The Office of Fair Trading today announced a full investigation into leasehold in England and Wales.
The announcement has been prompted by the campaigning of the Leasehold Knowledge Partnership and its sister website Campaign against retirement leasehold exploitation (www.betterretirementhousing.com), the Campaign Against Retirement Leasehold Exploitation.
In September LKP / Campaign against retirement leasehold exploitation involved prime minister David Cameron in the issue of the protracted OFT investigation into Peverel’s price-fixing scandal involving Cirrus. Pensioners were cheated after Peverel – which admits the practice and turned itself in – orchestrated a bogus tendering process for warden call services and electronic door entry systems.
A meeting resulted between the OFT and LKP / Campaign against retirement leasehold exploitation, backed up by Sir Peter Bottomley and Energy Secretary Ed Davey.
The OFT will be announcing the conclusion of its investigation into the Peverel price-fixing scandal on Friday.
But today it has announced a further investigation into the entire leasehold market in England and Wales – the only two countries in the world with this form of residential property tenure.
Sebastian O’Kelly, director of LKP said: “At last, officialdom is waking up to the monetising abuses in leasehold, ranging from small-scale Rachmans to huge corporate players.
“The amounts of money involved are staggering, and vast sums of money have been borrowed against dubious leasehold revenue streams from taxpayer-owned banks.
“Abuses in leasehold cross class boundaries: every single prime riverside site in London has been affected, as well as retirement flats often worth no more than £50,000. LKP has been contacted by flat owners at The Knightsbridge (£3m each) and retirement flats in St Helens.
“While the OFT is at last doing something, the same cannot be said for the complacent property tribunals, which have tolerated freeholders’ expensive lawyers playing the system, and the Department of Communities and Local Government, which until very recently was determined to ignore the evidence of widespread sharp practice.”
The decision to launch a full inquiry into leasehold management has been assisted by well-researched reports such as the CentreForum’s ‘A new lease of life’ published in July 2012.
As a new generation of homebuyers lives in flats, rather than freehold houses, the issue will only get worse.
As Sir Peter Bottomley made clear at a meeting of leaseholders in London on Nov 12: the abuses and cheating endemic to leasehold can only take place with the assistance of professionals: lawyers, surveyors, accountants, auditors.
“I predict ruined reputations in this sector and criminal proceedings,” said Sir Peter. “What is going on in leasehold is nothing short of a scandal.
“Every professional standards body – for lawyers, bankers, surveyors and accountants – should be investigating whether their members have been behaving wrongly, unprofessionally, unfairly or criminally
“You cannot have the level of bad behaviour that we have seen with the professional standards bodies all looking the other way.”
Ed Davey, the Energy Secretary and MP for Surbiton and Kingston, said: “I am very pleased the OFT has taken up our request to investigate the leasehold sector.
“I have been campaigning alongside Campaign against retirement leasehold exploitation on this issue for a number of years.
“Since hosting a meeting in the House of Commons in 2009, it has always concerned me that some freeholders and managing agents are in an unfair position to exploit leaseholders and particularly those in the retirement sector.
“Sir Peter Bottomley MP and myself met the OFT Chief executive, Clive Maxwell, last September where we again urged him to consider this investigation. I am pleased the OFT has now moved forward with that commitment.”
Martin Boyd, joint LKP / Campaign against retirement leasehold exploitation director and chairman of Charter Quay residents’ association, said: “This OFT inquiry is important because it is the first time that there has been a fundamental review of the leasehold sector.
“It is inevitably going to expose unfairness that may well lead to primary legislation.”
The LKP / Campaign against retirement leasehold exploitation has been exposing the appalling practices in leasehold, mounting investigations and examining closely the land tribunal rulings – which are too unexciting for the mainstream press.
On four occasions it has faced libel threats – and one vague legal threat came, disgracefully, from the leadership of the Leasehold Advisory Service – but has not altered or removed any article from the website.
As millions of Britons move to being flat owners rather than house owners, it is essential that the scope for cheating them is drastically reduced.
Ideally, LKP / Campaign against retirement leasehold exploitation would like to see commonhold being introduced, where flat owners all own a fraction of the freehold. This applies in the rest of the world.
Or, developments could be built with a residents’ management company in the lease, meaning that the residents control the building.
At present, developers bulk up the value of the freehold with sneaky revenue-generating leases; easily get round the law that freeholds must be offered to leaseholders before sale; and then sell it off to some shark in an auction.
The scale of the abuses being unearthed by LKP / Campaign against retirement leasehold exploitation is staggering.
It is excellent that the OFT has announced this investigation.
The OFT is particularly interested in:
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Whether leaseholders feel that they have sufficient involvement in decisions taken about appointing managing agents, and if it is difficult to establish whether the property manager is providing value for money or a sufficient standard of service.
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Whether property managers and freeholders have the same interests as leaseholders in, for example, keeping down costs of maintenance work or buildings insurance.
