The Daily Telegraph has reported the issue of rip-off sale packs when leasehold properties are sold on.
Personal finance reporter Sam Brodbeck writes: “The packs are required by housebuyers’ conveyancers, and because they can only be produced by freeholders, the seller is forced to pay whatever price is demanded – or risk the sale falling through.
“Last month Sajid Javid, the communities secretary, confirmed a sweeping set of measures to tackle “feudal practises” in the leasehold property sector.
“These include banning the sale of new-build houses on leasehold terms and eliminating entirely ground rents on houses and flats.
“Homeowners hope the changes will also wipe out expensive “sales packs” sold by freeholders and property management companies. The packs contain basic information, such as whether the leaseholders has any outstanding debts.”
The Telegraph highlights the case of Ceri Allen, 31, paying £275 to property manager Mainstay on selling her Taylor Wimpey property in Cheshire.
David Smith, 63, was asked for £460 in Eccles, Manchester: £280 for Zenith property management and £180 from the Ground Rents Income Fund that owned the freehold.
Both Zenith and Mainstay are ARMA “good guys”, to use the optimistic term used by Communities Secretary Sajid Javid at the ARMA conference last year:
Sajid Javid has thought about leasehold property management and does not like what he sees …
For some reason, the Ground rent Income Fund says leaseholders are not compelled to buy the packs … er yes, but then people aren’t compelled to sell their homes, either.
Sebastian O’Kelly, a trustee of the Leasehold Knowledge Partnership is quoted saying that the fees are not written into leases but “dreamed up by monetisers in the leasehold sector”.
“They have the sellers over a barrel as leaseholders who protest can, and do, lose their buyers.
“A vindictive freeholder, whose financial stake in a building can amount to as little as 3pc of the value of all the leases, can make a property virtually unsellable through being obstructive at this stage.
“It is a further example of the unbalanced nature of leasehold.”
Related posts:
Telegraph reports ‘marketing cobblers’ of 999-year ‘virtual freeholds’ with lethal ground rents
Telegraph reports that leasehold newbuild flats are on the rise
Daily Telegraph reports the new-build leasehold houses ban
Leasehold houses have been sold for more than freehold ones, reports Telegraph
Telegraph reports case of Taylor Wimpey pensioner who has paid £38,000 for his freehold … and now won’t help him
A grand day for ranting…
The previous ‘RICS regulated’ agent that our RTMC employed charged £300+ for Sales Packs. This was on top of the freeholder charging for ground rent info as that is not part of the agent’s contract with the RTMC.
As I understand it, the LPE1 form is not mandatory but it offers a useful insight into the wide chaos of leasehold, given that it was a joint effort of a committee made up of The Law Society, ARMA, RICS and other ‘experts’.
The first surprise is that, whereas as ever the hapless leaseholder is rendered powerless to answer the questions, a Tenant’s Association can.
The landlord can, the management company can, and the agent can. What blessed role does an RTA play in managing leasehold? How and why could an RTA answer what the leaseholder cannot? If it had the answers, where would it get them and why is this better than the owner answering? Could a buyer later sue an RTA?
Then there are absurd questions like 1.5 asking who accepts the Notice of Assignment? The landlord is mentioned separate to the agent. An appointed agent IS the landlord in the eyes of the law. That is the point of an agency agreement.
If an agent is listed at 1.3, all contact should go there for ‘one stop’ communication given that these ‘experts’ charge leaseholders for management fees. Why pay the tail yet have the landlord dog wag its own backside during a sale?
The list of questions that follow are daft for the same reason.
Section 3 on ground rent arrears ought to be unnecessary.
Leaseholders should receive up to date running balance invoices that show what they were charged/owed as at the last lease anniversary. The only question then is whether the completion happens before the next invoice is due and the only sum in issue would be one half year ground rent per the lease – a simple sum to identify and automatically retain. There should never be a mystery as to what arrears exist if running balances are provided at each GR anniversary. No isolated invoices.
Section 4 on service charges is equally absurd and gives a false assurance to buyers.
The ‘current annual service charge’ ought to be already provided to the seller in their routine invoices together with a running balance to show what they owed, if anything, as at the last invoice date.
The question as to any potential Excess Payment in the current year ignores the financial chaos that usually is leasehold budget management. I suspect nobody could answer this reliably, as landlords/agents will spend whatever they choose at any point in time in the year and then issue a balancing charge. Whatever answer is given is not ‘bankable’.
Likewise the other questions. I particularly like 4.8 which asks if there is any s20 works due. There is no legal obligation to give 2 years’ notice of s20 works and any answer is thus useless. There is also no acceptance by the committee that landlords/agents can pop off for dispensation. Another pointless answer.
