It should come as not surprise that those earning their living from the leasehold sector look to defend the status quo in their replies to the government consultation on “Tackling unfair practises in the leasehold market”. However, when forced to accept that the worst excesses do in fact exist, many now point the finger of blame at someone else.
Last year, the lenders started taking action to stop the lending on the worst sorts of lease terms. They had no choice. They knew a new group of potentially toxic assets were being created with 10-year doubling ground rents.
The rest of the sector had known what was going on for over a decade, but chose to stay silent. Now, suddenly, they all agree that these onerous lease terms must be stopped!
There have been many submissions to the consultation from those who assert their expertise in various aspects of the leasehold world. Many of these “experts” warn that the government needs to consider the “unintended consequences” of any change. Each submission seems more than happy to acknowledge the fault in others, but none suggests their particular part of the sector is to blame.
We will cover a number of the submissions in another article. This piece looks at the view from the perspective of an employee of Allsop’s, a well known company in the leasehold sector. The author is Paul Winstanley who works as a surveyor valuer in this well know firm of property consultants and auctioneers.
As background, readers might remember it was a representative of Allsop’s, Gary Murphy, who stood on the platform provided by the Leasehold Advisory Service in 2010 and explained how buying ground rent reversions was a wonderful investment opportunity for landlords.
In addition to the ground rent incomes, he explained, landlords could charge for their time; they could control the management of the building; and they could make up to a 100% commission on building insurance, thereby doubling its cost to the leaseholders.
He also explained that the law did not require that landlords disclose these commissions to their leaseholders. Mr Murphy is also vice chair of the RICS auctioneering group.
LKP welcomes privatisation of the Leasehold Advisory Service, but why wait until 2020?
This kind of talk in 2010 might have been seen as inappropriate, even in a sector trade event. But this was no trade meeting. The talk was given at the annual conference (at £364 per ticket) organised by the government-funded Leasehold Advisory Service.
This was in the days when LEASE was fully funded by the government, but long before they were instructed by housing minister Gavin Barwell last year to be “firmly on the side of the leaseholder”.
Some may ask why a govenment-funded service should be helping to promote such a questionable practice.
The Leasehold Knowledge Partnership was the only organisation to question this conduct, while others including the Master of the Roles and the government’s own leasehold officials looked the other way. We were told simply that neither the Leasehold Advisory Service nor the government were responsible for what speakers say at the events run by LEASE.
Now it emerges that Allsop’s employee Paul Winstanley has produced this article in response to the government consultation “Tackling unfair practises in the leasehold market”.
Be careful what you wish for: the unintended consequences of political intervention in the ground rent market – The Property Chronicle
I, like most people, detest seeing people get ripped off, especially so in the residential property industry. While I am proud to be part of an industry who, through organisations such as the BPF and ULI, genuinely wants to raise standards, promote best practice and help solve our nation’s housing crisis, the market is, admittedly, far from perfect.
The tone purports to be dispassionate and professional, but the article should be seen as written by someone whose livelihood depends on advising about the income streams available in the leasehold sector. Mr Winstanley is described on the Allsop’s web site as a “highly regarded analyst” and a “recognised authority in the UK on the valuation of residential properties subject to tenancies”, aka the leasehold sector.
He advises on ground rents and the financial instruments linked to residential assets i.e. the buying, selling and financing of ground rent assets. His article appears here:
The Leasehold Knowledge Partnership offers the following analysis of his article:
This terms is now used, and seems to have come from usage in the US. Mr Winstanley actually means both houses and flats in terms of the issues mentioned in the article. These “apartment owners” are, according to Mr Winstanley, supposedly benefiting from the fact that institutional investors with a “reputational risk to manage” are now big players in the ground rent market.
He does not name these investors who are supposedly so concerned about their reputational image. To the best of our knowledge, none of the larger institutional investors felt their moral compass should dissuade them from buying into the market. Nor did they say no to the doubling ground rent leases that the government now deems to be unfair.
The one caveat Mr Winstanley offers is that, somehow, the ground rents, including those sold by Allsop’s in their auctions over many years, should now be “reasonable”. The definition of reasonable appears to be that they follow an RPI rather than a doubling formula.
Mr Winstanley is also pleased to refer to what he asserts is the benefit to the leaseholder of a “discount” between rent reviews.
By this he means that, in the intervening years between reviews, there is no increase in ground rent.
What he does not mention is why he continues to use the misleading term “owner”, even though he will be well aware that under the law leaseholders are tenants.
Tenants who must seek permission from the landlord to do many things in their own home. He will also be well aware that one of the additional income streams available to landlords is the ability in some leases to charge for even making a request for permission.
The article fails to make clear that RPI leases and a range of other lease clauses can also be unfair and onerous.
It fails to mention that the starting rates of ground rents have now risen well beyond those which the market deemed fair some years ago, and they continue to increase despite falling rates of inflation.
Mr Winstanley promotes the sector’s long-held argument that somehow ground rents are needed to make an ever-growing proportion of new development viable.
He offers no evidence for this claim.
Statements made to the All Party Parliamentary Group on leasehold reform by some dcontradict Mr Winstanley’s argument. The CEO of the developer Gleeson Homes dismissed the ground rent income stream argument saying: “anyone who says they need ground rents to make a site viable should not be building homes”.
Gleeson Homes has one of the lowest average sales prices per unit. it doesn’t feel it needs to make any money from ground rent sales. The Berkeley Group on the other hand probably have the highest sales price per unit of any of the larger developers. However, on top of this, they it makes millions by selling on ground rents (8 per cent of revenues).
Mr Winstanley suggests that the need for ground rents is particularly justified both in the north of England and, in the last 10 years, almost anywhere outside London and the South East. He offers no evidence to support this.
The claim does not stack up. The Berkeley Group build mostly in London. Gleeson build mostly in the north of England. Mr Winstanley also fails to address the Land Registry data in the APPG report that show leasehold houses are often sold at higher prices, rather than at a discount, in areas where leasehold houses are “popular” with developers.
