By Martin Boyd
Following on from LKP’s Westminster meeting on commonhold last month, Guy Fetherstonhaugh, QC, has written an interesting article published in Estates Gazette.
Reproduced with its permission, the article highlights the relative merits of the commmonhold versus leasehold systems.
The arguments were those put to the meeting by Mr Fetherstonhaugh at the meeting.
It seems almost inevitable we are heading towards yet another leasehold bill at some point in the next five years. It will be needed to patch up the problems caused by the many existing acts.
Our hope is that commonhold is added to that thinking as an alternative system that might even work – and be kept under a single bill.
Neither system is ever going to produce a perfect world, but commohold seems to produce far fewer issues than those we face in the leasehold world.
Guy Fetherstonhaugh’s article reproduced in Estates Gazette can be read here:
| A tale of two systems
As the old joke has it, when asked for directions to a particular place, the countryman replies, “Well, I wouldn’t be starting from here”. So too with methods of holding long-term interests in blocks of flats and other properties with shared common parts.
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His article is the sort of theoretical question thrown up in a University and we all agree yes leasehold is daft, and I agree. It just made sense at the time. Now’t wrong with a system of perpetual ownership or resident control. I have and do support that.
So what about the existing 5 million? Its all right for the newbies but the 5M are left under the bus. To be run over by the next and the next.
– what he is saying by implication, is,lets have a two tier system, oh no that’s right 3, don’t forget the poor chaps in the council/social system. Oh and he doesn’t mention that for social housing they will LOSE their existing tenants rights too. So thats a 4 track system then?
-CH removes sticky problems of ground rents and lease extensions etc, but in order for the 5million to get commonhold, the landlord will want compensation for the loss of that, won’t he? Not so easy is it for the 5M?
-CH means that the residents are in control from day one and the developers run off, a copy of the NHBC certificate pinned to the front door “ don’t call us, call them”.
-CH or Residents Freehold/leasehold are going to be faced with the remaining day to day issues that keep agents and committees busy (without worrying about the old days of backhanders and no replies) so no real difference then, there are still the same rules to follow and enforce, problems to solve.
-A leaseholder has a binding contract between him and the resident owned freehold company, BUT the commonholder doesn’t. Most of his contract is in a communal document that the majority can change. “That Gym is bit expensive and a lot of us are old, so we’ll close it down. We don’t like all this coming and going and strangers so lets stop letting out. You don’t like our charges oh don’t worry we’ll just take your tenants rent direct”.
-and worst of all if you don’t agree there is no real body of law or precedent or a Tribunal to go to independently determine this. Especially if you are right. its the Court(s) and a fresh page.
Seems to me like a lot of new issues. The gravy train gets new tracks Martin 🙂
I’ll look forward to Mr Feathersonaugh answering those questions….
In reply to:
“His article is the sort of theoretical question thrown up in a University and we all agree yes leasehold is daft, and I agree. It just made sense at the time. Now’t wrong with a system of perpetual ownership or resident control. I have and do support that.
So what about the existing 5 million? Its all right for the newbies but the 5M are left under the bus. To be run over by the next and the next.”
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That is easily fixed by forcing Landlords to have Resident Management Companies put in place for the residents that pay the bills and their wages… If Landlords have nothing to hide then they should not object. Leaseholders (or their relatives with a Power of Attorney) would be able to attend the annual AGM and voice any concerns they have and a democratic vote would held and abided by.
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“- what he is saying by implication, is,lets have a two tier system, oh no that’s right 3, don’t forget the poor chaps in the council/social system. Oh and he doesn’t mention that for social housing they will LOSE their existing tenants rights too. So that’s a 4 track system then?
Social Housing is a totally different ball game and we all know that as most social housing tenants are not 100% equity holders.
-CH removes sticky problems of ground rents and lease extensions etc., but in order for the 5million to get common hold, the landlord will want compensation for the loss of that, won’t he? Not so easy is it for the 5M?”
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No it doesn’t, I refer to my comment about re RMC above.
