And sector offers up yet another ‘code of practice’, this time for freeholders (whoever they may be when hidden offshore)
One of the greatest fictions of the leasehold sector is that freeholders – even anonymous offshore ones – are the only reliable long-term stewards of a block of flats.
The leasehold owners would be incapable, quarrel among themselves, are a mix of residents and buy-to-let investors and, anyway, usually sell up in five-seven years.
This line ignores the fact that in most jurisdictions in the world, outside England and Wales, flat owners just have get on with it and manage their own affairs as there is no third party freeholder.
These issues were aired to the Select Committee this week: self-interestedly by ground rent investors and developers, naturally enough, but more thoughtfully by Nigel Glen, the chief executive of the Association of Residential Managing Agents (in spite of the fact that his association’s most powerful members are appointed by commercial freeholders).
MPs on the Select Committee were presented with a proposed code of practice for freeholders last week, which is being pushed by Long Harbour. It has also been aired by the House Builders Federation.
Prize for the most questionable assertion made to the Select Committee goes to John Dyer, of the British Property Federation.
He told MPs:
“A lot of freeholders quite regularly lend money to the service charge. There is no interest charged on that.”
No examples were given. The only case that we are aware of is Heysmoor Heights, in Liverpool, which has Grenfell Cladding. Here the anonymous Guernsey-based Abacus Land 4 Limited, part of the Long Harbour fund, made a forced loan to the service charge to pay for fire marshals. Had it not done so, the building would have had to have been evacuated, Long Harbour claims.
It could also be argued that Abacus Land 4 Limited’s hidden owners were saving their necks: freeholders have a legal responsibility to keep a block of flats safe, and will be prosecuted if they don’t.
The loan will carry interest, we understand, and Long Harbour quickly secured a tribunal ruling that leaseholders will be paying all the cladding costs at Heysmoor Heights.
With the original builder now bust, there is little prospect of salvation for the leaseholders.
So, Abacus Land 4 Limited may in time have to make the difficult decision to forfeit the leases of those leaseholders who cannot afford to pay the £18,000 each to remove the Grenfell cladding.
Should hidden offshore owners be allowed to take the homes off ordinary families? This is a question MPs can address at a later date. Local Labour MP Louise Ellman is on the case:
Nonetheless, the case for third party freeholders in the leasehold system was strongly made to the Select Committee.
Referencing the Leasehold Knowledge Partnership and the APPG, Tanmanjeet Singh Dhesi MP questioned the need for freeholders at all.
He heard that freeholders are the reliable long term custodians of blocks of flats. But one ground speculator proved less long-term in his Slough constituency, when he sold the freehold to the Grenfell cladding site Nova House to the council for £1
Mick Platt, of ground rent investment fund Wallace Partnership Group which has 106,000 leaseholds under management, replied that leasehold tenure was justified for flats:
“There are lots of different vested interests. You can have owner-occupiers. You can have buy-to-let investors. You can have commercial units. You can have housing associations.
“For an apartment block, the freeholder provides independent stewardship and governance.
“The freeholder is the only investor in that building that is there for the long term, there to preserve
the long-term value of the building.
Nova House in Tanmanjeet Singh Dhesi’s Slough constituency, which has Grenfell cladding, found its freehold owner was not that interested in being a long term custodian, dumping the freehold on the council in an unexplained £1 sale
Slough council takes Nova House leaseholders to tribunal over Grenfell cladding costs
“A flat will change hands roughly every five to seven years, so we preserve the long-term value of the building.
“We uphold the covenants in the lease, which means that we are independent.
“We are independent arbiters between the varying different interests in that particular building, and we ensure managing agents work in the interests of leaseholders.
“We are the ultimate safety net for leaseholders when things go wrong.
“Obviously, there are various different types of ownership. You have mentioned commonhold. That provides an element of choice for consumers, but we believe the presence of a long-term freeholder is of benefit to people who live in apartment blocks.”
Adding: ‘The freeholder is the only investor in that building that is there for the long term, there to preserve the long-term value of the building’
Long Harbour “entirely” supported these views, with Richard Silva, its executive director, linking ground rents as the reward for this long-term stewardship.
