The Leasehold Knowledge Partnership’s concerns over the two-storey planning give-away to owners of residential freeholds – worth billions – is reported in The Times today.
Robert Jenrick’s flats reform gifts huge windfall to investors
Robert Jenrick, the housing secretary, has given a “multibillion-pound” planning windfall to freehold investors including those in a fund run by David Cameron’s brother-in-law. Under reforms, owners of residential tower blocks will be allowed to extend their developments upwards by two storeys without planning permission from the start of next month.
The newspaper focusses on William Waldorf Astor’s secretive £2 billion Long Harbour fund – where beneficial ownership of the Adriatic Land and Abacus Land freeholds are hidden and often offshore.
In evidence to the Communities Select Committee this year, Long Harbour said it managed 190,000 flats.
LKP argues that about 1,900 freeholds could qualify for two-storey planning windfall adding four flats each. If sold for a profit of £250,000 each, the fund will have risen in value by £1.9 billion.
The Times reports:
“Long Harbour said that the majority of its investors were pension funds and that it did not recognise those numbers. It said that it had not changed the valuation of its fund since the policy change and that the new rules would not lead to a windfall for Mr Astor personally because he was not invested in the fund.”
But the real winner of the two-storey planning change is Vincent Tchenguiz, whose Tchenguiz Family Trust based in the British Virgin Islands is the ultimate owner of the freeholds to 239,000 flats.
Although highly indebted, this group is still the largest residential freehold owner in the country.
Ground rent income at the freeholds goes to the Goldman Sach’s founded, de-regulated pension investor Rothesay Life through a debenture, leaving Mr Tchenguiz’s Consensus Business Group with administration charges (sub-letting, building consents etc), insurance commissions … and development potential.
If only 2,390 blocks qualify for the two-storey planning windfall, and build four flats each selling at £250,000 profit, then the portfolio has increased in value by £2.3 billion.
Wallace Estates, owned by the Norfolk-based Italian Count Luca Rinaldo Contardo Padulli and whose ground rents are administered by Simarc, has the freeholds to 106,000 flats.
If only 1,060 blocks qualify for the two-storey development potential, and these flats are worth £250,000 each, the fund has increased in value by just over £1 billion.
Wallace Estates says of its freeholds that “99% of which are financed by pension funds”, but like Long Harbour the beneficial ownership is secret.
This astonishing planning give-away, which first surfaced at the Conservative party conference last autumn, has been handed over to owners of residential freeholds who failed to respond to the cladding crisis after the Grenfell tragedy.
Ministers such as Sajid Javid and James Brokenshire repeated urged building owners – the freeholders – to do the decent thing and pay to remove first the ACM Grenfell cladding and then the other combustible HPL cladding identified as a fire hazard.
Not one speculator in residential freeholds did so.
The Leasehold Knowledge Partnership repeatedly told ministers that freeholders would not, and in many cases, could not pay to remove the cladding.
The income from some of these sites is absolutely minimal and residential freeholds (pre-planning windfalls) were worth 1-3% of a block of flats: the leaseholders have the overwhelming financial stake.
Now the situation has changed.
Consider Northpoint, a self-managing site of 57 flats in Bromley, in south east London, where Mr Tchenguiz is the freeholder via Citistead Limited and where cladding remediation costs are estimated at £4 million.
Yet the ground rents are only £7,000 a year – and, as it happens, go straight to Rothesay Life.
LKP argued that it was unreasonable to expect the Tchenguiz organisation, as the building owner, to pay to remove cladding given this minimal financial stake in the building.
As it happens, Northpoint qualifies for the cladding fund, so the £4 million bail-out will be paid for by taxpayers.
But what if Northpoint also qualifies for the two-storey permitted development rule change and Mr Tchenguiz puts four new flats on top of the spanking new refurb?
That will be at least £1 million pure profit for the former tycoon who, before the 2008 financial crisis, was one of the UK’s most powerful corporate players bidding to take over Sainsbury’s.
Might the two-storey permitted development rule revive his career in the big time?