Mr Winstanley fails to consider the possibility that ground rent sales have been nothing more than an opportunity for developers to add to their profit margins. Not all developers have gone down this route, but those who have will inevitably welcome the Allsop’s view of the world.
But even should all of Mr Winstanley’s arguments hold true, he still needs to explain why is it that the rest of the world does not need these additional income streams to make house building viable.
Mr Winstanley attributes recent changes in the market to a set of acronyms, CIL, DSLT (he means SDLT?) , s106, etc.
He fails to mention that s106 has been around since 1990, long before the ground rent business exploded, and that the CIL (Community Infrastructure Levy) replaces large parts of the s106 rather than simply adding to it.
That leaves SDLT (Stamp Duty Land Tax) that came into force in 2003, long after ground rents had started to rise.
Mr Winstanley explains that landowners, who have seen downward pressures in the price they can obtain for selling their land to developers, are put in a marginally better position because of the existence of ground rents.
This marginal benefit somehow results in more landowners wanting to sell their land, which then allows more houses to be built, he asserts.
The housing market
In this final point, Mr Winstanley reaches the denouement of this carefully constructed, “dispassionate”, and supposedly objective argument.
It is apparently not good that we criticise developers and landlords for wanting to make a profit. We need to keep all parties motivated appropriately to keep the wheels turning, he suggests.
This is a ridiculous assertion. Nobody is suggesting that developers should not be allowed to make a profit. This seems nothing more than a self-serving homily.
Mr Winstanley concludes
“The role of a freeholder is to act as custodian over a block and its communal space (or housing estate with communal land or facilities), a role that is vital in my mind for collective long leaseholder enjoyment. This level of responsibility should not be underestimated and does, in my opinion, justify the existence of a ground rent payment to a reasonable upper limit.”
This is the sort of questionable logic that has been used for decades.
That the long leaseholder’s “enjoyment” is somehow gained from this third party freeholder profiting from him is a fiction.
In reality, the freeholder has no interest in the quality of the building until the end of the lease.
Since this lease may well be for 999 years, the freeholder’s interest for the vast bulk of this period is limited to the income streams that the law allows him to collect. Other countries have long disposed of this need for a third party “custodian” who controls the site with little or no regulation, and minimal financial investment.
Mr Winstanley then tells us clearly, there is a balance to be struck. He tells us he knows how hard the govenment have worked on their task. He explains we must all now work together to remove the weeds and let the flowers grow. He ends this crescendo of clichés and similes with the plea that our custodians of the leasehold tenants must continue to be allowed to be compensated fairly.
It is a pity that Mr Winstanley and the sector did not feel the need to mention the weeds publicly until they had already been exposed by LKP, and after the govenment had felt the need to crackdown on unfair terms in its consultation. It is a pity he only feels the need to identify the weeds already known to the government rather than point to the wide range of dubious flora and fauna in the leasehold garden.
Mr Winstanley poses the question: “Asking anyone to take this role for free is, in my view, unviable.”
That of course assumes that we continue to accept that England and Wales should remain unique in accepting that we somehow need a third party “custodian” of freeholds. Why should a site not pass to the people who own the properties (sorry leases) at the site, i.e. the ones who own 99% of the investment?
Why should those who live in these properties be beholden to a third party who is only looking to make a profit out of someone else’s home? Why should they be beholden to someone who can trade this as a financial instrument?
History makes more than clear that, while we have a few freeholders who take an ethical view, many more follow their fiduciary duty to their investors to maximise their income from the leaseholders. Many of these freeholders are based off shore, adding to the loss of income to the state.
The country would save a fortune if we didn’t have to spend so much on the surveyors, the lawyers, the auctioneers and others who make their money from the additional income streams available from the leasehold golden goose, which requires that the only person facing a diminishing asset is the person who invests the most.
With Allsop’s business earning some of its income from the ground rent market, it is perhaps unsurprising that they would produce this apologia.
The more observant readers will note a number of claims by Mr Winstanley mirror the words of other surveyors, including Savills employee and the chairman of the Leasehold Advisory Service Roger Southam. In his “chairman’s statement”, which was then rapidly removed from the LEASE web site he claimed:
“The elephant is the investment sale of ground rent provides additional income for the developer to make schemes viable in a lot of cases. There is rhetoric of profiteering and finger pointing but somewhere along the way we need to have an objective conversation about the whole development cycle and how it works in all facets to ensure that the right decisions are being made for the right reasons.”
Mr Winstanley may claim to be dispassionate, and Mr Southam objective, but others may reach an equally objective and dispassionate view that their opinion is nothing more than a self-serving justification of the industry that feeds them.
We have reported previously on the LKP website that both Savills and Allsop’s have promoted the benefits of buying into the ground rent market, in a less than dispassionate and objective way. Savills have pointed out how ground rents are an “attractive” investment, while Allsop’s say that it is an “oldie but a goodie”.
Savills and Allsops: Why ground rents from people’s home are just so ‘attractive’
At some point someone in government should understand why the sector has allowed so much spurious data, so much misinformation and so much obfuscation to remain for so long. With all the claimed expertise there must have been a very good reason why nobody wanted anyone to know about the size, the structure and the abuses within the sector.
Maybe one day leaseholders will stop being replicated, and then they will no longer need to be the electric sheep that feed our dystopian leasehold world.
Government is a part of the problem.
Why have there been so many reforms of leasehold and never abolition?
Government has been, and continues to be, the great enabler.
Government is part of the conspiracy against ordinary home buyers – I do not use the words “government is part of the conspiracy” lightly, nor do I use it with insider knowledge. But consider it a fair street wise observation.
It is very apparent that the judiciary is also a part of the conspiracy, Sir Terence Etherton’s contribution is proof of that.
Someone here quoted Shaw, “The professions are a conspiracy against the laity”. Leasehold is no finer example.
I have to agree that Parliament has been the backstop for the English leasehold scandal lasting this long. The evidence is pretty clear.
