A few thoughts after a career in landlord and tenant law: Guy Fetherstonhaugh QC hasn’t a good word for current leasehold law, strongly urges commonhold, the abolition of ground rents and a fair cost regime for leaseholders in tribunal
The evidence provided to the Communities Select Committee by lawyers – and the Law Commissioner Professor Nicholas Hopkins – add up to devastating criticisms of the leasehold system.
Three lawyers who have made their careers in the sector barely had a good word to say about leasehold law, when they came before the Select Committee on January 14. While Professor Hopkins made clear that he believed fundamental reforms are required that go beyond his current inquiries.
Shoring up a system with such fundamental unfairness is “putting sticking plasters” on leasehold law, said Guy Fetherstonehaugh QC.
He urged the adoption of commonhold, instead. Mr Fetherstonehaugh added:
“The trouble with leasehold is that it is essentially an antagonistic relationship. The interests of landlords and tenants will not coincide. It would be almost impossible for them to do so.
“The great thing about commonhold, if it works, is that there are not really two parties. It is the commonhold owner and then the commonhold community, which is all the owners put together.
“It is not like one of those cobbled together leasehold management owning bodies that has representatives of leaseholders on it. They are still in a state of conflict towards each other. Commonhold is not like that.”
Solicitor Giles Peaker, of Anthony Gold Solicitors, urged “wholesale reform”, as did barrister Amanda Gourlay.
Not one of the lawyers before the committee defended the status quo in leasehold.
Law Commissioner Professor Nicholas Hopkins echoed these sentiments saying:
“Looking at the landscape of leasehold legislation, I would have to say it is not fit for purpose as it is …
“These are not new concerns … But this time those concerns have become much louder. The need for reform has become much more urgent.
“At the moment, there is a lot happening, both in what the Government are doing and in the work we are doing. I hope that is the start of a process that will lead to a holistic, wholesale review of residential leasehold law.”
Professor Hopkins also addressed the failure of commonhold, introduced in the 2002 Commonhold and Leasehold Reform Act:
“I would certainly say one of the reasons commonhold has not taken off at the moment is that those financial incentives are there for the developer.”
Mr Fetherstonehaugh made a plea to “do away with ground rents altogether”.
Developers might not like losing the “icing on the cake”: he said: “They sell the cake and then the icing is the ability to collect ground rent for a long time.”
Mr Peaker told MPs that the government suggestion that ground rents remain capped at £10 was a “mistake”.
“In terms of value, it might seem to be little more than nil or a peppercorn, but one of the issues preventing the adoption of commonhold, as Guy has pointed out, is, frankly, the existence of ground rents full stop. As long as they exist, even at a relatively minor level, it will be a major impediment to the adoption of commonhold.”
Amanda Gourlay warned of the possible danger of lease forfeiture owing to the government’s £10 ground rent suggestion.
“… it is possible to bring forfeiture proceedings if you have a ground rent of £10 in arrears for more than three years, with all the associated stress and cost that can incur.”
Mr Fetherstonhaugh said: “Forfeiture is fantastically draconian,” while Professor Hopkins hoped that an earlier Law Commission report urging its ending is taken up and enforced.
The property tribunal also came in for strong criticism from lawyers who spend their careers appearing before it.
Mr Peaker said: “The First-tier Tribunal was originally, and still is in some ways, supposed to be effectively a cost-free jurisdiction. Because of the way the case law has gone, particularly on lease clauses, on recovery of costs in contemplation of a section 146 notice, the forfeiture process, freeholders are routinely now recovering their costs of a tribunal, either under the service charge or under an administration charge, even where the tenant has been reasonably successful in the tribunal and has reduced the service charge.”
Instead of leaseholder litigants having to persuade the tribunal to issue a section 20C, preventing the freeholder from recovering his costs, “that should be the default position”.
“The freeholder should have to show why that should not be the case, rather than the leaseholder, again usually without legal representation.”
The government is consulting on a housing court, but Mr Peaker was not impressed by the “early mutterings” if it replicates the unfairness of the property tribunal.
Mr Featherstonehaugh repeated his enthusiasm for commonhold.
“It will not be a bed of roses. … we looked at the Commonwealth experience. That is a very well-established jurisprudence. We looked at the cases that had been generated by the strata title legislation.
“You get neighbours who are at war with each other; one does not want to pay for the reroofing of the block and everybody else does, so that sort of thing will happen, but nothing like what goes on in leasehold.
“Commonhold is not a panacea for absolutely everything, but if it is amended slightly—I do not think there is much wrong with it—and gains traction with the mortgage lenders, I think it will take off and be much better.”
