The Commons library has done a superb job of spelling out the problems of leasehold.
It is the first time we have seen a third party report into this sector with no regard to the disingenuous interventions from self-interested professionals, trade bodies, dubious “stakeholders” or compromised quangos.
Its report, published yesterday and written by Wendy Wilson and Cassie Barton , will be used by MPs to drive policy in this area and it can be read in full here: House of Commons Leasehold Reform
The main points are:
Leasehold is a growing form of tenure with 4 million homes, 70% of them flats.
New-build leasehold houses have risen from 7% of transactions in 1995 to 15% in 2016.
“There is some evidence that developers are opting to sell new-build houses on long lease agreements as this can represent a lucrative future income stream.”
The Leasehold Advisory Service says 57% of leaseholder in a survey regretted buying leasehold.
(This was commissioned by Roger Southam of Brady Solicitors. Both Mr Southam and Bradys have advised freeholders on maximising ground rents. LKP warned leaseholders not to participate: in fact, what resulted was a spectacular own goal for those who monetise from leasehold.)
LEASE uses debt-collecting Brady Solicitors for leaseholder survey
57% of leaseholders regret buying their property, says LEASE
The Commons Library makes clear that the government is noting the work of the All Party Parliamentary Group on leasehold and commonhold reform, of which the Leasehold Knowledge Partnership is the secretariat.
The APPG and its report are referenced throughout
London and the NW are the epicentres of leasehold, with the Polar and Limehouse constituency of Jim Fitzpatrick, an LKP patron, having the highest proportion at 97%.
Oldham, Bolton, Bury, Burnley, Leigh and Hyndburn all have about 70% leasehold houses in their areas.
The Commons Library references the reforms since 1967.
“Despite legislative activity in this area, long leaseholders are still calling for further reform. Organisations such as the Leasehold Knowledge Partnership and the related Better Retirement Housing campaign argue that the balance of power is still weighted in freeholders’ favour, and have highlighted continuing issues associated with leasehold ownership …
Of leasehold houses, the Commons Library reports:
“Press reports have indicated that buyers of new-build homes are sometimes told that they will be able to buy the freehold interest for a certain amount once they have been owners for two years. However, developers often sell-on their freehold interest and the Government’s July 2017 consultation paper says that “consumers can find that they are faced with significant legal and surveyor costs where they want to purchase the freehold.”24 There is no duty on a freeholder of a house to inform the leaseholder of a change in ownership, nor does the leaseholder have a ‘right of first refusal’ to buy the freehold interest at that point. However, qualifying long leaseholders’ statutory right to enfranchise is still exercisable against the new freeholder, and disputes over the valuation can be referred to a First-Tier Tribunal (FFT) as outlined above”
“A ban on the sale of new build houses on a long lease is supported by the APPG “unless there is a legitimate reason why the land can only be owned under a leasehold.”
It notes that the APPG also wants to remove the two-year moratorium on buying the freehold and limited the cost of formal purchase of freeholds.
There should be a formula to establish lease extension and freehold values.
Solicitors Hart Brown are quoted referencing developers’ “pet solicitors”:
“Many of our clients have complained that they were not properly made aware that they were buying a leasehold house or of the potential costs of acquiring the freehold at a later date. An independent solicitor has no relationship with the developer and is not dependant on the developers’ referrals for business.”
Sir Peter Bottomley’s call for onerous ground rents to be banned, is quoted.
Right to manage is examined, with reference to the Elim Court case, reported on this website and here
Elim Court was discussed in the leasehold debate of December 20 by former MP Oliver Colvile (to whom LKP pays tribute and thanks).
Elim Court: If you want right to manage, this is how NOT to go about it – Better Retirement Housing
Please follow and like us:Elim Court in Plymouth has escaped from its right to manage debacle by the skin of its teeth, having been led to near ruin by right to manage facilitators. After having had its right to manage application turned down in the lower tribunal (freeholder’s costs: £10,000) and then thrown out by …
The APPG wants right to manage to be reformed, stopping landlords delaying the process and adding costs.
The damage done by the unfortunate Triplerose case which has undermined leaseholder empowerment in multi-block sites needs to be repaired, according to the APPG.