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Whether there is effective competition, including evidence about how easy it is to switch between providers.
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Whether residents receive good value for money and reasonable quality of service.
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The time, effort and resources required to complain and seek redress.
Related posts:
Campaign against Residential Leasehold Exploitation meets lawyers over Peverel price-fixing scandal
OFT will report on the Peverel / Cirrus price-fixing scandal on Friday
Some in leasehold sector declined to co-operate with mis-selling investigation, says CMA
You and Yours features Campaign against Residential Leasehold Exploitation and OFT inquiry into leasehold management
Campaign against Residential Leasehold Exploitation whistleblowers were THREATENED with prosecution if they went public over OFT’s toothless £500k investigation into Peverel-Cirrus
OFT will report on the Peverel / Cirrus price-fixing scandal on Friday
Office of Fair Trading OFT has finally decided to carry out a MARKET STUDY and seeks views on scope of study, and what is preventing this market from working well for consumers.
One would have thought that the OFT would have enough information on Peverel Retirement and others who manage in this Leasehold System that allows a Tripartite Lease, where a Headlease becomes worth more than the Freehold?
Our Freeholder Mercian Developments Ltd has offered us the Right of First Refusal after a company has offered to purchase up to six of their developments.
Having spoken to two solicitors who stated that we were very lucky to be offered the Freehold as we have a intermediate Headlease that is owned by Meridian Housing Retirement Services Ltd
(A PEVEREL OWNED COMPANY.)
They have a 125 year Headlease whist we had a 99 year Lease and the Freeholder was not obliged to offer this to us.
I spoke to Mr Crabtree from Mercian and he was very helpful and again was polite. I think he wanted us to have the Freehold.
This is typical of some of the hoops that we as Leaseholders have to jump through and still after the purchase, if it goes ahead, will still leave Peverel Retirement as our Landlord and Managing Agent???
Congratulations to LKP, Campaign against retirement leasehold exploitation, Sir Peter Bottomley, Ed Davey and the OFT for arranging this long overdue study into the working practices of those involved in managing residential property within the long leasehold sector.
Let us hope that the OFT’s investigation extends well beyond the managing agents whose unwillingness to comply with their legal, regulatory and contractual obligations underpins widespread malpractices within the sector.
Let the Royal Institution of Chartered Surveyors tell us what it is doing to ensure that all managing agents in England and Wales comply with the RICS Service Charge Residential Management Code. No other industry treats its own regulations with such disdain; yet the Code places full responsibility for regulatory compliance on the managing agent as the appointed property manager.
Let the Association of Residential Managing Agents (ARMA) whose members comprise more than 50% of all managing agents in the sector explain why absolutely nobody outside of its own membership has any confidence in the standards and quality of services that ARMA members provide; or in the willingness of ARMA itself to tackle any wrongdoing.
Let the accountants’ bodies ACCA and ICAEW reassure us that they are addressing any misunderstanding amongst members over the proper way to account for service charge; and explain why their members routinely ignore the published guidelines, notably Technical Factsheet 172 and Tech 03/11.
Let the Solicitors’ Regulation Authority say what it is doing to ensure its members comply with a Code of Conduct that requires solicitors to uphold the rule of law and the proper administration of justice; and to act with integrity.
Quote-Let the accountants’ bodies ACCA and ICAEW reassure us that they are addressing any misunderstanding amongst members over the proper way to account for service charge; and explain why their members routinely ignore the published guidelines, notably Technical Factsheet 172 and Tech 03/11. End Quote
These are already under revision notably on the failure to properly treat service charges held on trust.
The government could of course issue an commencement order for section 21 LTA 1985 requiring landlords TO account to leaseholders, rather than leaving it as a right to be exercised especially as councils are now declining to enforce it and encouraging leaseholders to take out private prosecutions instead.
Oh as is the RICS authored code -consultation ended in September.
Sue,
Well commented and precise, these organisation’s are set up by the members themselves to look after their own interests and are one sided when a member is challenged?
Will the OFT address the scandalous arrangements of local authorities and RSL landlords and service charges through LTA’s and partnership agreements?
For those that criticise the tribunals LB Hackney asked for dispensation from consultation on major works and contracts, so that they could appoint Hackney Homes (already their housing manager) as their main contractor and avoid the obligation to consult except in a very limited form.
As the Council own Hackney Homes ( !!) this is a licence to print money and eye watering sums at that. It makes Peveral look like amateurs!
The tribunal declined to do so.
Well its good news to hear of an investigation but the brief seems to be as expected, wrong headed. I suspect that it will come up with what we know rather than actually help. Using Sebastian’s bullet points-
1 The rights exist under the 87 Act for an RTA, if exercised, and a simple amendment to include managing agent appointment as a qualifying work or a exempt from the +12months rule for LTAs, would suffice. The service issue is too broad to be of use.
