applicant is at risk of losing his property.     It is a most disturbing development and makes the case very strongly for transparency,  so sadly lacking in  many cases now.

Something has gone very wrong with the LVT system and there is need for review of its workings.    And it is time for introduction of regulation of managing agents  to ensure that information is provided to leaseholders and any necessary work  is carried out.    This would obviate the need for many LVT hearings.

These practices that have developed  seem to me to be totally outwith the intentions of how the Leasehold Valuation Tribunal would operate.   Until I read the 1996 Hansard I had not remembered that we had discussed this possible situation.    I was surprised myself to see that I had commented on the possible future risks of this type in the debates on the subject at that time.

Lack of Transparency is a major problem.

For every satisfied person,  there are always others who are less satisfied.  Some are completely justified in being dissatisfied and I include in those the many who have information withheld from them  either during their buying time,  or by managing agents who simply fail to communicate with the residents or owners of leasehold property and not only lack transparency but in some cases do so quite deliberately.

Regulation of Managing Agents would do much to deal with these difficulties.

There are many capable,  reliable,  and efficient managing agents and indeed their reputations are put at risk by but those who  do not match that description and fail to provide either the information or the necessary action.

I have been impressed to find that some capable people,  with a business background,  out of kindness have taken on concerns and even cases for older people in retirement homes who are finding they cannot cope with the situation in which they find themselves  -  they have never handled any business matters and it is hard to start late in life.

Returning to the main issue:    I consider the time has come when the Housing Acts should be Consolidated.   Why should the law present as such a piece meal affair as it does now,  with multiple Acts and cross references.    Law should be clear, simple and current.  Sometimes the suggestion of Consolidation comes from the Law Commission to Parliament if asked to do so by the government. Members of the various bodies represented here tonight should continue to press their MPs so that that that authority take the issue up.

There is a real need for a Consolidation Act and I support the views  of the Federation of Private Residents’ Associations as set out in their paper “Forgotten Leaseholders”

Housing (and I am well aware of the need for more homes but today I am speaking rather the business and management side )   Housing is an intensely political issue and all political parties need to be made aware of the number of electors directly affected by the issues that interest us here tonight.   Remember votes count and make your MP aware of your problems and need for change.

I have covered only a fraction of this very complex subject and I will do my best to answer your questions,  if I have any answers.

So many of you here tonight will know more about this subject than I do.

I would be pleased to hear your views and comments to help me build up a more complete picture of the housing management problems.

Follow up Note
At the meeting one of the attendees pointed out that the Law Commission no longer approaches the Government about Consolidation Acts.   The approach must come from the Government.   This means those hoping for a new comprehensive Housing Act should make this point to their MPs or political parties.


_______________________________________

 

Chris Paterson, CentreForum

Speech to FPRA – 8 November 2012

 Slide 1 – intro

Thank you very much.  Should start by saying thank you to FPRA for inviting me to speak here tonight.  Would also add that I very much agree with the points made by Baroness Gardiner and I will simply try to add to them.

I have to say to begin with that I am by no means an expert on leasehold – certainly by comparison with many people in this room with many years’ experience in the sector.  Instead, I work as a senior researcher for an organisation that is one of the main political think-tanks in Westminster.  In effect, this involves exploring and trying to influence government policy in relation to issues that we think matter because they have a significant impact on people’s lives.  In effect, therefore, we came to looking at leasehold issues from a completely independent starting point and with a view to the broad political perspective of how things might and should change.

What I am therefore going to do tonight is to fairly briefly talk from this perspective about some of the things we found and the most significant changes that we believe are necessary and the efforts being made by some to bring these about.

Slide 2 – size of sector

The first important point from a political perspective is the size of the leasehold sector in England and Wales.  With up to 5 million people living in 2.5 million leasehold properties paying at least £2.5 billion per year in service charges, it is not possible to dismiss leasehold as a niche issue.  Indeed, given the current climate, these numbers are set to increase significantly.  A housing strategy that will involve the building of hundreds of thousands of new leasehold properties must have at its centre a system of leasehold tenure that is fit for purpose.