The Commons Library notes Sir Peter Bottomley insisting on the regulation of leasehold managing agents who gather the fund for blocks of flats and are responsible for them:
“How can a self-regulation system that does not consider such court findings as warranting even an admonition retain the confidence of the general public? The Government have argued for years that there is no need for statutory regulation, but can anyone name a group that supports that position? Even the main managing agents trade body, the Association of Residential Managing Agents—ARMA—has been asking the Government to regulate the sector.”
“Leasehold is the only part of the housing market where an unregulated person can hold huge amounts of leaseholder funds and yet has no obligation to act in the leaseholder’s interests. Let me remind the House of something: when the freeholder appoints a managing agent, who does the managing agent work for? It is the freeholder.”
Hart Brown solicitors is again cited expressing concern regarding abuse of service charge:
“Currently managing agents, who are often acting on the instruction of the landlord, but spending the leaseholders’ money, are unregulated.”
Forfeiture is addressed, with the APPG saying:
“In bringing forward the Law Commission’s recommendations, the Government should consider how the use of forced sale applies in commonhold regimes around the world and “consider if the Commission’s wording might be adopted to any future review of commonhold in England.”
Leasehold retirement properties and event fees are considered, with the APPG questioning the Law Commissions enthusiasm for the fees as a means to fund retirement development.
It addresses commonhold, and why it failed to grow, and looks at private estate charges on freehold houses.
The Commons Library reports and notes the appalling injustice of the Dennis Jackson case, which Sir Peter Bottomley discussed in the Commons on December 20 last year.
SCANDAL: LKP stops forfeiture of £800,000 flat … over a £7,000 service charge dispute
I read the Commons library briefing with now essential cynicism.
There is a gulf between the reality of leasehold and the theory, that will be bridged only when vested interests that infect Parliament are exposed (a country with an un-elected chamber of Lords in the 21st century is hardly a reforming beacon).
I read here again of all the ‘rights’ and ‘balances’ of the existing regime, and wonder where this regulated world exists except in the Commons library and the minds of parliamentarians?
If any government had seriously wanted to reform leasehold it would have occurred by now. The most recent opportunity was presented in the Housing and Planning Bill 2015-16. Knocking back yet another amendment:-
“Minister, Marcus Jones, responded for the Government:
The Parliamentary Under-Secretary of State for Communities and Local Government (Mr Marcus Jones): New clause 13 seeks to replace long residential leasehold with commonhold. As hon. Members know, leasehold is a long established way of owning property, supported by a framework of rights and protections that aims to deliver the appropriate balance between providing leaseholders with the rights and protections that they need and recognising the legitimate interest of landlords.” Page 38
It may be long established, but it is most certainly not supported by an EFFECTIVE framework of rights and protections.
And what, pray, is the ‘legitimate’ interest of landlords? The term itself is a confidence trick. Landlords invest in their premises and keep them in repair. Landlords in leasehold are investors and spend nothing on their premises. Yet every aspect of law is designed to assist them to make more profit. Why are they called ‘landlords’ and not freehold investors? Words matter.
I read further:
“There are also approved Codes of Practice to which agents operating in this sector (in England) are expected to adhere..”
Yes, ‘codes’ and ‘expectations’ there may be, but no come back if ignored. The government refuses, backed by courts, to place any real burden on landlords and agents.
As for Commonhold:
“The September 2000 issue of Lovells’ property newsletter identified the following perceived advantages of commonhold:
Commonhold will address the problem of lessees being beholden to an absentee landlord who cannot be bothered to carry out building maintenance and management, or who is more interested in trying to make a profit at their expense. Commonhold will also remove the problem of leasehold property being a wasting asset. Commonholders will each have a perpetual interest, effectively akin to a freehold, in their individual unit.” Page 36
That was seventeen years ago. Just one view, true. But one of many.
What was the government response in 2015?
“The Minister of State, Ministry of Justice (Lord Faulks) (Con): My Lords, the Commonhold and Leasehold Reform Act 2002 introduced commonhold ownership and made numerous reforms to long leasehold law. Although the Government monitor the take-up of commonhold and continue to respond to concerns about the working of leasehold legislation, they have no current plans to carry out a formal review of the Act.” Page 39.
Quite. It is not as if they don’t know.
Informative article thank you. Why are leaseholders being told that they can buy the freehold within two years? Why not being offered to buy it straight away? The people who live in a house (people who thought they bought ) should be able to own the ‘ land. ‘ not the developers selling the freehold, to god only knows who!!! I also thought Id be able to buy my share of freehold in a few years. Never happened and after years of harassment and mismanagement by the freeholder I am the one who had to go..