Here are just some of the bewildering Acts passed to date that have not fixed the broken system (now that takes some effort to achieve, no?):
Law of Property Act 1925
Landlord and Tenant Act 1927
Housing Act 1936
Landlord and Tenant Act 1954
Housing Act 1957
Rent Act 1965
Leasehold Reform Act 1967
Housing Act 1974
Protection from Eviction Act 1977
Rentcharges Act 1977
Housing Act 1980
Building Act 1984
Housing Act 1985
L&T Act 1985
L&T Act 1987
Housing Act 1988
Local Government and Housing Act 1989
Leasehold Reform Housing and Urban Development Act 1993
Landlord and Tenant (Covenants) Act 1995
Housing act 1996
Commonhold and Leasehold Reform Act 2002
Housing Act 2004
Regulatory Reform (Fire Safety) Order 2005
Housing and Planning Act 2016
and these wider related Acts (ignoring health and such like)…
Administration of Estates Act 1925
Land Registration Act 1925
Law of Property Act 1925
Settled Land Act 1925
Law of Property Act 1927
Town and Country Planning Act 1932
Perpetuities and Accumulations Act 1964
Access to Neighbouring Land Act 1992
Trusts of Land and Appointment of Trustees Act 1996
Protection from Harassment Act 1997
Contracts (Rights of Third Parties) Act 1999
Land Registration Act 2002
Regulatory Reform (Fire Safety) Order 2005
Legislative and Regulatory Reform Act 2006
Perpetuities and Accumulations Act 2009
Academics were declaring leasehold a dying industry in the early 1970s and meanwhile the Law Commission beavered stoically suggesting reform.
There has of course been reform along the way. But study it all carefully and you find it was either wrapped up in cynical hurdles or offered yet more fleecing opportunities and get-out-of-jail-free passes.
The constant influence seems clear: English feudal land law. The landlord is Lord and peasants need controlling. No matter that in leasehold the landlord is actually an investor and has no interest in the premises other than as an earner.
Almost all legal rights are rendered meaningless because either (a) there is no effective prosecuting authority and successive governments have known this, or (b) access to law is a catch 22 what with contract legal costs and biased tribunals run by the same industry.
There is no statutory code even now, despite detailed reform suggestions going back decades.
The historical reason for leasehold was the land obligation conundrum. It is interesting that the CLRA 2002 introduced commonhold allegedly to overcome this but made commonhold unworkable. I personally do not hold to the theory that politicians do not know what they are doing. If they can debate, amend and pass a virtually useless Act, this takes care and attention to detail.
There is no valid excuse for leasehold and the only real ‘obstacle’ is the indignant claim of expropriation of land rights. Problem is, even this is not a hurdle when somebody notices the minimal ratio of investment by these so-called land owners versus their ‘tenants’ investment. This turns language on its head, but nobody blushes at the sham terminology.
If English tenure law had remained as at the First World War it might at least have been honest. Few people were landowners and the bulk of the peasants were merely tenants. Residential leasehold took off for one reason, to make more profit faster and con the plebs that they were becoming ‘owners’.
If the ‘Tyneside leases’ could all be 999 years from Victorian times, why did no government insist that 99 year leases or 125 year leases could not be allowed to evolve? Who decided on marriage value and the 80 year trigger for ‘short leases’ that need extending? All clever. None of it accidental.
Once you study it I’m afraid you must notice its no accident leasehold has grown ever greater on these shores rather than eroded.
It is a disgrace the ground rents are promoted – using tax payers money- as a legitimate and desirable form of investment. ‘Let’s celebrate the wealth creators and the innovators ‘ the conservatives said. This is wealth creation for the few and innovation in fleecing the many who are trying to buy a home.
And as for the claim that the freeholder has the onerous responsibility of looking after the building, please everyone look around London. (or contact me and I will show you) With the exception of some well cared for buildings, (like for instance the Wellcome Trust,) the majority of freeholders run places to the ground. What do they care? They don’t have to live there and their leaseholders will have to pay Or loose their asset.
This was certainly true of our building before we acquired the right to manage. Our freeholder appointed a management company he controlled and then proceeded to ramp up the service charges meanwhile letting the building go to rack and ruin. After we took over the right to manage we had a legacy of neglect and mismanagement to address that necessitated significantly service charges.
Our landlord retains ownership of the building but now has no economic interest in enforcing compliance with the leases. He is never going to get involved if, e.g., a tenant is creating a noise problem. His sole interest is and always has been exploitation of the freehold by monetisation, and that includes borrowing against it far more than the warranted by the ground rent income stream in order to repeat the racket elsewhere.
He calls it financial engineering. Creating debts whose interest is paid by others. Heads leaseholders lose, tails the banks lose.
What’s not to like about that if you can get away with it? It’s Madoff-like in its audacity (amusingly Mr Madoff took him for a few million, but as with the monies he donated to the Conservative party, it all came from leaseholders). Even now we continue to see Mr Norman Lamont, Lord and former chancellor, opining on various matters of policy rather than, say, answering any questions as to what advice he provided our freeholder for £1,000/day (leaseholder’s money again, or the bank’s, to be repaid by leaseholders).
The political system that supports this is rotten to the core. Neither political party even gave leasehold so much as a mention in their party conferences.
As Mr Lamont can confirm, that which is unsustainable tends, in the end, to be unsustained. How much cheaper it would be for everyone to have avoided attempting to do so.
Lamont, not a lawyer to my knowledge, but advised your freeholder – very odd.
Absolutely correct, it is the political system – all parties, parliament and government – responsible and is rotten to the core.
Paul joseph may I say I love your post.,
I believe that Freeholders will be experiencing a Harvey Weinstein moment before too long. You can only get away with S#a^ t*ng folks for so long.
May I say that I believe the aforementioned person to be a man of Olympian handsomeness who is in all probability a fantastic father and husband.who is also a ‘feminist ‘ and gives lots of moola to ‘good causes particularly Laydees issues. Yay!!!
100% insurance commission – is that right!!!!!!!!
Yes. In insurance speak a 50% commision is 50% or the total premium paid. That’s what the rest of the world would call a 100% markup. .