Leasehold extensions are another issue, but if enfranchisement takes place that solves that problem. Those that do not enfranchise would probably have to see a solicitor to extend their old leases as per normal.
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“-CH means that the residents are in control from day one and the developers run off, a copy of the NHBC certificate pinned to the front door “ don’t call us, call them”.
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OK, this is where it gets really interesting because as we all know as soon as any new development has been erected and all units have been sold off, the landlords have a buyer lined up to buy the development from them (usually one of their mates!) so that no liability, especially since the developer that built the development has now ceased trading as well! The original developer only usually keeps that particular development company trading long enough to cash in and also before any ‘cracks’ start to appear in a development.
Make a complaint to the new landlord! they will tell you it is not their problem but the original developer/landlords and they will make some enquiries to find out who the leaseholder needs to speak to. This can go on for ever if not chased up.. Getting the picture?
Old landlords then give the statuary 8 weeks Section A or B notice for all the leaseholders to get a plan of action together plus get finances and a valuation in place to issue a response to the Section A/B notice.. but as we all know that very rarely happens as most people don’t understand what the letter is about and are totally ignorant as to what is waiting for them around the corner….
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“-CH or Residents Freehold/leasehold are going to be faced with the remaining day to day issues that keep agents and committees busy (without worrying about the old days of backhanders and no replies) so no real difference then, there are still the same rules to follow and enforce, problems to solve.”
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Not at all… Residents via their own RMC get 3 quotes from local reputable managing agents to manage the day to day management of the building for them. They then choose one they trust and to whom they will pay their annual management fees.
The chosen managing agents can hold quarterly meetings with those owners wishing to be a little more involved and those leaseholders can report back to the other leaseholders possibly through a residents committee.
An AGM is held annually for those wishing to attend and vote on who to appoint as their managing agent for the following year as the previous 12 month contract will expire shortly.
-A leaseholder has a binding contract between him and the resident owned freehold company, BUT the commonholder doesn’t. Most of his contract is in a communal document that the majority can change. “That Gym is bit expensive and a lot of us are old, so we’ll close it down. We don’t like all this coming and going and strangers so lets stop letting out. You don’t like our charges oh don’t worry we’ll just take your tenants rent direct”.
Problem solved if the management company have been appointed by the owners, unit/leaseholders still have a binding contract and still have to pay their management fees.. There will always be one in a bunch that doesn’t want to pay their fair share of fees and if that happens they would have to attend the quarterly meetings to discuss it and agree and unhappiness.
-and worst of all if you don’t agree there is no real body of law or precedent or a Tribunal to go to independently determine this. Especially if you are right. its the Court(s) and a fresh page.
Again, quarterly management meetings with managing agents to discuss and resolve.
Seems to me like a lot of new issues. The gravy train gets new tracks Martin 🙂
No problems that I can see with Commonhold for new development or RMC for existing developments.
The only contact the Leaseholders would have with the landlords then is to pay the annual ground rent. Commonhold has no landlord…
Easy Peasy…
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Oh and just one final point- major works? Yes thats avote and a summary demand , no section 20 or determination by the FTT, when you have genuine concerns ( or for that matter daft concerns).
That money for those major works not to mention reserves etc cannot be protected as trust monies you need to draft a specific trust for that, oh didn’t he mention that? Or that if you have a surplus before you pay the bill, HMRC haven’t quite decided if that is a profit and taxable yet. No didn”t see that either.
Perhaps I missed a page . Or two…
I am not against this just the peddling of the perception that it is simple and his rather amateur attempt that would embarrass Cass Sunstein.
If landlords had to abide by agreeing to a mandatory Residents Management Company for all leaseholders to join and discuss management fees then an independant managing agent would be employed (chosen by the leaseholders), then they (MA) would do what they have always done and hold reserves that should include money for sinking funds in an escrow account…
This is supposed to happen now but doesn’t actually happen in reality as Landlords/MA see a whole load of cash and find something spurious to spend it on like: roof repairs (which no-one can actually see as it is on the roof! Door systems that are not broken, alarm systems that work fine.. etc etc..