The full Communities Select Committee session can be read here:LawyersSelectCommitteeJanuary14
Related posts:
Communities Select Committee reject the “pledge” 
Government’s slightly wobbly response to the excellent report of the Communities Select Committee 
Views of Tory MP Crispin Blunt: Government should ‘nullify’ ground rents. End ‘feudal’ leasehold. Bring in commonhold. And stop developers’ and solicitors’ ‘unconscionable’ cheating of the naïve 
Leaseholders and the sector react to Law Commission reforms to commonhold and right to manage 
10,500 leaseholders demand select committee hauls in housebuilders over rip-off ground rents
I do find it somewhat surprising that the Human Rights compensation should be seen as an awkward proposition
A deal is out in the table where a flat is let for say 99 years with a ground tent of say £250 per annum say doubling every 25 years.
The idea that the rent should be cancelled without compensation seems profoundly unreasonable . It was there for all to see at the outset and the purchaser being advised by professional valuer s and solicitors. I draw a distinction where the terms are not clear or the rent mutates into something penisous .
Further the idea that the enfranchisement price should be simply based on the income with no regard to the reversion as proposed by Mr Madders MP. Again in the deal struck when the premium was paid for the lease the property was to be returned at the end of the term. If that is not to happen it is wholly reasonable to expect the receiver of the reversion to be compensated
The formula which valuers he loss to the freeholder in an enfranchisement or lease extension has been around since the 1993 Act came into place and therefore is in principal correct. Buyers of leasehold have known since. 1993 the sort of costs they may be expected in the future and factor his into their offer . What is now required is an algorithm to produce the figure without all the necessary legal and valuation fees which weigh in heavily on the premium paid
An online calculator making use of prescribed variables is what is needed . Arguments that ground rent is fundamentally unfair and that lessees has no idea what they were letting themselves into is all very weak (excepting where the rent is penisoous with 10 year doublers) but to suggest that a rent with reviews of every 25 yrs or 33 yrs doesn’t wash
I cannot agree that just because Retirement Complex Developer includes hefty ground rent charges in his sales conditions then this makes it fair and reasonable.
Companies like M&S and Churchill provide the majority of retirement apartments on the market and there is an increasing demand for these properties which they are well aware of..
They know very well that there are thousands of elderly desperate for such properties and how easy it is to extract up to £700pa (and increasing) ground rent from them. The fact that these elderly may later realise their mistake or find it difficult to finance is of no concern to them.
Yes it may all be legal, but it is morally wrong. If there is no cost involved how can it be right for a charge to be made.
Would it be fair if these Developers made an annual charge for providing daylight through windows, knowing that there are elderly desperate to downsize to this type of property. That would be daylight robbery.
When a charge is made for absolutely nothing at what point does it become daylight robbery.
If at the point of sale the value of the ground rent is shown clearly next to the premium then purchasers make an informed choice
So if a flat is sold for £250k and the ground rnet is £350 per annum doubling every 25 years through a term of 125 years then the NPV of that rent on the date of granting the lease is £7731 and therefore the price the flat is offered at should be shown as £257,731 with stamp duty payable on the total
Assuming the discount rate set by the government in this example is 6%
In that way nobody can argue that they have been misled
When the property is resold later on the remaining ground rent has to be revalued ( government can put an online calculator to help on this ) and the value of the ground rent remaining shown next to the price sold
The root of the problem has been the failure to consider the NPV of the ground rent when making an offer for a leasehold property . The ten year doublers would not have got through as the NPV of such a rent profile in the granting of such a lease would be £22,600
Ground rents as so often stated on this website are for no service . The lease of course confirms this – they are a financial burden on the property and should be valued using a defined discount rate set by the government and the figure and assumption clearly shown. There is a strong similarity to a loan and loans as we know are governed by the consumer credit act – years ago all sorts of mischief could be done with loans because the financial terms were hidden – now thanks to legislation transparency is required with cooling off periods in place .
This country at present is suffering a severe shortage of homes. No unnecessary costs or profits should be added to make the situation worse. Ground rents are an unnessary cost.
Similarly I would consider bread , vegetables, medicine and power to be essential products.
Works Stephen consider it fair for the providers of these essentials to add a surcharge (extra profit) to these items.
And then say it is fair because we can make an informed choice.
Unfortunate than that we might go hungry, cold or ill as we cannot afford the extra charges.
There comes a point when excessive charges are beyond the pale, and ground rents are one of them.
In a free market economy such as the uk providers can seek what they can – if they make super profits other will come in and prices will fall . But the free market fails when costs are hidden and that is why the value of the rent needs to be disclosed so the purchaser can evaluate the whole deal
There is no price control in the I’m on vegetables but a farmer must price his goods correctly otherwise they will simply not sell and the same is true of housebuilders when disposing if leasehold Properties
Here we go again, “If at the point of sale the value of the ground rent is shown clearly next to the premium then purchasers make an informed choice”. Stephen dear, get a new scriptwriter.