My venal Managing Agent charged us for ‘ Terrorism Insurance’ which cost us collectively ( 7flats) an extra 700pa. NOT Kings ransom I’ll,agree however – we didn’t receive the cover!! These crooked agents collude with crooked brokers. It is commonplace.
STRICT REGUKATION FOR MANAGING AGENTS REQUIRED- NOW
That is incorrect –
The insurance industry expresses the commission as a percentage of the premium after deducting IPT (insurance premium tax which is currently 12%)
The highest commissions in the insurance industry are paid on travel insurance and some Warrener insurance
Insurance brokered by solicitors to deal with problems with title can be as 50%
Which bit is incorrect Stephen?
The insurance industry may decide to talk about commission as a percentage of the premium i,e a 50% commission in a £100 total premium means £50 but to the rest of the world something which costs £50 and is sold for £100 is called 100% markup.
We then have IPT to deal which is added to the gross premium so that would make our total cost £112.
The FCA made clear in its 2014 report that 40% commission (i.e 40% of the total premium before tax) was common in leasehold policies for what is deemed a relatively simple product.
Somehow this seemed a little odd given RICS claimed large commissions a historic problem in their 2010 report. With one surveyor tribunal member claiming there was often no evidence of overcharging
The FSA were never very happy when we exposed the fact they falsified their report into leasehold commissions in a report produced in 2005. They did not like the word falsified for some reason. But since someone fabricated the submissions from ARMA and the FPRA to say they both thought there were no problems with commissions I’m not sure what other word to us.
If were digging a bit deeper into the murky world of insurance was all have to look at the more obscure commissions. Soft commissions and contingent commissions. Looking further still on some of the large covers we have to remember off shoring.. That the naughty game where money somehow goes overseas for no apparent reason what so ever.
Insurance commissions of up to 50% (that have no need to be declared to leaseholders) are not the only way a freeholder/managing agent can profit from insuring a development. So an unscrupulous freeholder/managing agent can combine their property portfolios under one insurance policy thereby obtaining a bulk discount but not passing on the full amount of the discount
Anyone.remember the Peverel 500 scandal?
Another scam is to over-insure a development.
By doing this premiums are increased, but the insurer knows that the amount of the insured value is not at risk so is pure extra unwarranted profit (for which “incentives can be offered).
Yet another earner for freeholders/managing agents is if they can reduce insurance claims by volume or by amount.
They can do this by denying legitimate claims before even the insurer is given the opportunity to decide or they can individualise the claim so that each part of a legitimate claim falls just below the excess value.This has the beneficial effect to freeholders/managing agents of passing the costs of what should have been an insurance claim to the service charge development account.
And if that was not enough certain freeholders/managing agents have been known to accept(shall we say contributions to administrative expenses?) from insurance company agents in return for awarding a contract to insure a development.
And if that was still not enough some freeholders/managing agents have been known to have set up an insurance brokerage division (who do just enough work to keep legal whilst using a main broker as well) and manage to charge a “Kingsborough” ransom for said services.
It suggests Stephen does not know what is happening out here in the real world or misunderstands the related post.
I have experience of the Ins “Mark up” from both sides of the fence and have written concrete examples of it.
Simple example Stephen, Insurance company advise managing agent that the Building Ins is £2k for this next year.
Managing Agent will charge the residents/Service Charge account what they like and I have seen £2k premiums marked up by MAs to over £3k to the residents.
Likewise I have seen decent MAs charge what they themselves have paid, which is the correct thing to do.
It is the correct thing to do because that is what they are supposed to be doing – managing properly. They charge an admin fee to cover ALL the managing and that should be the end of it, not more profit on profit.
Some MAs are even known to mark up gas and electricity charges, but of course, that IS actually illegal. I have caught 2 out already, plus they charged 20% vat instead of 5%, idiots
Michael E is quite correct
I was rather amused by a tribunal hearing concerning an appeal by residents over the amount of water charges that had been levied?
The development manager (who worked for Peverel/Firstport) explained to the judge that she “took a regular reading from the development water meter and passed those readings to Peverel/Firstport who then prepared a bill for the development”
“Just one question?” asked the Judge
“Could you tell me where in the development the water meter is situated?”
“I can’t quite remember” came the reply from the development manager.
“So you don’t actually know where the water meter is situated despite telling this tribunal you took regular readings from it?”
“I must have forgotten where it is”
The residents were refunded their water charges!
It is an odd thing these VAT charges for the supply of electricity.
To be clear, electricity supplied for domestic use is charged at 5% VAT. All common areas for developments/blocks of flats are domestic supplies. VAT of 20% is chargeable for commercial use.
All a managing agent has to do is fill out a form to certify to the energy supplier that the supply is for domestic use and that supplier will levy a 5% rate (and of course only pass on 5% VAT to the taxman).
So how can it be that some Firstport developments have been charged at the wrong rate of 20%? Could it be that because Firstport are the actual customer and they are a commercial entity VAT has to be charged at 20%?
That would mean that they are re-selling the electricity without residents being aware that that is happening?
I have asked Firstport if the invoices. We receive from EDF are actually made out by EDF themselves or by Firstport using EDF headings?
Thus far NO REPLY!
Admin2, a question: You mention the Master of the Rolls again, in relation to the workings of the Leasehold Advisory Service. You say that “The Master of the Roles . . looked the other way”. Was there an actual connection that you encountered, or do you just mean that he is part of the Establishment?
David: Conspiracy? Far-fetched at first sight, but yes, it does look that way.
What struck me in working through my case was how every authority involved either had a legal point to make or a lawyer actually in charge, arguing spuriously why they could not intervene. (Council, LGO, Land Registry, SRA, Trading Standards and others).
The other common denominator in some of those was the civil service staff union UNISON, again with its lawyers permeating other bodies, tending to make everything defensive, rather than actually problem-solving as I was trying to do. (The buildings all the while not being repaired or insured).
‘We are not here to help people like you, who have money’ the dear lady from the Ombudsman service told me on the phone. ‘You own property’ she explained. ‘Leases are a matter for a court, and you can help yourself’. So why hold out the LGO as part of the Complaints Process in the first place, wasting 16 months of my time? Holding out a false complaints process is an offence in itself, for property management services! (Consumer Protection Regulations 2008).