Next objection please…
But my point was that in commonhold those protections don’t even exist for someone to not comply with :)….Again examples above are real ones where residents groups have made daft decisions so they too are not perfect. I have said earlier than those here and even before the 2nd ed of the acop that it should apply to everyone.
As Martin pointed out in his earlier reply, commonhold is being looked at currently so maybe this is something that you can suggest we find a solution for?
Having clauses written into the new commonhold agreements that ensures buyers know they have to pay their share…
Just as happens now, if leaseholders don’t pay their fair share of the running costs the managing agent appointed to manage a site can take that leaseholder to court for non payment, nothing is impossible.
Managing Agents and Landlords make the most stupid decisions ever and that is why we are where we are trying to correct the stupid system that they control badly.
Guy Fetherstonhaugh’s article is really refreshing and is an honest account of what is happening now from somebody who works in the industry day in and day out and sees it from both angles.
In 10 years time NOBODY will buy leasehold property and I am just waiting to see what happens to the London market in particular, as I think property prices there will crash and London will suffer the most as that is where nearly everything is held on a leasehold contract. A little food for thought maybe!!!!.
No it not, its not its a silly season stuffer. The solutions are far simpler than the what was discussed at the portcullis house meeting based on Amanda Gourlays account. If he deals with it day to day then he has missed a lot as his comments show..
I was at that meeting and am keen to hear what you think he has missed?
I was very surprised to hear GFH stand up for common hold and a lot of what he said made complete sense.
He is the only barrister I know of that is saying common hold can work if thought out properly.
I suppose it depends on who you read and what you listen to and also where you sit on the fence (metaphorically speaking).
I have read Amanda’s piece http://www.lawandlease.co.uk/2014/07/01/commonhold/ and she wrote;
Quote:
The common parts and facilities of the development are owned and managed by a “commonhold association”, which in leasehold-speak, is not dissimilar to an nominee purchaser in a collective enfranchisement.
End Quote.
This is exactly the status owners try to get to when they want to get rid of dodgy, lazy landlords and their managing agents, so I do not agree with you.
There are millions of leaseholders out there that want commonhold and they will get it eventually regardless of a few that are so against it for whatever their reasons.
AM,
We may not have made clear but one of the purposes of the Commonhold meeting was to point out some of the failings in the previous legislation. A number of the issues you mention were covered and a number more which will need to be resolved. Guy’s article was intended to point out the perverse reasoning behind our current use of leasehold not to give a total solution. You will have to read his 764 page “booklet” on Commonhold for more detail
As for gravy trains. The data coming out of Australia says under their commonhold system the number of cases in dispute have declined, while the number of flats goes up, the proportion of disputes which reach a Tribunal hearing very small and the number where the lawyers are in attendance even smaller. So commonhold may still provide a small shunting train worth of gravy but is a lot better than the full Eurostar service of very expensive legal gravy we have at the moment?
The intention of the meeting was also to show the civil servants there is considerably more interest in commonhold than they perhaps thought. Clearly there is caution from some but an issue which should be looked at again?
Leasehold will still need fixing or at least another set of plasters as there is no easy way to retrospectively impose commonhold on many existing developments. -and certainly little reason to do so until commonhold has been shown to work.
As you know parliament have still not implemented parts of almost all the previous leasehold Acts which now provides a horribly complex set of confusing statutes. No surprise therefore that many MPs run a mile when a constituent says I have a leasehold problem.
One more thing which came out of a meeting was a senior lawyer telling the audience that even those who write leases do not understand what they mean.
Karen Thanks for the reply. We have that it is called RTM TMO and Manager appointment. If you compare the number of RTM cases to the very very few that end up in the hands of the FTT or UC-LC, it works well. It could work better/be easier. But that only makes my point Karen, that talking about commonhold is doing nothing for the 5m existing people. I have gone further than that by suggesting resident led trustee appointment, for those that don’t want the freeholder but are sure or don’t have the time to do it all themselves.
But you cant throw LA and RSL leaseholders under the bus Karen, nor as was suggested at the Portculis House meeting, that for commonhold to work, that they be stripped of the rights that other leaseholders have. They worked hard and saved their money and sacrificed to buy their homes too.