“For the provision of those services and that long-term oversight and stewardship, a reasonable ground rent is important.
“… we absolutely agree with the Government’s direction of travel in banning leasehold houses going forward. We completely agree with the elimination of onerous ground rents.
“We also agree that improvement and regulation in the managing agent regime within blocks of apartments is absolutely the right thing to do.”
Nigel Glen, the CEO of the Association of Residential Managing Agents, made the most nuanced contribution:
“As a managing agent, in a sense we do not mind who manages the building, because we are appointed to manage on their behalf, whether it be a freeholder, an RMC or a commonhold. In one sense, at the moment we have something philosophically similar to commonhold, when we have RMCs where leaseholders come together, enfranchise, buy their own block and manage it, so we can learn from that.
“There are advantages and disadvantages to each.”
Mr Glen continued:
“If I take the RMC one first, you have the obvious advantage that the people you are dealing with as a managing agent are interested in the development personally. They have perhaps a little more of a short-term view than others, because they are only there for five to seven years, but you are dealing with the people who actually live there.
“That is an advantage because, if you are dealing with a freeholder, you have to deal with leaseholders as well.
“There are disadvantages to it. Do not underestimate how much effort there is in actually managing a building. I have been on an RMC board. The amount of work that involves is not funny. Where I live, there is an RMC. They meet every month for five to six hours for a board meeting alone.”
This seems excessive, and is the choice of the directors. LKP introduced to the Law Commission last month directors of RMCs and right to manage companies who manage prime London sites worth several hundred million pounds each. In one case, the directors only meet twice a year.
Mr Glen continued: “Emails are flying to and fro every single day. There is a lot of work involved there. My concern is that you will have people who have potentially not the right set of skills or knowledge of property law in particular.
“When I had a [property management] company, there were many examples of people who had RMCs instructing me to do things that, frankly, were against the law, but they did not know any better, because they were not familiar with the law.”
Mr Glen noted the advantages of a clear commonhold structure.
“The idea of having a similar document instead of a lease, but a contract, is very attractive for managing agents. As you may be aware, every building has a different lease, so you have to be familiar with the individual aspects of each lease. That is not good.”
Mr Glen came back to commonhold later in the session to say: “Commonhold, if we go down that route, we have to go into it with our eyes wide open.
“It would be unfair for a new system if we do not take lessons from what we can see currently.
“For example, I know it would be nice, if we go to self-determination, that everybody lives together in harmony. That is just not the case.
“You are pushing people together unnaturally into a large block, and they are not related; it is not
a family.“We have to accept that there will be disputes. We see that in RMCs at the moment …
“They do occur. If anything, they are, unfortunately, worse than when you have a faceless landlord.
“If I hand you over to a debt collection agency and I meet you in the foyer tomorrow, it is personal between you and me all of a sudden, rather than somebody else.”
Mr Glen also addressed the advantages of a third party landlord.
“There are advantages to working with a professional landlord. If they have a portfolio, it is a single point of contact. Again, speaking selfishly as a managing agent, that just makes it operationally more efficient.
“They are up to speed with legislation, so that is a big advantage. They have the time to invest in the property, unlike an amateur board. … an amateur board tends to have difficulty in recruiting people.
“We saw that in Australia, where they have strata, which is, effectively, commonhold, and they found, I think, that 37% of the boards said they had difficulty in recruiting. There are balances, one way and the other, in each one.”
Mick Platt, of Wallace Partnership Group, added: “I do not think there is any perfect tenure of ownership.
“Commonhold has its own advantages and it presents its own set of challenges. The leasehold system does that as well, but the leasehold system works very well for the large majority of leaseholders.
“I would concur with the other speakers that going with the status quo, which is a practice many people understand, is possibly preferable to going with something that is not widely understood or is new.”
Mr Silva, for Long Harbour, said: “Lots of other jurisdictions have a form of commonhold, and all those jurisdictions, without exception, have problems with those tenures.
