By Harry Scoffin
Why is Robert Jenrick rewarding an asset class he called “egregious” just last month, asked The Times on Saturday.
The report by consumer affairs correspondent Andrew Ellson considered a controversial new permitted development right that the Communities Secretary wants enshrined in law by the summer.
The housing secretary has been accused of giving a huge windfall to the owners of residential development freeholds days after attacking them for their response to the flammable cladding crisis. Last week Robert Jenrick announced planning reforms that would allow owners of blocks of flats to add two storeys to their sites without planning permission.
Under the proposal, freehold owners will be allowed to put two extra storeys on existing blocks of flats without planning permission.
There will be no public consultation.
Airspace and rooftop development, a nascent industry in the UK, is one way to majorly increase the value of apartment buildings.
The Times report made clear that those who hold the freeholds to people’s homes, the beneficiaries of such a permitted development right, have been heavily criticised in recent years, including by Mr Jenrick.
In comments to LBC’s Nick Ferrari, the Communities Secretary said:
“Only last month Mr Jenrick criticised a number of freehold owners, including those held in an offshore fund run by David Cameron’s brother-in-law, for failing to remove flammable cladding from their buildings.
“He called the companies ‘egregious’ and said that there was no excuse for their inaction.
“He added: ‘Just imagine what it’s like living in these buildings, knowing that the money is there to do the [remediation] work, but because you’ve got an absentee building owner who, frankly, doesn’t seem to care, the work isn’t starting.’”
The deregulation will have the knock-on effect of preventing leaseholders from buying their freedom, said LKP chief executive Sebastian O’Kelly:
“The Leasehold Knowledge Partnership, a charity that offers help and guidance to leaseholders, said that the policy would hugely increase the value of the freeholds in apartment blocks across the country because it would allow their owners to add many more homes to their sites.
“It points out that the policy would also make it more expensive for leaseholders to buy their freeholds at precisely the time the government has promised to make it easier and cheaper for them to do so. Sebastian O’Kelly, of the charity, said: ‘Increasing the supply of homes is good but it’s absurd to give such a massive windfall to the speculators in a building’s income streams, given that their freeholds are worth 1-3 per cent of a building’s total value. ‘Just as leasehold is poised to be reformed — with the Law Commission anxiously referencing freehold owners’ human rights — the last thing Mr Jenrick should be doing is giving these parasitic entities this boost.’”
In December, LKP warned against the move, saying that “freehold owners of blocks of flats will be able to argue hugely inflated values for the freehold in enfranchisement cases.”
LKP now urges Mr Jenrick to rework the policy so that only resident-owned blocks are eligible:
“The Leasehold Knowledge Partnership is calling on the government to force freeholders to share the benefits of more valuable freeholds with existing leaseholders or limit the initiative to blocks where leaseholders actually own the freehold. Mr O’Kelly said: ‘Extra storeys will be imposed on the existing leaseholders, who then end up paying for the consequences: more staircases and landings to maintain, and perhaps a new lift.’”
In its January report on valuation in enfranchisement, the Law Commission suggested that leaseholders who want to buy their freeholds should be able to opt out of paying “development value” if they have no plans to expand upwards:
“In the Report, we conclude that leaseholders could be given a power to decide to accept a restriction on future development of their block when they acquire the freehold. If they chose to accept that restriction, they would not have to pay the landlord any development value in the enfranchisement claim – so their enfranchisement premium would be reduced. If the leaseholders subsequently decided that they wanted to develop the block and therefore “realise” the development value, they could negotiate with the former landlord to release the restriction. They would, at that stage, have to make a payment to the former landlord in respect of the development value.”
However, the three reforms the body has put to ministers insist that the additional value “continue[s] to be payable” – even when the leaseholders acquiring the freehold have no intention to carry out development – a problem made worse if the “extra two storeys” permitted development right to freehold owners goes through.
Arshad Bhatti, the founder and chief executive of Apex Airspace, a firm that specialises in building new homes atop blocks of flats, has said that airspace and rooftop development is discouraged in England and Wales because of “the fear that a big fee will have to be paid to the freeholder”, calling for an end to development value in enfranchisement.
“… we believe any reform should bring forward a commitment for leaseholders taking on the freehold to only pay development value during initial build. In the first instance, this will stop the inequitable situation of new freeholders paying money for something they may not want to pursue. And, perhaps more importantly, it also means that if they do want to proceed with any development, they will have a means of immediately raising the cash through the value that they’re unlocking,” Mr Bhatti wrote in a blog for Property Week.
The Times report also highlighted the case study, first raised by LKP, in Mr Jenrick’s constituency of a freehold going to auction that could fetch considerably more with the new permitted development right.