LKP has long wondered who had been cleverer over the Rothesay Life debenture on the Tchenguiz freeholds: Vincent or the generously remunerated ex-Goldman Sachs pension investors at Rothesay Life, who took out the debenture on the ground rents only but declined to buy the freeholds.
Well, this massive planning windfall may suggest an answer.
Related posts:
The Times reports criticisms of Jenrick’s two-storey planning windfall to what he called ‘egregious’ freeholders
Has Jenrick just handed £1bn each to Astor, Tchenguiz and Wallace Estates with two-storey planning gift?
Robert Jenrick: Why give freeholders such a whopping planning windfall over two new storeys rule, like this site in Newark?
Freeholder Andrew Craige Curtis to use two-storey planning give-away at a north London cladding site while leaseholders ruined with remediation bills
Tory councillors and Labour MP back leaseholders in blocking ERE freeholds shoving up two more storeys under Jenrick’s planning give-away
Barking Riverside fire survivors round on secretive freeholder Adriatic Land, reports BBC R4
Whilst the assumptions on viability and profit quoted are typical tabloid exaggeration there is a big positive from this change. Using the base figures quoted in the article these three companies alone could contribute around £20-25bn of new housing supply and increase output by maybe 20%. The focus should be on the benefits rather than some of the potential beneficiaries
Housing shortage steve. If you know anything you will realise the figures were a massively conservative assessment. Wait till you see the next set
We challenge you to produce more reliable figures instead of quoting sector cant.
The companies also will also add nothing measurable to housing supply
The governments own data used for their impact assessment used for the SI it shows an increase of housing supply of just £1.8 billion over 10 years using the ONS April 2020 average sales price per flat. The prediction is just 8,120 new homes over ten years will be added.
This compares to the detriment of £20-£40 billion we now estimate applies to existing leaseholders using the governments own IE data and same ONS figure on average prices.
The reason for the huge difference is that government assumption (not ours) is the SI will add to the value of sites that could potentially develop, >1.2 million, rather than the much smaller they expect will develop.
So a,very limit benefit and a lot of negative impact.
Steve, isn’t this way of thinking the reason leasehold exploitation has been allowed by governments to continue for years.
The potential to develop roof voids will of course impact on the lessees who may have wished to purchase the freehold.
Therefore, the government should, as has been suggested, allow the freeholder in an enfranchisement claim to take a development lease of the roof void at a peppercorn rent and thus side step the arguments over its valuation by taking it out of the equation.
Making it as the Goverment has stated…”easier, quicker and cost effective” for lessee to enfranchise or extend their lease
The word “cost effective” has crept in rather than cheaper, which to my mind suggests that the area where meaningful savings could be made is making the landlord responsible for his own legal and valuation fees which seem reasonable where a landlord has acquired his interest post 1993 and there was aware of the possibility of enfranchisement/ lease extension.
A lessee of a flat with say 75 years remaining with a ground rent of £100 per annum on a flat worth say £250k could pay a premium of circa £11,000 but in addition would have to pay around £2,500 in legal and valuation costs on their side with a further £2,500 on the landlords side. So the lessee pays £5,000 for a calculation that is hardly rocket science and neither is the deed of surrender and re-grant to give effect to all this. That is the area where significant saving could be made.
If the landlord had to pay his own fees, I think a great deal of common sense and pragmatism would then come into play and deals would be concluded much quicker and cheaper
Yes, but less politely it would discourage the cheating.
Following a statement from Lord Greenhaigh that “unscrupulous freeholders” should be made “pariahs” after the pandemic, the Communities Secretary Robert Jenrick confirmed to MP’s in parliament that the government is opposed to “rip off practices in the leasehold sector” and consequently “draft legislation” will be with MP’s for scrutiny shortly.
In January 2020 the Law Commission published its report on valuation in enfranchisement (report on options to reduce the price payable), to be followed later this year by three further reports attending to other aspects of leasehold reform.
