The consensus of the Westminster Legal Policy Forum today appeared to be that the leasehold reforms will likely go through as scheduled by housing minister Matthew Pennycook, but the introduction of commonhold is more questionable …
The reform agenda follows the Law Commission reports, written by a team headed by Professor Nick Hopkins, who addressed the conference.
It was chaired by LibDem Baroness Thornhill, spokesperson on housing in the Lords, and the event was attended by assorted stakeholders in the sector from the National Leasehold Campaign (NLC) to the Residential Freeholders Association, including estate agents, conveyancing lawyers, leasehold property managers, lenders and the leaders of Commonhold Now campaign, who have direct experience of strata commonhold title in Australia
This is the talk given by Sebastian O’Kelly, of LKP, addressing implementation of the reforms announced last week
As everyone here knows Matthew Pennycook, the housing minister, outlined his reforms on Thursday last week in a very low key fashion while, in contrast, our response is rather more enthusiastic.
Why?
Many leaseholders are absolutely furious as they face runaway service charge bills, hikes in insurance costs, major works and the rest – all imposed on them in the main by freeholder-imposed managements over which they have no control.
Some were interviewed on the BBC’s extensive leasehold coverage last Friday, with lots of reference to leasehold service charges and the ‘cost of living crisis’.
But leasehold is, of course, not a solely a cost of living crisis today.
It is far worse: It is wealth erosion sanctioned by law.
Leasehold reform: why the government must get it right this time
Labour is set to overhaul the toxic system, which has seen freeholders take advantage of built-in unfairness over service charges and extending leases
It is the essence of rentier capitalism and its practitioners know it – which is why they go to such lengths to hide themselves behind nominee directors often offshore.
And so do the terracotta army of lawyers, chartered surveyors, valuers, property managers who serve them. With a feeble and compromised property tribunal ineffectually presiding over things.
Leasehold is an utterly discredited feudal system and the government has said that it will end.
So that argument is over. How to do it, is the current one.
There will have to be a number of – for our part, performative – consultations over most of the measures of secondary legislation to the 2024 Act.
But the big one of, course, is enfranchisement, which is going to require an element of primary legislation. Which is a bit unclear, and I am very interested to hear other people’s views of this.
We do not know what the government is going to do about existing ground rents, following the consultation of the reform options ordered by housing secretary Michael Gove earlier this year – which included the surprise option of resetting the lot to zero.
There is a question over marriage value, over which the freeholders are seeking permission for a judicial review in January.
And then there are consultations in the summer of 2025 on how to set the prescribed Deferment Rate and establish a government online calculator to establish enfranchisement costs. Given the plummeting value of flats, the Deferment Rate should be set higher than Sportelli’s 5% of 2006.
Meanwhile, leaseholders paying for the landlord’s legal costs – an excessively greedy but successful bit of lobbying from the freeholders back in the 1990s – will be ended.
But, people might reasonably ask, do you really think government is going to do all or any of this, given its unfailing ability to cock things up?
Here is where our optimism kicks in.
We have a talented and detail driven housing minister in Matthew Pennycook – if he is not reshuffled later this morning [owing to resignation of transport secretary Louise Haigh] – we have a motivated and very able group of officials, the property-sympathising Tories (who don’t really matter very much these days) can’t make trouble with Michael Gove’s Mao-ist expropriation in the ground rents proposals.
So with fingers crossed these reforms have a good chance of getting over the line.
In the meantime, absolutely no one should be buying a new build flat without telling the developer to rewrite the lease to offer share of freehold; membership of a residents’ management company and a clear route to transition to full commonhold ownership.
It was interesting that McCarthy and Stone – of all outfits, given that it begged to the last moment to exempt them from the 2022 ban on introducing (their very high) ground rents – announced 2 week ago that it was supportive of commonhold.
Other housebuilders will have to follow suit: homebuyers are simply not going to accept their leasehold products any more.
And Homes England should not be doling out Help To Buy grants to first-timers to buy leasehold flats where the lease has not been rewritten to address this new reality.
