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You are here: Home / Latest News / Law Commission hears views on commonhold

Law Commission hears views on commonhold

June 13, 2018 //  by Sebastian O'Kelly

Law Commissioner Nicholas Hopkins speaking at the All Party Parliamentary Group meeting in April

On Monday the Law Commission held its first stakeholder meeting on commonhold – which it is tasked to review, along with lease extension and enfranchisement as part of the government’s initiative to reform the leasehold sector.

Held in the Ministry of Justice, it was a miniature conference of around 70 invitees including the three MP patrons of LKP – Sir Peter Bottomley, Sir Ed Davey and Jim Fitzpatrick – civil servants, assorted landlord and tenant lawyers, developers, property managers, relevant trade bodies, housing associations and academics.

These included professors James Driscoll and David Clarke who were closely involved in preparations for the Commonhold and Leasehold Reform Act 2002.

The event was held under Chatham House rules, so comments cannot be attributed to named participants. It lasted two and half hours and was a well organised, serious engagement with the issue of commonhold, rather than the more familiar cosy chats among leasehold sector professionals.

Nonetheless, when one of the LKP patrons asked how many of the present attendees were “on the side of the consumers” only a fraction of them could plausibly be described as such.

“Fewer than half,” said the MP, but less than 10 per cent would have more accurate.

There are plenty of professionally qualified leaseholders who run self-managed blocks in Londons where the combined assets are worth hundreds of millions of pounds who could, in fact, be invited to an event such as this.

The Law Commission inquiry, headed by Professor Nick Hopkins, has been working fast since it was tasked in December and will outline in draft its findings in October.

Commonhold introduces freehold ownership to flats and is the prevailing system in most jurisdictions with England and Wales alone perpetuating leasehold. The inquiry is studying other jurisdictions – Australia, New Zealand – and has dusted down the Wilberforce committee of the 1960s, where it was first considered.

The event began with asking why commonhold had had such a low take-up.

This is politely attributed to the lack of incentives to developers (they make so much more money from leasehold); unfamiliarity among lenders; possibly the existing tribunal system deterring take-up and – the sector’s favourite – lack of consumer awareness.

Fortunately – thanks to LKP and the National Leasehold Campaign – consumers are getting quite aware nowadays: hence plc housebuilders in full retreat from leasehold houses.

One of the MPs was in no doubt that developers were primarily to blame for the depriving ordinary consumers of proper home ownership through leasehold trickery, even though they were familiar with property tenures in other jurisdictions (such as Scotland).

The MP contrasted the leasehold world’s wonderful inconsistency: that leaseholders are, of course, real home owners when it comes to the marketing of these products and tenants when it comes to legal disputes or paying for developers’ or regulators’ errors such as the Grenfell cladding removal.

The Law Commission meeting pondered specific issues concerned with commonhold.

For example, how to convert a block of flats to commonhold which would need the agreement of all leaseholders and freeholder. This contrasts with collective enfranchisement under the leasehold system, which would require majority leaseholder agreement.

There was some chewing of cud concerning existing leaseholders who may not want to convert to commonhold.

Of course, enfranchisement cannot be compared with commonhold: it has been described as “commonhold lite”.

And games can be played, whereby a block controlled by a majority acting together re-enfranchise to the detriment of the minority: this can happen in sites where there is significant financial gain to be had from redevelopment.

The Law Commission considered issues concerning liability and what happens when a commonhold association becomes insolvent.

In some jurisdictions, the liability is limitless: so if a block is uninsured and a passerby gets killed through negligence, the commonhold owners can lose their homes.

Rightly, argued one lawyer, as they have the same responsibility as any other freehold homeowner.

On the other hand, there are plenty of houses in the UK owned by limited companies which in this situation might limit liability (although the negligent directors may be found personally liable for failing to insure).

Finally, there was discussion about mixed-use developments, where tiered commonhold structures exist along with leases for shops and offices.

Several in the audience urged commonhold to begin working and to remove the exploitative and superfluous figure of the freehold owning landlord.