Yes, as I understand it – open to rebuttal – the right to enfranchise flats collectively has no two year limit? – that is for lease extensions.
If so, you’d think houses would be the same. But then again, these house developers sell on the freehold even before they issue the leases. Don’t no matter whether you had two weeks to wait or two years in that case.
Enfranchisement could be made a great deal easier and could be structured to get rid of solicitors and valuers fees in the process which the lessee has to pay for themselves and the landlord
I would suggest for all properties other then in the highest council tax band that the capitalisation rate and assumed inflation rate are prescribed by statutory instrument from time to time . Relativity for all leases at 60 years and above is again prescribed possibly regionalised
The value of the property would be based on the council tax banding and for each council a figure for the property will be derivived solely from the council tax banding so say Band C in Bromley would equal £320k
Then all that need be done is to input the variables in a model and the premium calculated
This is then served on the landlord and the premium paid into possibly the Land Registry and if the landlord agrees then the premium is paid to the landlord -if not it gies to appeal and whoever loses pays the othersides costs
I think you will be surprised at how many surveyors and solicitors specialising in such a process will throw up all sorts of objections even those who purport to operate solely for leaseholders
No solicitirs costs no valuers costs no mirtgagees consent required as it can o ky benefit them
They certainly need to reform the sleight of hand of lease extensions.
Reading, as you do, Upper Tribunal cases such as ELMBIRCH PROPERTIES PLC  UKUT 0314 (LC) concerning the tortuous hypothetical valuation of a lease extension.
One result of the Mundy case is how it frees up valuers to make judgments on real world ‘comparables’. The idea seems sound. Find a comparable sale or two and bring the sale price(s) forward to the date of this valuation using the local UKHPI index for sales of flats and maisonettes:
% increase = ((Index now/Index then)-1)*100
Comparable flat sold for £100K when local index was 80.8, index now 90.2:-
((90.2/80.8)-1)*100 = 11.63%
£100K + (£100k * 11.63%) = £111,634.
What can go wrong?
Well, let’s say two comparable flats sold a few years’ apart:
First sells for £100K when local index is 119.07.
Second sells for £95K when local index is 102.56.
The HPI local index at our date of valuation is 115.07 (splitting the previous two):-
((115.07/119.07)-1)*100 = -3.36%
£100K + (£100K * -3.36%) = £96,640
((115.07/102.56)-1)*100 = +12.2%
£95K + (£95K * 12.2%) = £106,590
So…the flat that sold for £5K more would have, if sold at the date of our valuation, sold for £10K less?
But wait, how did RPI (not the same as HPI) operate between the two real sales and our theoretical valuation?
As I’m using real world HPI indices, I can use real world RPI indices:
Flat one sold when the RPI index was 198.10
Flat two sold when the RPI index was 213.70
The RPI index at the date of valuation was 263.10
So RPI followed a constant upward trend, no ups or downs.
The first sale (£100K) if sold for the same value at our date of valuation would have cost:
((263.10/198.10)-1)*100 = +32.81%
£100K + (£100K * 32.81%) = £132,812
The second sale (£95K) if sold for the same value at our date of valuation would have cost:
((263.10/213.70)-1)*100 = +23.12%
£95K + (£95K * 23.12%) = £116.961
The flat that originally sold in the real world for £5K more actually cost, after inflation to the date of our valuation, £15,851 more not £10K less.
The case mentioned above (para 39 -51) is an example where the court uses local sales indices this way, and only worries if the ‘all property’ index is used instead of flats and maisonettes. No cross check with RPI in the same period.
Can you really bring forward real world sales like this?
It all seems smoke and mirrors. Am I missing something?
Dear paddy, I honestly believe that “suggestions ” put forward by Stephen are nothing more than boondoggle. You are missing nothing and it is all “smoke and mirrors”.
If you are not familiar with The workings of the 1993 Act it must at first seem daunting and cause an initial reaction of “boondoggle” the government I am sure will be looking for various suggestions and ideas and careful thought as to how to address the various parties interest – including amongst other human rights etc – I am trying to put forward ideas to address the concerns of BOTH parties
One of the factors that makes lease extensions expensive in terms of professional fees they have to pay is trying to establish what a flat is worth
I am suggesting that for modest properties where the lease term is in excess of 60 years that the council tax banding is used
This would enable the whole exercise to be a number crunching exercise based on defined variables
Stephen, you must desist from what I perceive as your patronising tone and faux knowledgeable “suggestions”. I am fully aware of the 1993 Act – googled it ages ago.. did you? It is my belief that you are a PR puff for the ‘Industry’ and showing your slip in the process. Paddy is unintentionally knocking you into a cocked hat. Let it go.