“Options to reduce the price payable” can only mean: options to make purchasing the freehold/extending leases “cheaper” and not simply “cost effective”.This followed on Sajid Javid’s promise to make buying the freehold/extending leases “easier and cheaper”. Has Mr Jenrick now moved the goalposts ?
It is disturbing to note instead of bringing forward “draft legislation” to end “rip off practices in the leasehold sector”, as promised to MP’s in parliament, all we have to date from Mr Renjick is removal of the need for planning application so as to permit construction of additional levels on existing residential buildings.
Residential blocks of flats put up between 1948 and the early 1970s will have lift systems built to imperial measurements. There is a lucrative industry engaged in upgrading and re-warranting these lifts. You do not put a new metric lift into an imperial lift shaft! However, I am not a mechanical engineer, so anyone, please feel free to correct me if I am wrong.
At what point does it become cheaper (or more practical) to knock down an old c. 1960s building and put up a new one.?
Central to all this are residential blocks of flats purchased illegally without the knowledge of the majority qualifying long leaseholders in criminal breach of their right of first refusal (as amended by the Housing Act 1996).
One anticipated reform is to permit leaseholders to take disputes before the First-Tier Tribunal-Property and not to the Courts as at present (where disproportionate costs have failed to protect them from deep pocketed illegal freeholders) It is here Mr Renjick’s removal of the need for planning permission is in danger of legitimising fraud.
We are now in the second half of 2020. When may we expect the Law Commission to publish its three reports on other aspects of leasehold reform and Mr Renjick to bring forward his promised reforms?
Since 2017, we have waited patiently for news on Government leasehold reforms. The measures, first announced by Sajid Javid in December 2017, were expected to have produced results before now. As a result of the Referendum, General Election, and Brexit, the Law Commission was prevented from publishing its report with recommendations for reform.
in January 2020, the Law Commission was finally able to publish its report on valuation in enfranchisement (report on options to reduce the price payable). We are informed this is to be followed “later this year” by three further reports attending to other aspects of leasehold reform.
Following a statement from Lord Greenhaigh that unscrupulous freeholders will be made “pariahs” after the pandemic, the Communities Secretary, Robert Jenrick confirmed to MP’s in Parliament that the Government is opposed to “rip off practices in the leasehold sector” and “draft legislation” will be issued shortly for scrutiny. This was expected possibly before the summer recess. Where is it?
Unfortunately, all we have to date from Mr Jenrick to is a measure permitting freeholders to add two storey’s to existing residential blocks of flats.
Adding a couple of storey’s to an existing block of flats involves major structural works affecting the existing long leaseholders, For example, blocks built post 1948 and up to early 1970s have lift systems constructed in imperial measurement, There is a thriving industry in upgrading and re-warranting these old lifts, as new ones are built in metric measurement. I am not a mechanical engineer, so perhaps someone could explain how can a new metric lift be put in an existing imperial liftshaft, not to mention construction of a new machinery housing system for the whole on the new roof. .
At which point does it become cheaper, or more practical, to knock down an old 1960s building and put up a new one?
More importantly (for this scribe), how about the unscrupulous freeholders who purchased freehold titles to residential blocks of flats without the knowledge of the majority qualifying long leaseholders in criminal breach of their right of fist refusal (as amended by the Housing Act 1996).?
Will such freeholders be disqualified from taking advantage of this relaxation of planning laws. This legislation is in danger of legitimising fraud.
Concerning the Law Commision report on enfranchisement, “options to reduce the price payable” can only mean “cheaper”. There can be no moving of goalposts.
And as we are already in July, when can we expect “draft legislation” designed to end “rip off practices in the leasehold sector.” as now promised by Mr Jenrick.?
Shall this be before the summer recess?
This is of primary import as one essential feature of anticipated reform is for disputes on title to be determined by the First Tier-Tribunal – Property and not by the Courts as at present (at disproportionate and extortionate cost to leaseholders). The extortionate cost factor being the customary tactic used by unscrupulopus and deep poccketed freeholders to hold on to their ill gotten gains purchased through original illegal disposals. T