Conspiracy of Silence is another factor. We know our own financial dilemma with leasehold. But it is not just us. When I tried to hire a specialist surveyor-valuer, he said he could not work for me, because the bulk of his work came from the local authority lessor.
Then there is the Conspiracy of Ignorance: Everyone gets a degree nowadays, but I happen to know that legal education standards are abysmal. Combined with the tendency for lawyers generally to be employed by lessors rather than lessees, it becomes difficult to work out if so many lawyers can possibly be that dishonest, or if they are thick, or if they genuinely have been so badly taught that they believe the same kind of bollocks that laymen keep writing on this and other websites. (That leases are ‘feudal’ and so forth).
[ If you understand the thing properly or have some experience as a landlord, you know that landlords are only ‘in charge’ so far as economics make things APPEAR that way. A monied, determined or unscrupulous tenant can run rings round his landlord, or indeed his fellow ‘shared’ freeholders if he wants to. Abuses happen both ways. There are many small freeholders that are NOT speculators, often with their houses only divided in two. ]
Some lawyers, to their credit, have let it be known through the Law Gazette, that they were often ordered to work unlawfully, on pain of losing their jobs if they did not comply. (How many of us have faced similar problems, with bosses in our youth, in all kinds of employment? We know how it happens).
I had a self-styled ‘Land Law expert’ solicitor give me a second opinion. She is or was Secretary to an Estate Agents association in a sizable English city. She wrote me a load of landlord-sided rubbish, contrary to straightforward law I had already researched with my first solicitor and checked. Expert my ass!
We can see how Grenfell Tower happened in spite of prior warnings and campaigning.
Lawyers control so much of our lives, indirectly and unaccountably. In my view, self-regulation is not working as it should. Do we really have to wait for prior prosecutions, as seems the case at present, before senior miscreants can be disciplined? There is no current prospect of prosecutions taking place. Lease cases are generally too complex to attract enough public outcry.
Sussex Lessee, I could relate so many personal anecdotes (relating to authority) from my own life experiences that would make it clear why I despise every form of authority, particularly the legal form. Your description of conversation with lady from ombudsman service surprises me not, all of the quangos are the exact same.
They are in no particular order, useless, self serving, prejudiced towards one side (and that one side is not you or I), beyond belief, and transparently, stupid.
Conspiracy, Do I believe government and MP’s and professionals and freeholders, all get together and have regular meetings with a secretary, and minutes taken, to conspire against home buyers? Of course not, there is lobbying, there is even bribing (how about paid for consultants), there are understandings and awareness of a common interest.
There is a conspiracy at all levels to maintain the morally criminal and morally repugnant system of leasehold
As with no-hope Feasibility Studies and the like.
With the risk of sounding paranoid I have to agree.
My own experience with FTT was that the judge would have done anything, to find fault with our case and pretend that the freeholder, ( who never showed up, or showed any signs of life for that matter) had his rights somehow threatened by my unreasonable request to remove the dodgy management ( which never kept accounts, ignored major leaks, roof problems, window problems, illegal alterations, violent tenants – To highlight some of the problems we had to face.) the judge tried to ask leading questions such as ..” ..but you were happy with the previous manager yes?” No I wasn’t happy, they had no accounts either. But is so much easier to pretend that the problems were miraculously sorted and we need not do anything about them.
Don’t forget the judge also writes the case, there is no recording or independent minutes being taken. So… easy to manipulate or omit facts. Sadly I have no more faith in the legal system, where leasehold is concerned. .. and when this happens what outlet do we have left?
Chief Whip( self appointed here) Almost 3,000’signs for the Abolish Leasehold / Regulate Manging Agents Petition. We are on Twitter and have a face book posse..
Share with family and friends. We want min 5.000 by Wednesday of this week.
APATHY IS A CRIME!!
Sussex lessee … “Bollocks” – “That leases are feudal and so forth”
Bollocks? A reasoned argument? Let’s consider the counter factual to ‘bollocks’…
Fact 1. Governments have described leasehold as feudal. See 1998 consultation paper on reform.
Fact 2. Origins and influences on present English land tenure laws and by definition of leasehold tenure. The absence of feudal land reform forced need of a landlord and tenant contract for the transfer of horizontally divided dwellings. You couldn’t have leasehold without feudal concepts of landlords and tenants
English land law is SO feudal, a 1290 (not 1920!) Act “Quia Emptores” concerning the Selling and Buying of Land is still on the statute books:-
“FORASMUCH as Purchasers of Lands and T enements of the Fees of great men and other Lords, have many times heretofore entered into their Fees, to the prejudice
of the Lords, to whom the Freeholders of such great men have sold their Lands and Tenements to be holden in Fee of their Feoffors, and not of the Chief Lords of the Fees, whereby the same Chief Lords have many times lost their Escheats, Marriages, and Wardships of Lands and Tenements belonging to their Fees; which thing seemed very hard and extream unto those Lords and other great men, and moreover in this case manifest Disheritance…” blah blah.
Quia Emptores happened in 1290 coz ye olde English law was worried about feudal lords being deprived of their rights to the land without their consent. They presumably still are,
Feudal law or what?
Fact 3. Tenure: the relationship under which a tenant would hold land from his lord. The legal concept of ‘holding land’ rather than owning it, and of tenure remain today and leases = tenancies.
Fact 4. Wilberforce Report 1965 (merely one example):
“It might therefore seem as if a leasehold structure would afford a remedy where it is desirable for the burden of positive covenants to bind successors in title of the covenantor. Leases of residential premises have long been favoured in this country for that reason. …”
“A long lease is a wasting asset: the investment in the tenant’s home steadily loses value as the lease approaches the end of its term.”
“The interest of the tenant under a long lease often conflicts with that of his landlord: many leaseholders experience serious difficulties with their landlords,ranging from neglect of their obligations under the lease to outright exploitation.”