Personally I see no legitimate concerns of both sides, or ‘parity of arms’, nor any moral conundrum.
This is unfettered capitalism versus basic human justice. The leaseholder pays everything and it involves a home not a luxury, which makes it cynical and exploitative.
Freehold investors are not landlords. The courts like to say they are landlords. Parliament likes to say they are landlords. This gives them a ‘moral’ status they do not deserve: “The poor landlord invested in their property and these awful tenants are trying to rob them of their human right, blah blah”.
Lease extensions are an astonishing con when you study them, and the con is built into the 1993 Act – with clever clauses no doubt added by the insiders – which ‘ordinary’ MPs we must hope did not understand (they never do it seems when law involves too much maths) and just followed their whip.
Properties and homes sell in a market place. This is where they have a real world value. There is no other value but the market place. Not until you get to lease valuations.
In the real world leaseholds sell without any reference to the ‘small print’ – as the lastest scandals easily prove. Neither buyers or their professionals gave any attention to the small print. They were being sold “virtual freeholds” etc. But in the theoretical world of lease extensions, all leases sell with the buyer fully aware of the lease and the value of the 1993 Act. Every one. So this value has to be deducted before calculating the freeholder’s cut. The lower the lease term, the higher the deduction. Courts spend hours on deciding this deduction. And this remember is separate to giving the freeholder half ‘marriage value’ under 80 years.
(Interesting concept in itself – the freeholder being entitled to half the ‘uplift’ caused by the leaseholder paying for an extension, whereas all that is happening is the lease is being reset to the value the freeholder made a huge profit on at the outset!) . Leasehold is the gift that just goes on giving.
Once you have driven the existing value down below its real world value, the next step is to hike the uplifted value by adding back in the freehold percentage. The theory is the freeholder gains possession of a freehold reversion. Despite the fact he already owns the blessed freehold, the court gives him another percentage hike on top of the extended valuation! Bear in mind he has already got his reversion value and the ground rent capitalisation. This is an arbitrary extra slice of the cake below 80 years (which gives the leaseholder merely 19 years marriage free on a 99 year lease).
Of course, freeholders get to write their own leases (contra proferentem) to suit themselves. Notice there is no ‘Model Lease’ after all these years? Why not, you might ask. The Companies Act 2006 imposed its clauses over existing company articles, but apparently leases cannot be overridden? Funny that.
The 1993 Act ensures that the freeholder wins big time. Informal leases are not pushed because formal ones aren’t very lucrative, just rather less lucrative.
It is when you read a court saying: “the sale which the statute requires must be assumed is not one encountered in reality.”
That tells you all you need to know about the motives behind the law. Squeeze every drop. In reality a lease can sell randomly priced. Nothing to do with its term or even the indices. Local indices are anyway averages, which means a glut of new leases selling will slant the average as will a glut of old ones.
Anyone half familiar with maths knows the truth of ‘lies, damned lies and statistics”. You can add averages to that.
One bloke worth a million will turn the average income of nine paupers plus himself into £100K.
I wouldn’t trust any law that works on this basis. Not if passed by ‘Lords’.
Excellent post Paddy, It is crystal clear and shows the boondoggle contained in the 1993 act. In days of yore leaseholders would have thought Stephens “suggestions” had merit and were reasonable……. well Leaseholders have woken up and the party is over for the Spivs in the property businesss.
Excellent points! I also thought it ridiculous that the term “landlord” is used for the freeholder investor. I never referred to it as such myself., but the courts do. What “landlord’? What exactly do they offer to the land? Our scammy lot bought the freehold at an auction, circumventing the various notices and they somehow manage to “lord” it over us!