MH, you say, “thousands of elderly are desperate for such properties ”
Surely not. I don’t believe so anyway. That’s why these freeholders are trying to scam off as much as they can now while the sun still shines.
In years to come I doubt there will be any such thing as retirement leasehold complexes.
The next generation won’t have the money/equity like the current seniors have/had to enable them to go into such complexes that you/we have now.
With equity release sharks already at peoples doors (taking their assets/properties off them when they die) and the young stuck with leasehold houses that end up being worthless, retirement complexes will eventually die their own death as they cannot be afforded in the long term.
Freeholders will however get richer and richer as their retirement blocks will be purchased by government and councils in order to home thousands who cannot get affordable rent or purchase affordable properties, hence the homeless figures grow out of total control
Trevor, I think at the present time there is a demand as many elderly wish to downsize to a secure environment. In fact the Government encourage them to do so, to release their properties for families..
The likes of M&S and Churchill build these complexes in affluent areas knowing that the wealthy there will buy them and gift them the £700pa for no service at all.. The free market economy as Stephen calls its, and the Developers love it.
Unfortunate though, that those who also need one of these properties and unable to afford £700pa have to like it or lump it.
I support free market with a conscience.
MH,
The demand is certainly not in the Midlands, even less so further north.
Downsizing to release properties for families is a myth. It is just a marketing ploy by the likes of all the main players.
The Government – well – enough said, just marketing again.
Only a handful of people with young families can afford to buy these properties that are left by the so called “downsizers”
So, an elderly couple downsize to a M & S apartment, cost £300,000.00 in Kenilworth, Warwickshire.
So the property they left (if downsizing) was sold for £350,000.00 minimum.
So what young couple can afford to buy that property @ £350,000.00.
Why only quote affluent areas – the whole country deserves to have a roof over their head.
Houses for our current young generation, and the next generation need to be at prices they can afford, which are certainly not the “downsizers” house
I do find it somewhat surprising myself that Stephen should choose to start his argument that a deal is “there for all to see at the outset” with the phrase: “a flat that is let for 99 years…”
If long leasehold is indeed a deal that is ‘there for all to see at the outset’, how come I never see long leaseholds advertised “To Let”?
The scandal of UK residential long leasehold is the clever and deliberate binary definition of land tenure to landlord or tenant.
Legal terms are not immutable laws of the universe. Humans write law and decide the terms applied.
Given that long leases are not advertised or sold as “To Let”, we might reasonably ask our modern lawmakers how the deal is “there for all to see at the outset”.
One aspect of the successful campaign to expose the leasehold scandal that has always annoyed me is the partial success of having leasehold title called ‘mere tenancies’ while achieving no change in the sales process.
It is akin to lawmakers deciding that humanity may only be defined as male or female gender. Or that an animal must be termed either a cow or a moose. You may snigger, but it is the same legal principle: Arbitrary definition.
We are forced to define long leasehold either as landlord or tenant. The law chooses tenant. Hence Stephen readily chooses ‘let’ which is misleading to the facts of the transaction if not the legal definition of it.
A flat that is “Let” passes on no registered title or chargeable asset to the ‘buyer’. There is no transfer of land obligations or repair obligations. The landlord owns and retains the value of the property and can gift or sell or mortgage it without consent of the sitting tenant.
I invite Stephen to try to gift, mortgage or sell someone else’s leasehold title even should he be the freeholder.
Self evidently the facts do not equate to the legal definition available and used.
The ‘deal’ therefore is not ‘there for all to see at the outset’. Far from it. The reason is that the legal definition is deliberately at variance to the reality. Sleight of hand. Far from clear.
Long leasehold (99 or plus years) in fact is the sale and purchase of registered land title for a defined period.
The buyer in fact owns a chargeable asset for the defined period. For as long as they remain the legitimate registered title holder for the term of the long lease, nobody else can transfer, sell or mortgage the value of that land title.
The long leaseholder is therefore an owner of land title.
The campaign that argues otherwise is falling down a trap that does no service at all to leasehold rights relative to freeholder rights.
Bad law starts with misleading terminology.
For any reforms to have real impact, Parliament must come up with a new and distinct definition of long leasehold to record in housing acts.
In fact, a long leasehold title is nearer to the usual interpretation of a ‘landlord’ than a ‘tenant’, except for a time limited status.
The root of the scandal of UK residential long leasehold is the cynical and clever limitation of legal terminology in English law. I wonder who came up with the binary option?