“The defaulting tenant under a lease will usually be subject to the draconian penalty of forfeiture which, if deployed successfully, will destroy the value of his interest disproportionately to the default in question.”
Forfeiture = Feudal law or what?
Fact 5. Under the English legal system, the monarch as head of state, owns the superior interest in all land in England, Wales and Northern Ireland – even freehold land is not
owned outright, as the monarch has a superior interest.
If owners of land died without heirs, or the line of heirs end, the fee simple estate ended and the land would ‘escheat’ to the ***feudal lord***. Gone forever and nobody called me mother.
Escheat for want of heirs was abolished by the Administration of Estates Act 1925, which provided that instead of the feudal Lord grabbing the land, the Crown takes the property as Bona Vacantia. It still exists ready for a nice little earner again
Point is, leaseholders who invest 99% of value can lose the freehold from under their homes to the Crown and have to buy it back even though they very much remain as available “99% heirs”- even if the freeholder goes under.
“Escheat to the feudal lord” = Feudal or what?
The Law Commission described the law of escheat as “indefensible” and in need of “fundamental reform”. Good luck with that.
Enough facts for now… I might be back.
“Bollocks” is your opinion, not fact. To me the facts suggest that feudalism rules in residential leasehold. (leasing a car is a different kettle of fish)
Leases are indeed feudal. They can be nothing else.
In addition, leases are not neutral contracts. They are private and heavily one-sided contracts written by freeholders (or their lawyers) entirely for the benefit of ‘lessors’. The law that allegedly curtails their excesses is shown to be toothless.
As for ‘landlord’, that is entirely of feudal origin, except in leasehold the Lessor = Landlord is in reality a marginal investor who pays nothing further for ‘their’ property while gaining the right even to add units onto the top of buildings for which they’d merely paid for the reversionary interest (found so courts over complaints of RTM companies in situ). Not counting consent fees and extension premiums etc.
Residential leasehold perpetuates the feudal concept of peasant tenants despite in this case the tenants being the larger investor and paying all the costs.
Only a feudal system land law could come up with such a situation.
Sadly people are brainwashed by that to which they have always known. Limited counter references, innit.
Excellent post! We need to circulate it – very few people understand leasehold, therefore it is accepted, or endured.
Those who do understand it are quick to exploit it.
If parliament keeps on thinking that things are fine as they – all we need is a little bit of self regulation, I am going into business running fleecehold seminars for investor freeholders & landlords, who would like to ‘maximise their revenue. ‘ I can quarantee success.. would that make me a wealth creator and an innovator?
“Securities, dept packaging, investment portofolios” = “2008 crash”
This is what springs to my mind. You could call it financial engineering.
I cannot comment on law studies and I guess it could be that law students opt out of bits they find boring -such as feudal tenure origins, but luckily there is no law against lay people studying the history of law – even if perhaps unwise to try to stand it up against a barrister in a court.
Here is some background reading (textbooks there are by the dozen too)…
1965 Wilberforce Report – “Report of the Committee of Positive Covenants Affecting Land”, (Chairman Lord Wilberforce) (Cmnd 2719)
1967 Scarman Report – “Transfer Of Land – Report On Restrictive Covenants” (Land Com 11)
1972 Wade HWR’s ‘Covenants, A Broad and Reasonable View’ article
1982 James Report (RICS)
1984 Gibson Report – “Transfer of Land – The Law of Positive and Restrictive Covenants”, (Chairman Gibson J) (Law Com. No.127)
1984 Nugee Report – “Report of the Committee of Inquiry on the Management of Privately Owned Blocks of Flats”, (Chairman E. Nugee)
1984 BSA Report – “‘Leaseholds – Time for a Change’ BSA.
1987 Aldridge Report – “Commonhold, Freehold Flats, Report of a Working Group, (Chairman T Aldridge) (Law Com. No.179)
1998 Clarke D’s ‘Occupying ‘Cheek by Jowl’ article
2006 Law Commission “Renting Homes” Report and Draft Bill
2008 Law Commission Consultation Paper “Making Land Work Easements, Covenants and Profits à Prendre” (Consultation Paper No.186)
2011 Law Commission “Making Land Work Easements, Covenants and Profits à Prendre” (Lawcom 327)
Excellent post Paddy. And I thought Master Epsteins piece ‘Feudal Leases’ most reasoned and informative.. Leasehold must be abolished and all arguments against commonhold for flats are little more than pin pricks.
Sorry Paddy. I did not mean to offend you. I was thinking of the two main articles recently written on this website, with catchy headlines about feudal tenure.
I appreciate the depth of your research. I waded through it all myself for a couple of years, fascinated by the history.
But sometimes less is more:
Megarry and Wade: THE LAW OF REAL PROPERTY (8th ed. 2012)
TENURE AND OWNERSHIP TODAY
“There is only one feudal tenure left today, namely socage, now called freehold”
Perhaps of historical interest – talking ‘Pollocks’ – here is another text from 1899:
POLLOCK AND MAITAND, HISTORY OF ENGLISH LAW (2nd ed. 1899)
“The influence of business concepts in dealing with land is nowhere more evident than in the manner in which leases, which were formerly thought of as grants, have come to be considered simply formal contracts. The parties rather freely insert such clauses as they see fit, and the courts when called upon to interpret the terms of a lease seek to give effect to the intention of the parties. ‘The very words “landlord and tenant” stand as a monument to the feudal origin of this relation. Today we speak, properly, of “lessor and lessee”. From a relation that once determined a man’s social and political standing, a relation that assigned to him a court within which to seek protection for his rights, a relation that shaped his obligations of patriotism and loyalty, it has degenerated or developed into a purely contractual relation, differing from the most ordinary commercial relation only in one or two anomalous particulars.”
Forfeiture derives from the lease being fundamentally a rental contract. Possession reverts to the lessor on expiry or upon fundamental breach, as with most other types of lease, e.g. for a car.
– and I did stand up against a barrister in court. Court order, first day:
Sale of freehold declared void. Order for repairs and costs.
Buildings insurance re-commenced and Land Registry amended within days.
Not a bad day’s work, for a case predicted to go to the High Court. Months of preparation beforehand though.