On your second comment about RMCs you seem to be advocating that this is an alternative for existing leaseholders in which case see my point above. What you may have missed or I was not clear enough about is that if you are a LH and wish to “enfranchise to commonhold” (full kudos who ever came up with the term) you do have to compensate the landlord-contrived though the values are. I sent LKP my thoughts on solving that a while back…..
Well no that’s has been common with the volume builders for reasons that I have explained in other threads. But it is far from being without exception and there are plenty who retain their freeholds and maintain a long term relationship as their reputation is worth more to them in the long term. In these tougher times these are the firms that are still building Your comment therefore makes my point when a developer has no long term interest they are likely to walk away but I can name many who do not. Commonhold encourages the walk away approach
.
On the latter point I agree I have written to LEASE as they need to do a better job on these sorts of issues.
On the remaining sections of your reply I must admit to being confused. On one hand you seem to be agreeing with me that an RMC given control at the outset, or the freehold transferred at completion. On the other hand my point in those sections is that a commonhold company is fundamentally different to the RMC in respect of decision making and the contractual position as firstly the leaseholders contract is binding while the CH’s isn’t and second after the meetings you refer to,if they disagree and in some cases they may be right, the latter has no FTT to go to, or body of law to point to such as s19 on criteria for expenses. The examples I gave are actual decisions where the courts have overturned the decisions of a residents group/company.
AM
I cannot see how the law can suddenly be changed for people that have bought a leasehold property. It can’t be turned into a commonhold overnight and I am not sggesting that, merely that for future developments a new commonhold contract is put in place for those new proposed new build developments. Just like a landlord can basically do now by writing their own contract to suit and reward themselves.
Currently, no leasehold contracts are the same and all deveopments have different contracts.
Lets just re write a new common hold contract… and then if prospective purchasers don’t like it they don’t buy it!
Martin thanks for the note. On the contrary it was clearbut it lost all credibility when with no objectively sustainable reasoning, that they retain commonhold and in order to do so, and allow leases to be created, strip them of their rights.
I understand his reasoning and were I the yokel that said you wouldn’t start from here I would be looking at the proposed solution and saying “ who gave you them thar directions, they don’t live round here, do they?”
It also undermines his credibility as like it or not, 5m owners are starting from here-with leases. He might be better explaining that we only have leases because of the definition of freehold. It doesn’t serve the argument to do so as that would mean pointing out that leases and unit agreements cover the same ground. The exceptions are term and forfeiture which you can deal with by making the tem perpetuity – 1 day, and ending forfeiture. The issue of control and ownership simply requires that freehold resi schemes be transferred to an RMC. You don’t need commonhold, the difference is 1 sole day, the one where the universe comes to an end when it’ll be the last things on our minds. A 764 page booklet is not required. A simple bit of legislation is.
The comparison to Aus is misplaced, as there and in the areas where I dealt with condo title, is that there is clear legislation and a body of law, for example equivalents to s19, however none such exist for commonhold. We would have fewer disputes just by virtue of few being sure about how to argue an issue. If I accept that resident control does create that benefit then that only strengthens my argument that doing so with compulsory transfer and tweaking RTM TMO and manager appointments to make them easier, makes CH more and more an obsession than a solution.
In fact I disagree about imposing it on an existing block, as commonhold could in fact remove a lot of problems in a lease hold block, but what is not appreciated is that it creates a whole lot of new ones.
I don’t say we shouldn’t have it, but it needs simply to be a new form of title, commonhold or flat hold, that is like a lease a unique and binding contract between the group and the individual, and not a contract that can be unilaterally amended. That is plain wrong. It needs to operate in a body of law and I’d prefer that the existing L & T applies than the no mans land that is being proposed. As I said in reply my examples of the sorts of outcomes that were overturned are real, but would subsist under CH as drafted, and it is wrong to strip a whole underclass of its rights.
I think in my note I mentioned horrible drafting, but at the same time, the CH statements and Assessment, let alone current Articles are no better. The problem is that they are neither paid nor required to draft a lease or a statement or assessment taking into account the actual property or plain English.