“We are not suggesting for one moment, here, today, that there is no problem with leasehold/freehold tenure. We are suggesting that we, as an institutionally backed freeholder, provide an extra layer.
“It is a safety net for the longevity and wellbeing of a block of flats.”
Related posts:
Grenfell cladding crisis prompts the question: what are freeholders actually for?
Communities Select Committee reject the lobbying nonsense of the freeholders’ good behaviour ‘pledge’
Government thinking freeholders are paternalistic long-term custodians of a building is where it has gone wrong over Grenfell cladding
Communities Select Committee lifts the lid on the residential freehold racket
Can the Leasehold Advisory Service monopoly survive devastating questioning by Select Committee?
Communities Select Committee lifts the lid on the residential freehold racket
Early Day Motion 939 16/03/2005.
That this house condemns Estates & Management Ltd of Ballards Lane, London for charging an administration charge of £225 to collect arrears of annual ground rent of £6.30,(Six pounds thirty pence) notes that other freeholders try to overcharge Burnley leaseholders with long term leases(999 years) low ground rents and minimal conditions by trying to enforce insurance conditions which do not exist in all leasehold documents or charging substantial retrospective fees for alterations or improvements made to the property: and calls upon the Government to legislate to stop these practices.
So could the offshore freehold investors who appointed Estates & Management truly be described as “reliable long term custodians of blocks of flats?”
Michael is this the same company?
ESTATES AND MANAGEMENT LTD
Session: 2005-06
Date tabled: 16.06.2005
Primary sponsor: Iddon, Brian
Sponsors: Clapham, Michael Dobbin, JimPugh, JohnSheerman, BarryWright, Iain
Total number of signatures: 41
That this House condemns Estates and Management Ltd for its exploitation of its leaseholders, especially the elderly and vulnerable; notes that the only way for leaseholders to contact this company by telephone is on a 0906 number, with a charge of 25 pence a minute, and that they can only talk to an answerphone; further notes that leaseholders send cheques for ground rents to this company by recorded delivery which are not banked, yet the company continues to send out penalty notices for late payment, with administrative and late payment charges added on, and without previous written reminders as required by the Commonhold and Leasehold Reform Act 2002; and calls on the Government to take action to enforce the Act and to conduct an inquiry into the conduct of Estates and Management Ltd, which has a complex ownership structure, including companies registered in the Bahamas and the Virgin Islands controlled ultimately by the Tchenguiz Family Trust.
Yes it is! Are we not fortunate to have such ” reliable long term custodians of blocks of flats?” How could any leaseholder manage without them?
McCarthy & Stone ultimate owners are I believe The Tchenguiz Family Trust found in the British Virgin Islands, are these long term custodians the same companies that are found Off Shore. Ollies comments further on are excellent.
Recently a McCarthy & Stone A GUIDE TO YOUR NEW HOME DATED 07/2001 was passed to me. On page 20 a precis of what was stated under heading CONTINGEBCY FUND where a 1% Exit Fee was payable to cover the gross sale or open market value of a flat if resold or sub-let.
Problem is I believe a further Exit Fee of 1% is also required for what purpose I do not know and is an unfair contract term. A one bed flat originally for sale in 2003/04 was for circa £140,000 and two bed flat circa £180,000.
Therefore a 2% Exit Fee for the one bed as new £140,000 would be £2,800 of which £1,400 would have been put into the Contingency File. If they go for the Gross Sale now some have sold for £75,000 so this would be 2% £1,500on and only £750 into the Contingency Fund.
The two bed at £180,000 would have seen £3,600 paid as an Exit Fee. Has any McCarthy & Stone resident ever seen these 2% Exit Fees showing on either the Service Charge Budget under INCOME or the 2% showing on the Income & Expenditure Accounts under the same INCOME Heading or Other Income???
I know my friend Susan Wood had challenged this in 2012 as she had been informed the Exit Fee was to pay for the vetting of new flat lease purchasers. Susan did not win the case but left many questions unanswered.
Michael Another “long term custodians of blocks of flats?”