OH yes, that would be ye olde English landowners who predominantly made ye olde English land laws, no?
THANK YOU, well said.
Stephen seems to claim we were aware of what we were getting ourselves into. (How many morons will keep on repeating these worn our clauses?) The problem is that flats are sold as leasehold BY DEFAULT ONLY, sold by solicitors and developers as NORMAL- without being able to choose. The buyer has no choice!!! That then is used as a means for developers and landlords of “driving the tenant to the ground” by punitive costs.
Those who keep perpetuating the leasehold as a solution want to defy the fact that in 20-30 years there will be people on the streets evicted from their (CORRECTION: NOT THEIR) property because they will simply not be able to afford living in them.
Stephen needs to educate himself about what went wrong – the fact that we had doubling ground rent clauses were not disclosed (as were our lease terms) UNTIL WE PAID IN A DEPOSIT. Not only that, when you look at the terms and conditions that doubling of ground rent was often hidden as a completely separate clause. When you asked a solicitor to explain – “Ah, ignore that, it’s standard in the UK”. Only in recent 2-3 years thousands of us only realized that ground rents double every 10 years, not 130 or 99, or lease review. If it’s a racket, it is a racket.
If I would have been given the option to pay more for my flat to avoid being as a leasehold tenant I would have gladly done so, I would have taken that into my calculations, for example instead of paying £90 000 I would gladly pay £130 000, if I had the choice. But I didn’t have that, did I?
https://www.groundrentsales.co.uk/index.html
Leasehold seems to be a nice vehicle for speculators. Is that what landlords are trying to defend or protect? It seems houses and flats are no longer meant for living.
I have just posted above that rents need to be valued and the NPV of the rent clearly shown – that is what should have happened and had it been done as I have suggested then you would not have been misold
If I was to accuse you of being a moron (so easy behind a keyboard surrounded in anonymity ) for signing up to something you did not understand you,and I am sure almost everyone else would be rightly offended . I have tried to put forward an idea to help so we can have a discussion on it merits . Your plight is not helped one bit by childish name calling . The government seems to feel that ground rents on retirement blocks may continue going forward and support for ideas needs to be forthcoming so we avoid the pitfalls which you appear to have been a victim of.
To be fair, Stephen is not a moron, in fact he is far from being a moron – my impression is that he is intelligent and well educated. Stephen’s problem is his lack of morals. He will of course be able to defend himself against that accusation, his moral deficit allows him to be creative when debating, there are no constraints.
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The likes of Stephen work for fleecehold companies wrecking families due to their lack of morals since they hide behind the same argument he so eloquently expressed here because he is part and part of those who profit from our nightmare. I read the small print yet I am being robbed of my home. Absolutely shameless. Please get another career.
“It was there for all to see at the outset and the purchaser being advised by professional valuers and solicitors.” That’s not really true though is it? Regardless of the quality of the advice you got while deciding to buy a property or not there are some very important things you could never know until you tried to extend your lease. Each of these things have huge implications on the premium you would pay.
For example, cap rates. If you bought a leasehold property two years ago you could expect the cap rate to be agreed at between 5.5%-6.5% with no sweat. You would have no idea that two years later freeholders would be trying to argue a cap rate of 2.3%
You have no idea what relativity your freehold is going to insist on, are they going to try and insist on Savills’ 2017 graph? Are they going to argue ‘real world evidence’ the most recent being the strongest evidence and therefore a leasehold could have no prior knowledge of?
What ‘Act rights reduction’ is the freeholder going to try and argue? Will you have to go to Tribunal and spends thousands to try and save thousands?
It is impossible to ‘see at the outset’ this information and you well know it Stephen. You are using the same tired old arguments used by freeholders for centuries. The only thing I am unsure about is why you waste your time making these argument on our site?
Your site is frequented in many cases, I suspect, by those who feel deeply aggrieved and whatever I say will not change their view
However, your site boasts that it is about “knowledge” and in order to defend your position you must know and understand what others may be thinking. Because inevitable as you argue your case and lobby others the observations I have made will, I am sure, be made by others and you need to have answers to them.
If an algorithm is set up with prescribed variables, then lessees will be much better positioned to know what they are letting themselves into. If the NPV is also clearly stated next to the premium then the lessee will clearly know what they are committing to. The issues faced by lessees with pernicious ground rents is so similar to consumers who signed up to loan agreements prior to the Consumer Credit Act 1974 . Modest monthly payments hiding hugh interest rates.
You hold very strong views about lease extension done outside of the Act and I feel that such deals should only be offered by those governed by the consumer credit act as in effect the lessee is entering into a loan in return for a discount off the statutory premium.