As to the Acts I have spent the time and there is less needed to tidy these up than some think. Its the additional stuff we need and in that respect commonhold is still in the 4th division as it hasn’t even got started. Its daft to suggest that we end up doing it for both.
Well no 4times it seems CH FH/LH council/LHA and the new rightless RSL leaseholders.
In a one and a half hour meeting about commonhold most of which has not been reported I am unclear how you can jump to the conclusion you know a far better answer than all those who were there.
To suggest that the problems with leasehold are solved by just removing “term” and “forfeiture” and providing an RMC entirely misses the point that the “landlord” is still there as a third party who is looking to make a profit from the leaseholder or are you taking away ground rent as well? Then you of course omit to mention the problems RMC’s run into.
I guess we will have to see what develops. I have no idea why you think there would be a new “righless RSL” class. There is no “no mans land” being proposed only a logical debate or as you call it an “obsession” which somehow no one has talked much about for 5 years.
I did predicate my comments on responding what I was able to read, and while I can’t do anything what you might infer from the post at the same timer I am able to hold and express an opinion. At least I am making concrete achievable suggestions and ideas.
The answer then is to report it in full, isn’t it?
The solutions mentioned are just one part of my response, the remainder LKP have, and I have addressed ground rents rent charges and lease extensions, not to mention added value and practice issues, therein.
While commonhold might apply to new builds, equally, as I have suggested many many times so does requiring that the freehold must be transferred sans ground rents to an RMC rather than waste time on commonhold. I have also explained how to offset any disincentive this might create.
It is the existing schemes that I am worried about, not to mention the fear that supporters of common hold might not realize it won’t be open to them at least not easily, for those reasons you have given about landlord’s profit. I have suggested ways to address that so that whether it is enfranchising to freehold or to commonhold , it will be far less expensive.
The rightless class of RSL leases is based on the suggestion that as commonhold is outside LTA 1985, if leases were to be permitted to be granted ( as they currently are not) then these would fall under the LTA 1985. As a result they would have to be exempted from those protections as the Association could not comply, or if they attempted to do so, it would be an administrative burden of two sets of accounting records.
This was reported as being suggested and discussed at the meeting at which you were at…..
Commonhold will get rid of the ridiculous situation of not being in control of your own excess on an insurance policy that covers the structure of the building a leaseholder has to pay for, as the question below proves..
Baroness Gardner of Parkes (Conservative)
http://www.theyworkforyou.com/lords/?id=2014-07-29a.1519.4&s=speaker%3A13304#g1520.1
To ask Her Majesty’s Government what plans they have to amend the Landlord and Tenant Acts to require landlords actively to notify tenants of changes to service charges, insurance premiums and insurance excesses.
I declare a direct, personal interest in respect of my own insurance for the block of flats that I am in, which has always had an excess charge of £250. When I had cause to make a claim recently, I was told that it had gone up to £2,500, which is a tenfold increase, and I was also told that that had happened three years before, although no one in the block had received any word of it. How many other people does the Minister think might be in similar positions, with important decisions being made without tenants or leaseholders having any idea that this is going on?
But so does owning the freehold or being a party to the lease manager ( unless it is reserved) or in your case, an RTM Co.
Actually what is equally important and mentioned in the preceding questions, is that if expenses in the year exceed the estimates on which most charges are based, unless you have an MA who advises residents or their client home owners when this is apparent, it is all a bit of a shock when the deficit balancing charge arrives months after the year end.
With few exceptions agents and even self managers will see if they are overspending and that as well as telling people that an excess has changed due a high number of claims, is only a matter of minutes to compose and admin time to copy and post or email. If people will accept the extra cost there is no excuse for not doing it.
Martin I am with you now as you meant his book, which I unearthed in a box in the shed. it was read and annotated at the time, and a little stained as I was building a house at the time, but It doesn’t however change my stance on this, that it is horribly complicated solution to a few simple problems, which opens to the door to a whole load more, while doing nothing for existing owners.