Early day motion 408
COMMONHOLD AND LEASEHOLD REFORM ACT 2002
Session: 2004-05
Date tabled: 16.12.2004
Primary sponsor: Sheerman, Barry
Sponsors:
That this House welcomes the Commencement Order made on 16th November that will bring into force some of the key remaining leasehold provisions of the Commonhold and Leasehold Reform Act 2002, requiring landlords to send out written reminders with dates for ground rents before they are able to impose any penalties for late payment and preventing landlords from insisting that leaseholders use a specific insurance company to insure the property; and hopes that this legislation, which comes into force on 28th February 2005, will prevent companies such as Estates and Management Ltd., with a complicated ownership structure including companies registered in the Bahamas and the British Virgin Islands controlled at the top by the Tchenguiz Family Trust, from exploiting elderly and vulnerable householders.
Total number of signatures: 35
This was posted on 22/08/2016
This Early Day Motion No. 408 proposed by Barry Sheerman, MP Hudderfield identified ” Estates and Management ” ( E & M) controlled by Tchenguiz Family Trust via a complex structure of companies based in Bahamas and British Virgin Island as an exploiter of leaseholders :
This shows that E & M was identified and known to MPs in Parliament more than 10 years ago.
Helena Taylor, the daughter of a former resident in retirement leasehold, is furious that the sale of the property has been delayed by six weeks by Estates & Management (E&M).
On December 12 she completed the sale of her mother’s flat at Pegasus Court in Winchmore Hill, north London. Estates and Management promised to sort the administration – that is, help itself to the one per cent transfer fee, and arrange another one per cent payment into the contingency fund.
Only today – January 27 – did it appear that the issue may be reaching a conclusion.
“Although we completed long before Christmas, we still have not been able to receive the funds from our solicitor,” says Helena, whose mother suffers from dementia and has gone into care.
“We urgently need the funds to pay for this. E&M promised to agree the so-called admin fees within 10 days. Apparently, legally, there is nothing our Solicitor can do but wait on their agreement regarding the fees due.”
Along with estate agent fees and solicitors, Helena estimates the exit fees will bring the costs of the transaction up to £10,000. “We have taken Campaign against retirement leasehold exploitation’s advice and informed Estates and management have stated that we are making the admin fee payments ‘under duress’.”
Needless to say, the family have also lost money: Helena’s mother paid £315,000 for her flat in Pegasus Court in 2005 and she sold the flat for £249,000.
Somebody should make a complaint to CMA ( Competition and Markets Authority ) .
Exit fees may be an “unfair contract term” ( it does not provide any real service to the leaseholder and it is unfair because it is an after sale claw back ) and may be an offence under the Fraud Act. ( fraud by abuse of position ).
Ollie/Michael – Are these also “reliable long term custodians of blocks of flats”
This investigation took 3 years even with cooperation of Fairhold 26 different companies.
Investigation into the transfer fee terms known as Exit Fees and used by the Fairhold corporate group in its leasehold retirement properties
Case reference number: CRE-E/24874
Case opened: June 2009
Case closed: August 2012
The fairness of Exit Fees enforced by Fairhold in leasehold agreements with tenants of its retirement home properties.
law
*Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs)
*Consumer Protection from Unfair Trading Regulations 2008
*Enterprise Act 2002.
Case description
As part of an industry wide investigation, the OFT investigated the use of Exit and Transfer Fee Terms by Fairhold in leasehold agreements with tenants of retirement homes held by Fairhold as freeholder. The transfer fee terms require tenants to pay one per cent of the higher of the sale price or open market value of their property in a number of circumstances, and represent an income stream to that landlord. They considered that the Exit & Transfer Fee terms were likely to be in breach of the UTCCRs.
Although not the focus of the investigation, they also had concerns about the fairness of contingency fund fee terms that were generally drafted in a similar form to transfer fee terms. Contingency fund fees are paid into a fund to pay for the repair and maintenance of the development.