Full transcript and video are to be available
Other highlights:
94% regret buying a leasehold property, according to Henry Griffith of PropertyMark
The issue of regulating property managers was discussed, with Lord Best’s RoPA report being on the shelf for five years. LKP’s view is that regulation would be welcome but is altogether secondary to direct employment of property managers by the leaseholders who typically own 97% of the value of a block of flats.
Both freeholders and leaseholders have an interest in keeping the service charges down, said the representative of the Residential Freeholders Association Charmaine McQueen-Prince, who is employed by Wallace Estates. RFA represents freeholders who manage about a million leasehold properties. Service charges and building safety bills were “tenure agnostic”, she claimed.
Andrew Bulmer of the Property Institute, the trade body of managing agents, said that half of the sites managed by its members were leaseholder controlled via resident management companies or right to manage companies. Of the country’s 12,000 high rise residential buildings, 3,000 had RMCs. Further, service charges from RMCs “were broadly in line with sites controlled by freeholders”.
Leaseholders desperate to know what to do about enfranchisement following the reform announcement contact The Freehold Collective for advice, says founder Mike Somekh. LKP is also receiving a notable increase.
Siobhan McGrath, president of the First Tier Tribunal (Property Chamber), discussed the reforms to bring an equality of arms in leasehold litigation by equalising the cost regime. [At present, landlords get their costs under the lease, while leaseholders bear their own costs.]
70% of parties to the property tribunal have no legal representation. But some cases are “lawyer heavy”, she acknowledged. She also said that seeing “incomprehensible accounts” from property managers was frequent.
The Law Commission reform blue print did not consider the quantum of ground rents addressed in Gove’s options, said Professor Nick Hopkins. [They will obviously affect enfranchisement costs.]
Of forfeiture he said that it was a draconian measure triggered by small sums, but that forfeiture cannot be ended without a replacement in place.
Related posts:
Housing Minister Rachel Maclean pledges to reform LEASE, calls out Churchill Retirement Living, pledges to end the ‘assured tenancy trap’ and reiterates commitments to reform leasehold
All Party Parliamentary Group: this is how to reform leasehold
Leasehold reform: So, was it worth it?
Labour to cap ‘legalised extortion’ of ground rents and end leasehold houses … Opposition and government now compete to reform leasehold
Lee Rowley and Matthew Pennycook duel political points over leasehold reform Bill
Why it is going to be so important to shout in 2025 – and loudly – when government sets the leasehold Deferment Rate
I whole heartedly agree with Mr O’Kelly when he writes “many Leaseholders are absolutely furious , as they face runaway service charge bills” etc, etc.
The above article is a factual, precise and highly informed account of the “as is” of the current complete wash out of Fleecehold – Leasehold in my opinion.
The sooner this medieval feudal “racket” is consigned to historys dust bin the better in my view.
The Government really do need to complete due diligence quickly (first term) and deal with this “wealth erosion sanctioned by Law”.
I suggest that the Government focus on the reality that England & Wales are the only Countrys on earth that are subject to the above
The LKP and other campaign organisations have provided a mountain of evidenced factual information in support of the abolition of Freehold – Leasehold, and the implementation of Commonhold.
I see no reason why this objective cannot be achieved easily within two short Years of this Parliament ?
Thanks to Sebastian for the detailed and very informative article on Leasehold and Commonhold. It gives us hope for the future, far better than the doom and gloom we often read elsewhere.
I would be interested to know what would happen to complexes like ours if Leasehold did get completely abolished.
I think our situation would apply to mainly Social Housing complexes but there are some current private leasehold complexes (eg M&S , Churchill ) with similar situations.
We are mixed Tenants and Leaseholders
Mostly very old at an average 85 years..
Some receive extra care, some are bed ridden.
Very few understand leasehold let alone Commonhold.
The current Landlord/Manager supplies all the management, maintenance, extra care, financial control of the building and assists some residents to claim benefits.
Although the cost of the service charge has rocketed in the last three years and some of us think it is far too high, we would never be able to persuade a majority to dismiss the current Management.
So in our situation I assume that the current manager/Landlord would continue and it would make little difference to the residents here. And probably our current grievances would continue.