Leaseholders need to invest in their own freehold ending the misery. Freeholders who feel hard done by, can invest in renewable energy and find something useful to do, with all the money they have amassed through milking the leaseholders and clever tax dodging.. (Sorry I meant smart asset management)
I was left completely in the dark as to what the valuer thought my flat was worth when I extended iunder the 1993 act. In fact I paid more for the lease extension than my sister did to buy the freehold of her house only 4 doors away and with the same number of years remaining on the lease. The trouble is there is no transparency in leasehold, If I get my car serviced I get an itemised bill listing the costs of parts and labour, but pay £9500 for a lease extension and I can’t see exactly how the final figure is calculated , in particular what they consider the value of my flat to be. As I’ve said before if leasehold can be abolished in other parts of the U.K then why not England and Wales.
Assuming you appointed a valuer to act for you, you have every right to see the value ascribed to your property in the valuation exercise and indeed how the figure was calculated
Not surprised, mind.
I was reading an Upper Tribunal case t’other day where two professional valuers – the leaseholder pays for both naturally – came up with valuations £100,000 apart and neither matched what the tribunal decided.
There again, you also read of the UT criticising the first tier panel for making basic errors in their valuation maths too.
It is all a game, and guess who pays.
Getting a lease extension should be as APPG says a simple formula that does not require tribunals and Grade A fee earners and valuers.
The principle should not be: ‘let’s see how much more we can milk out the leaseholder.’
Funny thing, the leaseholder must make a ‘realistic’ offer. The freeholder can counter with any old nonsense figure to keep the game afoot and scare the bewhatsits out of the leaseholder into an informal deal. No comeback. Win win.
When you read the 1993 Act, it’s written as if the legislators felt the law they were passing was unfair on landlords. I suspect quite a lot did think this (especially in the Other Gaff) because they were/remain freehold investors. Turned the ‘right’ into just one more nice little earner.
Did I mention I am rather a cynic?
When they passed the 1993 act, they left so many (loop)holes, it should be renamed the Swiss cheese act.
The Havana cigar Is awarded to Paddy!!????????????. Stephen may I make a “Suggestion”? Give it up sweepea, you are busted. Your ‘fine words ‘ seem to be buttering no parsnips. You have got to realise when to exit- stage left if you please.
In answer to Stephen, no, I did not appoint a valuer, everything was done through my solicitor. After all you put your trust in them, they are the experts, they are there to tell you your rights and explain everything.. However I don’t see why this should make a difference, I should have still been entitled to see what the valuer decided my property was worth. All I was given was an “”offer” which I went with because at the end of the day to challenge it would have cost even more in fees. As the leaseholder you are in a no win situation.
I find the treatment you received on the face of it very poor
From what you have said your solicitor approached the freeholder and negotiated terms which were put to you which you accepted
I would have thought unless your solicitor is suitable qualified as a valuer he was acting outside his remit
I would suggest you ask to see a copy of your file
What was the value of your flat with a long lease
What was the term remaining and the ground rent payable and its review pattern
And finally what premium and terms were agreed going forward
I urge all ‘FLAT’ Leaseholders to write to Sajid Javid requesting that he includes our concerns and takes on board our suggestions for a root and branch reform of the flat leasehold racket! The consultation began on 25 th July and is due to run for 8 weeks. It is imperative he hears our voice- particular issues I wish to be addressed are,REMOVAL OF LEASEHOLD FORFEITURE , STRICT REGULATION OF MANAGING AGENTS etc………
This is an opportunity for we Flat Leaseholders to effect change. We are many they are few- Let us take a leaf out of the ‘NLC ‘s book and fight for fairness. ‘If you snooze you lose’.
After reading all of the above, much of which I have struggled to grasp and after several reruns, some I still cannot. Is there a book which explains why freeholds & leaseholds are so complex? Anyone?
When my wife and I decided the time to downsize from our freehold detached property in readiness for life in retirement on a pension, we looked at what that figure might be and concluded that it would not be enough. We invested in a buy to let flat to bolster our income, and a second flat in which to live. In both instances we own a share of the freehold.
I had no idea that I had also purchased such a complex set of circumstances in each property.. Nor did I appreciate just how great the adjustment to our new circumstances would be. Ten years on I find myself still trying to understand certain issues. Our home has a 999 year lease and presumably should not present a problem for my children in selling. The buy to let unit has 69 years remaining on the lease and I have recently received a letter from our management company enquiring if I would like to extend it at a cost of about £700.00. There are 15 flats in a compact complex, the charge is offered per flat.
What puzzles me is why, given that I am a part owner of the freehold and a leaseholder, why is it necessary? Surely just an addendum to the lease duly authorised and signed by all freeholders authorising indefinite extension should suffice.