Is it possible to have a link to the case send to me? Many thanks
Fleecehold, you are welcome to contact me privately via Sebastian or Martin.
Interesting comments: ‘The very words “landlord and tenant” stand as a monument to the feudal origin of this relation. Today we speak, properly of “lessor” and lessee”.’ That may have been true in 1899 but it is not so today.
Have a read of the Leasehold Reform … Act 1993 and see for yourself how the language of ‘landlord and tenant’ is alive and well. I have just extended my lease and objected to the language of ‘landlord’ in the new lease but had no success in trying to persuade the solicitors to change ‘landlord’ to ‘lessor’ even though the language of ‘lessor and lessee’ was used in the original lease! I had no choice but agree in view of time constraints even though I objected to it and I have since discovered that other extended leases within our development contain the same ‘landlord’ language.
The recent government consultation on ‘tackling unfair practices in the leasehold market’ described leasehold as ‘simply a long term tenancy providing the right to occupation and use for a long period of time’ (s.2.3). And the House of Commons briefing note on Leasehold and Commonhold Reform said the ‘owners of long leasehold properties do not necessarily appreciate that …they are in a landlord and tenant relationship with the freeholder’ (s.1). It seems therefore that the mindset of feudalism is alive and well in this country even if many of the lords are now investors in the freeholds of ground rent investment portfolios.
The comment about car leases is interesting. I have offen wondered: why is it that at the end of a car lease, ownership passes into the hands of the lessee whereas at the end of a lease for a flat or house ownership passes back into the hands of the freeholder/landlord? Why are both called leases? Why have leasehold properties not been advertised as ‘long-term tenancies’ thus ensuring transparency from the outset? It is my view that many leaseholders have been misled by how leasehold properties have been advertised and in my reply to the government consultation on ‘tacking unfair practices in the leasehold market’ I reminded them that the root cause of many of the difficulties suffered by leaseholders is to be found in the very nature of leasehold itself. And I suggested the government focus on two key questions and stay focused on them until the problem of leasehold is satisfactorily resolved:
(a) Is residential leasehold a fair, transparent and just system?
(b) Is it in the public interest?
I bet a consultation addressing those two questions would receive some very forthright and interesting replies. Perhaps LKP and the APPG may like to help the government and Parliament focus attention on these two questions if they have not done so already.
Yes, it is a mindset. But the thing is: not to defeat ourselves by believing our opponent’s tricks. Feudal tenure can be a self-defeating concept if we let it be. Shared parts of housing will always be around, however much success we have with ‘abolition’ of the current system.
Choice of strategy is best worked out with a good solicitor if you can find one. As Louie Burns (solicitor?) explains in his article on this website, there are several ploys that lessors can use, to steer you down their chosen path. The way forward, sometimes, is NOT to do what your opponent expects you to do.
Belief in the common myth of feudal tenure can steer you the wrong way if you do not find good advice. Whatever terminology is used, feudal obligations and tenures died out to all intents and purposes following the Black Death circa 1350. Feudal tenures were abolished for England and Wales in 1660.
With the language: My own impression is that Landlord/Tenant/Tenancy or Lessor/Lessee/Lease commonly now tend to indicate the LENGTH of the lease, thereby indicating which statutory arrangements and protections apply. Otherwise the terms are seen largely as interchangeable, neither set of words being entirely right or wrong, particularly when dealing with factors common to both kinds of agreement.
(I have leased business vehicles for over 20 years, and the lease company is never allowed to sell me the car at the end of the lease. ‘Balloon leases’ commonly offered to private buyers, are a form of Hire Purchase as far as I am aware. A ‘Personal Contract Plan’ is another option for private users, more equivalent to a business lease perhaps – but we are getting off subject!).
Although ‘Rent to Buy’ is a bit like Hire Purchase?
and entirely agree about the mis-selling aspect, between ‘renting out’ – selling a lease – while pretending to be selling the house itself.
Put this in my Consultation response:
Q5: What steps should the Government take to limit the sale of new build leasehold houses?
Only allow long leases to be sold (for good reason, e.g. for maintenance of communal areas) IF they come with a fair share of the freehold of the whole estate.
Ban subsequent non-consensual sales of freehold reversions, particularly to unknown or unsuitable parties.
Ensure that service charges have to be reasonable and proportionate, and ground rents only nominal if the property is being ‘sold’ as such, as ‘real estate’, rather than being leased or rented out.
Otherwise make it rental-only, compulsorily. Accordingly, introduce new forms of medium term tenancy, e.g. 3 to 5 years, to provide more security of tenure in the rented sector.
Be absolutely clear about whether the vendor is ‘selling’, or in truth only ‘renting out’. Too many estate agents are showing buyers only the property, not the lease that is the subject matter of the sales bargain actually on offer.
Old LVT archives provide many examples of the long running insurance racket that existed prior to acquisition of RTM by leaseholders lucky enough to have woken up in time., and to have launched successful challenges. Never mind a 50% or 100% loading on the market premium – where the “scoundrels” abounded 350% was the norm, and many got away with it.
The loss of such a lucrative and fraudulent income stream from buildings insurance reduced income from residential flat Ground Rent portfolios to peppercorn Ground Rent only, which explains why the unscrupulous scam wing of this unregulated industry seeks by all or any means to prevent the formation of RTM companies.
And a dark cloud must also hang over those who hastened the demise of the old LVT where ready access to justice for long leaseholders actually existed. .
The formation of RTM companies ensured sharp reduction of insurance “income”,for the unscrupulous in this muddy and murky business, and it cannot be surprising, following heavy borrowings, that the doubling ground rent has emerged to provide an alternative “asset”.
Ground rent was only ever intended as a peppercorn to allow long leaseholders in flats to hold a similar and valuable security as held by those in freehold houses. And as long as ground rent exists it must and can only be ever at a peppercorn.
Ground rents are meant to be the only legitimate source of income for investor freeholders. Technically they are not supposed to make money out of service charges, they are actually supposed to be costs for services we want and need, rather than a regular fleecing.