Slide 3 – increase in problems

Secondly, it is an area in which problems have risen dramatically and continue to do so, with the balance or rights often skewed against leaseholders.  As you can see from this slide, we found that the number of service charge dispute claims at the LVT have increased by 400 per cent in a decade.  Many of these have been related to concerns over the behaviour of exploitative connected companies.

There are also significant problems of access and of power and information asymmetries when it comes to seeking redress before the LVT, particularly for more vulnerable groups such as the elderly.  Our report seeks to address these and other issues such as forfeiture and the need to promote and incentivise Commonhold, as championed eloquently by Baroness Gardiner.

However, I want to focus tonight on the main recommendation in our paper – the need for independent regulation of managing agents.  In particular, I want to look at the key underlying reason why we believe it is necessary.

Slide 4 – basic structure

In another life, before coming to CentreForum, I was a competition lawyer at one of the big city law firms.  This involved dealing every day with industries such as water where, regardless of your ideological starting point, it is recognised that regulation is required.  This is because they are sectors where the natural market recourse is restricted – the consumer cannot rely on free competition to secure a fair deal because their choice of provider is severely constrained and, as such, they need increased protection.

Now, leaseholders have the primary financial and emotional investment in their property.  However, because of the very structure of relationships in place, they are generally completely excluded from the process by which that property is managed.

The key relationship in this process is generally that between the managing agent and their customer, the freeholder.  The only role of the leaseholder – the end consumer as it were – is to effectively pay the bill as set by the other two.  They are, in effect, a captive customer.

At best, this creates a scenario where the landlord has limited incentive to secure the best deal.

Slide 5 – connected companies

At worst, as you can begin to see from this slide, it provides connected companies (where the freeholder, managing agent, insurance provider and other service providers may be owned by the same parent company) with the opportunity and, indeed, the direct incentive to actively increase prices and commissions.  The money all flows up the chain into the same pockets.  This creates a huge potential for abuse.  To see this, one only need look at the treatment of the residents of Charter Quay at the hands of, in the words of the LVT, “a family tree of…companies descending in Biblical fashion”.

The leaseholder, precisely because of the structural position they occupy, can do very little about this – they cannot themselves (without great difficulty) replace or influence their managing agent.  That is, they cannot rely on free competition to secure a fair deal.

This is not to say, of course, that leasehold is the same type of industry as water.  It is to show, however, that leaseholders occupy a very similar position of structural vulnerability and therefore need a form of regulation to effectively lever their interests into the system.  Our report therefore argues that a form of independent licensing regime for managing agents is needed and calculates that this could be introduced for as little as £2 per leaseholder.  By enforcing a basic code of conduct, including the disclosure of all commissions, such a system would protect leaseholders from abuse at the hands of unscrupulous or incompetent managing agents, while placing a minimal burden on the many reputable ones.

Indeed – and this is something of a rarity I believe in public policy research – in our work we interviewed stakeholders from right across the sector (from major landlords to managing agents, specialist lawyers to leaseholders) and they were unanimous that that such an independent form of licensing regime for managing agents was required.

Slide 6 – the political context

I am going to finish by returning to the political context.  There is a real sense of growing momentum around the need for reform in this area and it is possible that this is a moment of real opportunity.  The London Assembly have also recently published a full report outlining significant problems in the sector, some of which have been picked up in detail in two recent investigatory programmes by Channel 4’s Dispatches.  As you can see above, we have received support for our report from leading MPs from all three main parties and also from within the Welsh government.

At Westminster, Baroness Gardiner and Sir Peter Bottomley MP have been active in securing parliamentary debates and meetings on the issue and the latter is likely to be meeting directly with the housing minister to discuss the matter.

I would therefore urge any of you with concerns to contact your own MP directly to make them aware of the issues and the recent reports (some copies of ours are here [with Gemma] for those who are particularly interested to take away).  It is very important to keep this momentum going.  Although it may not always be the sexiest sounding subject, leasehold issues have a profound effect on millions of people’s lives and it is an area where blatant injustices are all too often allowed to persist.

Thank you very much.

 

LKP’S MANAGING AGENTS


Herfordshire

 


Norwich

 


Croydon

 


East London

 


Epsom, Surrey

 


Darlington

 


Chelsea