Property managers argued for clarity: if we are going to have commonhold, make it clear and don’t muddle it with leasehold structures.

Among the developers, there seems to be a realisation that the game is up with creating new ground rents, flogging off freeholds and disempowering the consumers (their customers, after all).

This is a battle that seems to be being left to the retirement housing providers, who meet later this month to talk up ground rents at a stakeholders’ meeting to which LKP and www.BetterRetirementHousing.com are not invited.

The leaseholders doomsters will say the Law Commission meeting was all tokenistic and not much is going to happen, that vested interests will prevail and that English and Welsh leaseholders will exist in feudal subjugation until the end of time.

And there are, of course, other Law Commission reports – reforming forfeiture – which have gone nowhere.

That is not our impression.

There are plenty of sector insiders lobbying away to derail the civil service and Law Commission and ministers from taking action on our dismal leasehold system. (And to get the ever-obliging property tribunal to fix high capitalisation rates, to secure existing ground rent values.)

There were plenty of forces of darkness at the Law Commission meeting – point scoring over landlord and tenant arcanery and grandstanding in order to ingratiate oneself with the richer London freeholders. But over all it was a positive and sincere effort to grapple with commonhold.

“Bet you never thought we would take this this far,” I said to one London house builder (that hasn’t played excessive games with leasehold).

“Bet you didn’t either,” came the reply.

“Worried about commonhold?”

“No, if ground rents go it is all over anyway. We will get over it.”

Quite.

Related posts:

Housebuilders WILL benefit from commonhold, Hopton Build developer tells Law Commission 48 hours to go: LKP advice on responding to the Law Commission consultation on commonhold Enfranchisement, commonhold and managing agent regulation are first up for the Law Commission ‘The time is right for commonhold,’ announces Law Commission. (Pity the government doesn’t agree …) Leaseholders and the sector react to Law Commission reforms to commonhold and right to manage

Category: Latest News, Law Commission, NewsTag: Law Commission, Professor Nick Hopkins

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Previous Post: « Taylor Wimpey’s snake oil ground rent review scheme makes toxic leases even worse: in my case, £25m worse!
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Reader Interactions

Comments

  1. GENRYS FARLEY

    June 13, 2018 at 3:46 pm

    Who was invited to this meeting

    • admin

      June 14, 2018 at 8:30 am

      Our experience with Chatham House rules is that very few people really know what they involve, so unless the Law Commission says we can publish the invitees, we won’t.

  2. David McArthur

    June 13, 2018 at 4:37 pm

    “it was a miniature conference of around 70 invitees”.

    How many of the attendees were on the side of the consumer? “Less than 10%”.

    “The leaseholders doomsters will say the Law Commission meeting was all tokenistic and not much is going to happen, that vested interests will prevail and that English and Welsh leaseholders will exist in feudal subjugation until the end of time”.

    Am I a doomster? I think there is more pressure now to radically change things than there ever has been. But why the need for overwhelming pressure? Leasehold is an obscenity, it hasn’t suddenly become an obscenity, it always has been an obscenity.

    I will answer that question, overwhelming pressure was needed because the moral criminals – developers, solicitors, property lawyers/barristers and assorted professionals, and others in the freehold industry – who profited from leasehold had the ear and approval of successive governments.

    More strength to your arm(s) Sebastian and Martin, you have led the fight for change, the credit is yours.

    • GENRYS FARLEY

      June 15, 2018 at 3:49 pm

      I was at a meeting at Portcullis House on the 14 January 2016, I was one of the three Residents that was invited to attend. We were very much outnumbered by people from the building companies. Esther Rantzen was one of the main speakers, Miss Rantzen at the time was working for Churchill Retirement Homes

      • David McArthur

        June 15, 2018 at 3:59 pm

        Genrys, Esther Rantzen (the well known campaigner for the little man, the consumer) working for Churchill Retirement Homes. What did she have to say? Oops, the meeting was held under Chatham House rules and contributions cannot be attributed to named participants.