A lot of London ground rents were nominal and/or gradually reverting into peppercorn. Allegedly, in one London mansion block, the landlord collects a single white rose off each tenant each year. (not sure if thats true I read about it here: source: https://www.ourproperty.co.uk/guides/buying_a_mansion_block_property/ if it is true the poor landlord needs my help to ‘maximise revenue.’
It seems that we are going backwards: leaseholders (and other tenants) are the peasants of the future. Beaten down and regularly fleeced.
We control service charge and insurance commissions, then new scams are invented.
That is partly why I advocate putting Justice (and better individual access to it) slightly ahead of Regulation. We do need both, but cannot regulate the laws that we already have: – particularly fraud, which as you say is the crux of so many abuses.
There is no civil right of action for fraud per se (‘it would open the floodgates’). Then there is very limited scope for punitive damages. The current emphasis is on overall cost limitation, so that again ‘floodgates would open’ if we adopted a more American-style system (if I as a non-lawyer understand it correctly).
Maybe government ought to look at devising better legal insurance schemes, compulsorily funded by the housing sector for its customers?
Sussex lessee, I have to come back despite your apology that I personally was not talking bollocks.
You go on to say:
“Feudal tenure can be a self defeating concept”
Why? You fail to prove your thesis that leasehold is not feudal. It is not a matter of concepts but of legal fact. Everyone else sees this but you…
“Shared parts of housing will always be around”
Yes, and I give you commhold forms of collective unit ownership of the land and common parts and obligations without need of an investor fleeceholder.
“Belief in the common myth of feudal tenure”.
Who decided it is a common myth? You? I call it common truth. Each time you repeat it is a myth I must come back and refute that assertion.
Yes indeed, overt forms of the feudal “pyramid” of tenure were abolished but only to replace the Monarch granting lands to his favourites for services, and likewise down the food chain.
However, landlords and tenants are very much the children of feudalism, only now you don’t work the land, you pay.
The scam with long leasehold (not short leasehold) is that you pay the same or more as the cost of fee simple, pay ground rent and for all the repairs and random consent fees on top, and still remain a ‘mere’ tenant.
I would argue it is you who are falling for the myth promulgated that feudalism was abolished in 1660. All that happened was a slow evolution in the terminology and the method of “service” transacted.
Nobody disputes landlord and tenanting where the tenant literally pays only a periodic rent, or perhaps for a short lease (defined as under 7 years). If nothing else, the landlord still pays to repair his property. Ownership equals rights and responsibilities.
Your suggestion that leasehold should revert to being called “rented out” overlooks the error in your direction of travel.
Long leases are registered title. Estates in land. True ownership. Periodic rental is not. The scam is the way that long leasehold ownership costs no less than full fee simple but keeps a landlord in place to earn from the contract for minimal input.
In fact, even stating that the freeholder holds a remaining reversionary interest of 1-5% from the get-go overlooks that the freeholder made a profit on selling the leases, so in fact has nothing at all invested going forward. The only reason a purchaser of the freehold invests their extra pittance is because of the scam that allows keeping freehold separate (an entirely arbitrary decision) and then selling it on. Combined, the freeholders not only make an initial profit but retain their profitable interest and literally claim the whole property back at the end. A scandal by any logic.
Instead of cresting new forms of rental (which already exist with short leases), the obvious reform is to go with commonhold and come up with a fair compensation for converting all existing long leasehold to commonhold and not the existing nonsensical 2002 Act that.
Aguing against the term ‘feudal’ is playing into the existing caper, not against it.
Residential Long Leasehold is in fact the worst version of feudal tenure in feudal tenure history, as it keeps those who pay full value as ‘tenants’ – and tenants are de facto feudal.
I suspect you may nevertheless continue with your thesis here (not sure why) but it is important to speak to the facts.
Have you read Law Commisoner Charles Harpum’s excellent article: “what remains of feudalism does no good and a great deal of harm.”?
Anyone know where to buy a copy of “An End to Feudalism” by Frank Dobson and Nick Raynsford?
PS: It is important to call a spade a spade whatever laws are passed claiming to stop something. For instance, owning slaves was abolished, but this did not stop ‘commercial slavery’ where workers were paid in tokens that they could only spend at their employer’s shop. They were not ‘slaves’. They were free to walk away and starve.
Pretty much all the removal of worker rights and collective bargaining powers have reduced many to zero hour contracts etc, These are not slaves because they have the freedom to walk away and starve.
Not slavery mind. So all good.
Leasehold is feudal. Sing up at the back…
Mmm. The link to FT seems to go awol here but works on google. If still borked, article is:
“Leasehold flats: what estate agents won’t tell you” Lindsay Cook July 29th 2016.
Olde but goodie.
Sussex lessee. Feudal tenure only ended in Scotland in Tenement Act 2004. The Scots,Irish and every other former colony have abolished leasehold because of the abuses. So must England.
You sound learned but frankly leasehold, if not technically feudal, has all the characteristics of master slave abuses and so is a good descriptive word to use.
The sheer complexity of property law is a good enough reason to have major reform. Most leaseholders don’t get involved because they are afraid and don’t have law degrees.
How much abuse needs to take place before government takes action.
As many have said, skimming commission off insurance commission is rife. The incentive is to get the leaseholder to pay the maximum premium and so make more commission. Currently without a Regulator like the FCA there is no way of stopping what is in reality fraud. It is supported by the law so I suppose it isn’t fraud. Just like leasehold is not feudal technically.
Never mind, Theresa May said she is going to challenge vested interests, Javid said ‘enough is enough’ and money is no object, ‘whatever it takes’ to protect lives so that Grenfell won’t happen again. And pigs might fly in la la land
Gosh, everything is exposed in this article, THANK YOU
Big fan of the leasehold caper but I think he war far too indulgent on this occasion; Intro to the paper reads: “those earning their living from the leasehold”; that is obviously an over-statement; those making from leasehold dont have to “earn” it.. they just either just watch their money grow or decide how much money they want to make and get leaseholders to pay for their target profit thru their billing machines aka managing agents.