2 The idea of keeping down costs shows that the situation is misstated and misunderstood. The mutual interest not amount, but whether the building is being properly serviced, which is where disagreements start, and then if the scope and cost of the work is “value for money”. It is easy to keep costs down, be popular, and pay the price later. That works for agents – they earn money for 3 years, get sacked and a new one comes in, earns fees to put it right and does the same. The old agent starts over, often being paid to put matters right from their predecessor. One large firm stated that they could live with 25% annual turnover and prosper.
3 There is abundant competition in built up areas however for some parts of the country many agents are inexperienced, dangerously so, rather than those out to exploit. Depending on the contract as most are one year agreements to circumvent consultation handover is easily achieved, the real question is about residents ability or rights to force a change, short of RTM or enfranchisement.
4 I doubt that they will get to the root of the value for money issue. It is about agreeing on what the money is to be spent on, and then how much it costs, but crucially what is missing is an examination of procurement and the issue of intermediaries subsidiaries and cross ownership and commissions which lead to distortions in pricing. What is needed is a clear code on this, but I cannot see this being achieved from this line of questioning.
Point 4 is at the heart of it. Neither landlords, which include the future resident groups, or owners have a clear idea of what behaviours or standards they can expect of agents or of their investor landlords in how they conduct business for service charges, especially on procurement and associated income streams. Barred from treasury management commissions and cross ownership, many problems, like insurance commissions and associated builders cleaners etc, evaporate.
As for commonhold forget it – it is not compulsory. Unit agreements are just contracts and no different to a lease- legislation should be focused on requiring the freehold to be transferred on completion and leases to be peppercorn and 999 years. As mixed use/ownership sites will be mostly be exempt from commonhold, it makes sense to strip out the income generating clauses and reversionary nature of leases, and require where possible the compulsory transfer of the freehold at completion.
Rome was not built in a day. Campaign against retirement leasehold exploitation and LKP are to be congratulated on the progress they’ve achieved. Before reforms can be enacted the can of worms must be opened. Grant Shapps and others have done their best to prevent this. It’s striking how much more Campaign against retirement leasehold exploitation and LKP have achieved in a short time than say, the FPRA, in years. It appears you have paid no regard to the constraints of mandate of the OFT, for one thing. Leasehold has been around for a long time. It likely will not be reformed or abolished overnight. All progress is welcome.
What have you achieved that anyone should pay any attention to your pontifications? Alongside the tangible results achieved by Campaign against retirement leasehold exploitation and LKP they are about as persuasive as ARMA welcoming the OFT’s announcement. It appears that you are a managing agent. ARMA member, AM?
Well said Paul. Sue Stuckey hit the nail on the head with her comments and AM again comes back with negative views. I have been wanting to know exactly who he/she represents because it certainly does not appear to be leaseholders!
Hmm, my comments are not negative, they are simply not what you want to hear. What I and many others have achieved is working in residential management in an honest and professional manner, with the simple approach of “it’s their home and their money”. Where differences arise, we act as stewards of everyone’s interests, based on the long term interest of the block.
The abuse that has arisen is not simply a leasehold disease as the vast majority of the 5m leaseholders don’t face these issues. No matter the long term benefits of a vociferous campaign might be, my comments are the sort of ones that will be put to balance the argument, which has arisen out of spectacular abuses affecting a tiny % of only 5% of leaseholders. Do bear in mind that Mr T’s vision was simple “we are not property managers; we are asset managers, here to make as much as we can”.
We also do something else- we don’t break the law- we don’t take commission or backhanders, or organise tender rings, and focus on making a legitimate and fairly earned income by being professional, transparent and giving sensible inclusive advice and service.
Far more useful to have views that challenge than simply agree. That is the way we learn.
My “tiny%” comments were read out of the current context and that of the post. I have made it clear in the OFT investigation thread that there are spectacular abuses, eye watering sums, involving the least well financed owners, in the public sector housing. Only this year Hackney attempted to opt out of consultation, ever, and the LVT/FTT denied them. That the public sector are exempted from ring fencing service charge funds as on Trust is a disgrace.
There are other firms and people in the private sector and the examples mentioned earlier point to the lack of compulsory accreditation and competence in the sector. Though a leaseholder conference might be cathartic, I doubt that it would be constructive. Those in the sector know the problems, but not all take advantage of them. It is a fact that laws can be bent and broken and far from “it must be stopped”, the law can only provide remedies.
What is missing is an objective standard and behaviour which “stops the bending” and that any agent or landlord, be they investor, bloke in the basement or residents committee, should work to. The approved code of practice should do much of that but it hasn’t and the current draft revision falls well short. An example would be the standards for contractor selection and vetting in the Cirrus probe, outlawing commissions and “arrangements”, and the right to examine contracts AS well as invoices.
An example of that is with insurance commissions,. The regular defence is “ it pays to deal with processing claims” and therefore, if declared, owners can challenge management fees, through a right to inspect the contract of the agent, and where that includes this as a task, as double dipping.