        Allow me to rephrase my question, did any females make interesting contributions?

        • admin

          June 15, 2018 at 4:01 pm

          Dame Esther Rantzen Brand Ambassador

          Churchill Retirement Living has been working closely with Dame Esther Rantzen DBE since she was announced as our Brand Ambassador. The well known charity campaigner and broadcaster has been working with us to help combat loneliness in older people.

        • GENRYS FARLEY

          June 24, 2018 at 8:26 pm

          NO

  3. Gary

    June 13, 2018 at 7:27 pm

    Apparently responses to the Department of Communities call for evidence re onerous leases has only generated 600 responses.

    I think the deadline is the 15th anyone who hasn’t responded should take the opportunity to do so LKP did a helpful response template complete with link a few weeks ago.

    Can’t remember where it was though.

  4. David McArthur

    June 14, 2018 at 9:24 am

    Friends of mine – Bulgarian migrants, here three years, settled and working, and not a drain on the public purse – are looking to buy a property here in the north west. In view of their ignorance of buying property in the UK, I have been advising them and told them to avoid leasehold were possible.

    They spotted a shared ownership semi in a lovely rural area, they were interested. I sent off an email to the housing association who would have the other (no doubt) dominant share. I asked if the property was freehold or leasehold – expecting it to be leasehold – and questions relating to leasehold, if it so was.

    I received the following reply –

    “Good Afternoon David,

    Thank you for providing the link to the property. Please see the answers to your queries below.

    The property is a freehold
    It’s a 99 year lease from 1st September 1995 – There are 77 years remaining
    We do not collect any ground rent for this property”.

    Not an attractive proposition this freehold property which is leasehold with only 77 years left on lease, even if there is no ground rent. I was informed previously that the buyer could only ever hope to own 80% of the property, which is a further reason not to buy.

    I think our whole housing market needs sorting to enable 100% freehold home ownership with no third party involvement, not even housing associations.

    Ignorant and uninformed consumers (house buyers)? When an informed consumer (me) asks the right questions he receives ignorant and uninformed answers to the questions.

    .

    • admin

      June 14, 2018 at 9:28 am

      Your friends are fortunate to have you as a friend.

      You asked the right questions and got nonsense back.

      Take the question to the CEO, and copy in some MPs to get sense (about management charges and insurance and major works, for eg)..

      But you have most of your answer: this is a property that will be difficult to get a mortgage on and will need a lease extension ASAP.

      • David McArthur

        June 14, 2018 at 10:10 am

        I have responded to the housing association’s email asking for clarity on freehold/leasehold, and on whether it is possible to achieve 100% ownership. I also suggested it would be difficult to get a mortgage with only 77 years left on the lease. Can the lease be extended, and at what cost?

        These are preliminary questions, unsatisfactory answers means no deeper questions, and no purchase.

        The poor ill-trained front line guy doesn’t deserve the attention of his CEO, as much as I would like to highlight the nonsense reply, I think not. But this is what house buyers are faced with, even the fully informed – I would suggest that at every level of the buying process there is ignorance as well as deceit.

  5. David McArthur

    June 17, 2018 at 10:39 am

    “How many of the attendees were on the side of the consumer? “Less than 10%”.

    The word “conspiracy” has lost much of it’s power and integrity, use the word in one context and you are a lunatic conspiracy theorist. Worse still, use the word at all and you are paranoid. One has to be careful when suggesting conspiracy.

    I have suggested before now that there has been a conspiracy at all levels – of government, the civil service, the legal profession and judiciary, other varied professions, developers, and interested businesses – against ordinary house buyers. And still it goes on. Why exactly was there only a 10% representation of those supporting leaseholders at Professor Nicholas Hopkins stakeholder meeting on commonhold?

    Does Professor Hopkins believe that the obscene and morally criminal mess that is leasehold will be sorted by those who created it? And that the masses will doff their caps and be grateful for the inevitable crumbs?

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