John Dyer of the British Property Federation stated that: “A lot of freeholders quite regularly lend money to service charge. There is no interest charged”
Was Mr dyer aware of the Upper Tribunal ruling Southwark Council v Akhtar which ruled that:” A loan from your landlord to pay service charges means you agree those charges even when they may not be payable.”.
So by “accepting” a loan to pay for cladding issues leaseholders will have given away their legal rights to challenge.
About EDM 408 posted by Chas on 24 Nov :, “https://www.parliament.uk/edm/2004-05/408″
Keith Hill was then Housing Minister declined to investigate E & M and Tchenguiz Complex Structure in BVI. saying that since the Housing Department was separated from DETR , they had no powers to investigate any company. Rather feeble excuse for a Government Minister !
But when 2008 Great Financial Crash occurred , the Tchenguiz Brothers had borrowed heavily from Kaupthing Bank, an Icelandic Bank so much this bank failed in Oct 2008. .
The UK depositors in Kaupthing ( UK ) Bank had to be compensated under the Bank Guarantee by the UK Treasury which cost roughly £3 Bil . Subsequently when the UK Treasury tried to recover the payments, the Icelandic Govt refused to pay as they were broke.
If Keith Hill had investigated the Tchenguiz complex structure ( then trading as Consensus Business Group which claimed superior business management ) in 2005 , The Government might have prevented the Tchenguiz mass takeovers of many freehold investment companies ( including Solitaire, Peverel Group,and MacCarthy & Stone ) and saved the UK tax payers £3 billion loss paid out under the UK Bank Guarantee.
Even HBOS was brought to its knees in 2008 by loans to Consensus Business Group as their Head of Bank Loans Unit mis-guidedly thought that HBOS were business partners with Consensus Business Group. HBOS had become insolvent like Kaupthing and had to be saved by Lloyds Bank which was dragged down by the 2008 banking mess which has resulted in the UK National Debt has risen from £700 Billion to £1800 Billion.
The UK Government should have seen the ” warning signs” flagged up in Aug 2007 when Northern Rock Bank failed after 97 years in business. We now have to live with the National debt of £1800 Billion and we are about to Brexit .which means most banks in London will move to EU with their working capital, leaving us tax payers struggling under the National Debt..
The Housing Minister in 2018 should be reading the ” warning signs” about the UK leasehold system which is now controlled by entities based in the offshore tax havens. The Housing Minister Keith Hill in 2004 failed to investigate the complex structure in BVI and now in 2018 , the UK Tax payers now have a £1700 Bill Nation Debt to live under.
The UK leasehold property has over 4.1 Mill in the private sector which can be valued at £185,000 each = £750 Bill which is the debt burden on the leaseholders. This debt does not exist if we are change to using Commonhold title instead of Leasehold title..
Ollie,
Is this same Keith Hill who held a very senior position at the Association of Residential Managing Agents, (ARMA) when FirstPort Retirement, formerly Peverel Retirement, applied to be admitted.
Reasons Firstport Retirement were refused were:
1. it had an unaccounted-for portfolio of House Managers’ Flats and has a track record of misleading residents when trying to sell them.
2. it was argued that both AM and RM at FirstPort were to be remunerated with commissions for achieving the sales of these flats.
3. incentives to end the live-in Residential House Manager that for many retirement residents was one of the main attractions of moving into a Retirement Residential Development.
It had been stated Keith Hill as a former Housing Minister 2004, may have failed to investigate more deeply the complex structure of the Tchenguiz Complex Structure ( trading as Consensus Business Group) in 2005. If it was investigated more maybe the Government might have prevented the Tchenguiz Empire in the British Virgin Islands (BVI) from expanding with mass takeovers (as Ollie posted) of many freehold investment companies (Solitaire, Peverel Group, and McCarthy & Stone ).
NEWS FLASH
Marsha de Cordova has today in the House of Commons raised a Ten Minute Rule Bill FIRE SAFETY (Leasehold Property) worth checking out was said.. It is regarding the Governments lack of seen effort to determine the responsibility of Freeholders/Landlords.
The amount of nonsense and inaccurate claims we were afflicted with during these hearings is worthy of a “best of” complation; You wouldn’t know where to start..