I also like 4.9 which asks about any increases in the service charge in the next 2 years. The whole point of variable service charges is that they can, er, vary annually and the amount is usually calculated at the start of each year, if leaseholders are lucky that is. No answer here is bankable either.
The building insurance questions ought to be a simple matter of leaseholders having an automatic right each year to a copy of the current schedule and an emailed pdf of the policy. Leasehold ought to move into the internet age.
In fact, the form asks later under Section 8 for copies of the schedule and policy among many other documents. Why the seller is not lawfully permitted to provide all this documentation – as any normal seller would expect to do – and be entitled to routine up to date copies as of right for the purpose, beats me.
The LPE1 reveals an astonishingly patronising approach to leasehold homeowners and confirms exactly what it is: something created by an industry committee.
It neither serves buyers or sellers I would suggest.
But it is clearly a nice little earner.
A leaseholder with a good filing system will have just about everything in an LP1 within his or her knowledge. There are numerous daft questions indeed however documents that have to be provided by the landlord include common parts asbestos surveys, tank tests for bacteria, fire safety plans,and other risk assessments which are not necessarily circulated but available for inspection. It does cost money to put these packs together. Even if the lessees run the block themselves there is still time and hence if contracted out cost involved. To minimise costs generally leaseholders should always form some sort of tenants association even if they do not control the management and obtain for their association up to date copies of all these documents. Conveyancers nowadays do like an LP1 and freeholders cannot be blames for charging for their preparation. By all means let the Government legislate as to a fair fee for their provision if so required, albeit that some blocks such as those with lifts and on site staff are far more complex than others albeit that the leaseholders solicitors use one form the LPE1 in all cases
We both agree that most of the LPE1 form could be answered by an organised leaseholder and their equally organised solicitor…
except for the small matter that (a) they are barred doing so by the industry (not by law?), and (b) they do not receive running balance invoices and routine documentation.
I like to be systematic, having helped run a leasehold development successfully for six years and seen through the nonsense ‘professional’ industry arguments…
1. Arrears and charges due.
The professional industry prefers to be unfettered from the financial accounting norms that others follow as of course in the modern age.
Notice how your credit card statement, utility bill, mortgage statement etc all arrive on time and provide running balances showing (i) the previous invoice balance, (ii) charges since, (iii) payments received by date, and (iv) current invoice balance.
In leasehold the ‘professionals’ fire off stand alone invoices on a haphazard basis when they get around to it and without running balances. Like they were working from dusty Victorian ledgers and ran out of wick for the candles in the office.
We are now in the digital age. Anyone who has sniffed around financial software knows that running balance accounts, statements and invoices are a mere one-mouse-click operation.
In my experience, ‘professional’ agents do not understand financial accounting or such matters as budgeting -just how to use the words. If you are lucky there might be one person in an accounts office, but leaseholders and their block manager will not be able to communicate with them.
2. Documents and information
Why should it cost money to ‘put together’ an asbestos survey, tank test, risk assessment, or any other item that the leaseholders pay for?
I am unpaid to help run our RTMC. Yet if anyone asked me for these documents I know how to click open an email and attach the relevant pdfs, which I insist on receiving from our contracted agents and store in related digital folders with back ups. Ironically, our agent can still charge the sellers for doing just as you say.
Then there are the modern online block management services available to managing agents. Leaseholders pay the fees for these naturally. These not only can provide all leaseholders -via a password provided by the agent- to relevant and up to date access to any financial data together with all archive reports – from minutes to said asbestos surveys etc.
Modern banking allows auto-updates. RICS and ICAEW best practice requires individual bank accounts. What’s the problem? No chance to earn more fees?
In my direct experience, managing agents can be incompetent in these basic matters and thus make excuses that other industries would never dare make. If they cannot do the job they should be regulated off the map, not have rules and obstacles created to help them make even more profit from shambolic methods.
The root of the sales pack problem is the arrogant disregard of leaseholders who are not empowered to have access to the data as of right, and freedom via their own solicitor to answer their buyer’s queries promptly.
The LPE1 form -designed by the industry for itself- could very easily be rendered pointless. Or redirected to be answered by the seller and their solicitor if agents had to operate in a modern ‘paying customer’ environment..
Bear in mind also that currently landlords and agents are under no legal liability to answer the blessed sales questions or do so within any timescale, while the seller’s solicitor cannot.
Only in leaehold.
Why a TA would improve the existing situation I do not know. We formed one before exercising RTM and were ignored in the round. Even with certification.
Leasehold needs abolishing and reformed from the ground up, but that requires Parliament to see the existing two legged camel it created.
“The root of the sales pack problem is the arrogant disregard of leaseholders who are not empowered to have access to the data as of right, and freedom via their own solicitor to answer their buyer’s queries promptly.”
Well said.