If the alternative with Commonhold is that we run the complex ourselves, then because the residents would be incapable of carrying this out I assume they would have to appoint another management company, a firm of accountants and a new company to do the caring..
It sounds like a procedure that we would not be able to cope with. So I assume we would just continue with what we have got.
I have personal experience. Collective enfranchisement just puts another exploitive, bullying in group in power and share of freehold still means everybody is a leaseholder.
Leaseholders of advanced age are just like any other leaseholders according to Seb. “Independent retirement living is just like other leasehold,” They don`t need any special protections! Do me a favour!
Though, the future utopian wishes of “licence to occupy is better than a purchase” sounds admirable it`s a long way off. Leaseholders everywhere, including those at retirement sites are aghast the latest Govt announcement and barriers being putting up for the enactments we were promised. For retirement sites, they need an extra level of scrutiny on the service charges and protection from the often used “upgrades” to avoid Section 20`s.
For gods sake, people are making it sound complicated to replace forfeiture with another process. It`s simple enogh. Nobody is disputing the bad payers put a strain on the freeholder or other serrvice charge users. So, to that end, either a charge is put on the property or it is forcibly sold to pay those debts. (They might run into `000`s.) Nobody is saying the debtors are ideal leaseholders except they should not lose the whole property by forfeiture. The debt and associated cost is taken out of the propery value and the “property owner” is then free to find an affordable property on the balance returned to them. Of course there would be an appropriate timeline to enforce the debt via a court, as is with forfeiture.
Or are you all waiting for govt to blow more smoke up the backsides citing they are waiting for Einstein to be reincarnated and solve all these complicated problems?
Vinnt Tchenquiz,
I thoroughly enjoyed reading your post your words of wisdom and common sense approach are beneficial in my view.
Thank you, Sebastian for your reporting, it’s so easy to lose track of this scandal and the media don’t seem very interested (maybe they’re mostly freeholders themselves!).
We just don’t buy this ‘it’s complicated’ argument from the government and interested parties and it’s really troubling that leaseholders in properties which are not new-builds seem to have been left behind in a lot of the previous ‘reforms’.
It’s typical that freeholders are challenging the cash-cow that is marriage value. The high court should throw that appeal out as an attempt to continue a form of extortion and the very thing which prevents many form attaining some security of tenure after the process was rigged further in favour of freeholders with the introduction of the 80 year rule. As for Right to Manage, it’s a thin veneer of empowerment and doesn’t address the fundamental problem that leaseholders – especially those in properties with short leases who cannot afford an extension – are actually no better off than many renters. Renters can terminate their agreement whereas many leaseholders can’t sell to anyone requiring a mortgage so are effectively trapped.
The recent reporting by LKP that the CoE – just think for moment about how far that institution has moved from the teachings of it’s founder, if you believe in the faith – and their aristocratic fellow freeholders sit in the HoL, enabled by politicians, are doing their best to prevent this form of levelling up is shocking but not surprising.
It really ISN’T that complicated a decision to take for those with the power in this parliament, even for British exceptionalism-sufferers. You either agree the system is rigged in favour of a bullying and privileged minority and you will take the decision to help the majority (is that not why one enters Parliament?) or you don’t and you’ll duck the responsibility. Again and for spurious reasons.
I hope Sebastian’s faith in the Labour hierarchy is justified and that our Labour government doesn’t kick this can down the procedural road and into what they hope will be a second term, in the hope that they can secure the leaseholder vote because I don’t think that tactic will pay them dividends..
Having worked in the property sector for over thirty years, the first reform I would make is to require all new flats to be sold with 999 year leases and a share in a company that owns the freehold.
Lenders, surveyors , estate agents, property lawyers as well as the general public have no experience with commonhold and it will take years to introduce that new system, so in the meantime go ahead with a type of holding that is well known and avoids perpetuating the problems with third party freeholders. Commonhold can be introduced in the future.
Obviously this does not help existing leaseholders, but as with abolishing ground rents for new properties , it will set a precedent and will begin to reduce the proportion of flats with exploitative freeholders.