Most of the problems in leasehold involve service charges and are “tenure agnostic”, the Residential Freeholders’ Association told MPs at the APPG on Monday.
And leaseholders benefit from the role of long-term investors in residential freeholds for which ground rents are a reasonable payment.
But absentee offshore ownership, with no point of contact or accountability, is not acceptable and should be the subject of regulation.
As for having an income stream in other people’s homes, half the leaseholders who own flats in freeholder controlled blocks are buy-to-let investors.
These were views aired by Jack Spearman, who heads the RFA’s leasehold reform committee, at the meeting of the All-Party Parliamentary Group on leasehold and commonhold reform on Monday.
Mr Spearman, whose day job is managing director of Homeground residential leasehold, claimed that his organisation represents “quite a significant proportion of leaseholders’ interests as well as those of freehold owners”.
He pointed our that the RFA supports regulation of managing agents and Lord Best’s RoPA report.
“The Residential Freehold Association broadly supports the leasehold reforms, although there is probably disagreement on various things,” Mr Spearman told MPs and invitees to the APPG. “But it may come as a surprise that there are quite a few things in there that we do support quite strongly.”
Mr Spearman was accompanied by Simon Millar, who chairs the RFA’s insurance committee and who is managing director of Albanwise Insurance, the inhouse broker for Wallace Estates. Mr Millar did not make a presentation at the meeting.
“Many of problems of leasehold do not stem from the tenure of the building, but difficulties in dealing with service charges. Service charges are tenure agnostic.
“There is not unanimous desire to see complex buildings managed by everyone. I do accept that in many scenarios resident management will work and it is the desire of our members to support that.
“But there are situations where we have been on the ground and where a minority of people come on to take over management ownership of these buildings. In that sense we want to promote choice and ensure that government represents the majority of the leasehold sector.”
Justin Madders MP, co-chair of the APPG, asked what the time-scale was for investors in residential buildings: in what sense were they long-term investors?
“It is relatively well know that many are publicly involved pension funds and typically their horizon is 40-60 years,” replied Mr Spearman.
Sir Peter Bottomley, also APPG co-chair, referenced the RFA website saying that it was a common misconception that professional freeholders do nothing for the ground rent that they are paid.
Sir Peter pointed out that many freeholders are not paid ground rents at all but still fulfill the same role as those who do. So could the website be amended?
“Freeholders invest in professional teams who fulfil a vital role in management of large and complex apartment buildings,” replied Mr Spearman.
“Management services are provided by a managing agent. But an example of work done by freeholders would include remediating planning projects and several members have invested heavily in surveyors, solicitors, fire safety professionals and clearly there is an alignment of interests in that.
“They are not doing this altruistically; they are doing it to protect the long-term interest to have a well managed, well maintained building.
“A lot of the buildings here have not been designed to last for the duration of the lease, so there are long-term stewardship issues that need to be handled. So in this sense the leaseholder is absolutely getting something.
“50% of all leasehold properties that our members manage are owned by buy-to-let investors.”
Mr Spearman pointed out that there were a “plague of issues areound short-term letting” – AirBnB – and with neighbours falling out with each other and impacting the quiet enjoyment of their homes.
“These are not issues that can be dealt with by managing agents because they do not have the authority to do anything. They take instructions around it,” said Mr Spearman. “If you have a freeholder in place with a long-term interest in the building that is clearly of benefit and value.
Ina, a leaseholder in Southwark, South London, who attended the APPG, said that the majority of freeholders are in the British Virgin Islands and similar offshore territories. So it is impossible to find out who the people are who are investing in the buildings. Instead, there are simply nominee directors of companies.
Mr Spearman replied:
“This is a great case for regulation. If you want to be in our sector you must meet a minimum standard of regulation. And that means, you know, being approachable, being accountable and being able to get hold of people. Those operating in the sector should be accountable.”
He added that the RFA has a code of practice and it wants the code to be endorsed by the Secretary of State.
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I live in a building for which Homeground is the ‘Freeholder’s Agent’. We have a large institutional UK based freeholder, and the position is no better than an offshore freeholder. Homeground have described our UK based freeholder (which hides behind an obscure, tax efficient Scottish limited partnership vehicle with a generic sounding name) as a ‘shadow organisation’ and claimed that the freeholder is no more than the sum of its advisors advice with no ability or wish to make decisions on its own. Of course, this is complete nonsense, and we are now in direct communication with the freeholder, after 3 years of obfuscation from Homeground and others.
This leaves leaseholders in the position of being unable to deal with the freeholder directly and Homeground and their like in a position where they can blame ‘the freeholder’ (who you can never speak to or be given an email address for) for any bad decisions or poor management or lack of communication.
Homeground and others like it are desperate to save leasehold tenure in order to save their own skin. The APPG should not pay one bit of attention to them. Leasehold must go, and it should take the entire freeholder’s agent industry out with it.
Those directly on the receiving end of Freeholders know that the payment of Ground Rent is money paid in return for precisely nothing.
I have received no goods or services in exchange for that payment in my six Years of being a Leaseholder. Freehold is quite simply a one way income stream for the Freeholder that is why they will fight tooth and nail to maintain the status quo.
I view Freehold as just another commodity that can be bought or sold and is a highly lucrative income stream for the professional investor (often offshore) with minimal risk attached to it, that requires little to no maintenance.
The sooner it is abolished and replaced with Commonhold the better.
You are right ; ground rent income is for no service, it is a pure profit stream. It is part of the consideration the developer seeks for selling the flat. The developer wants a premium and a regular income stream and lays out the terms they want before you buy
So the terms are set out in the lease BEFORE the leaseholder signed the lease. In many cases, the ground rent and its review pattern occupy a whole schedule in the lease. It is clear it is not used to pay for services. The leaseholder in conjunction with their solicitor should when reviewing the lease and contract either accept , negotiate or reject the terms offered.
Why is fair to sign a contract/lease stating you agree to pay this yearly rent, and then once having acquired the lease then argue it’s all terribly unfair ? . Why should the nanny state come to the rescue of those who wish to wriggle out of contracts where the daily cost is most cases less than a £1 a day .
You make many valid points in your reply to my comments which I appreciate.
In reply I make the following observations: The Freehold / Leasehold racket has stood the test of time (so far) for around several hundred Years and has successfully exploited generations of Leaseholders, and those actively involved in said, wish to maintain the status quo.
My Legal representative did during the ten or fifteen minute consultation that we had, imparted a great deal of information to me during the purchase of my long Lease. I wonder how long it would take a top drawer Legal Professional to qualify at your obvious level of understanding of contract Law?
Five Years into my Leasehold purchase I have come to the conclusion that the whole racket was purposely designed to confuse and mislead all potential and existing Leaseholders . The racket continues to this day and generates a great deal of wealth as intended by the original author of the first Lease agreement.
I have not required the “nanny state” to assist me in letting go of my former third party imposed managing agent, we quite simply did that for ourselves with great financial benefit to my Neighbours and myself.
Campaign organisations like LKP and many others have been an inspiration to me, and quite simply the present Freehold / Leasehold racket is WRONG.
I look forward to future correspondence.
Kind regards
Stephen Burns
My issue is that the freeholders who are family refused to get a management company and after 14 years have decided to manage the block themselves.
I have been trying to sell the flat for the past 3 years and the freeholders refused to complete the LPE1 forms which even though is not mandatory the flat is basically unsellable without it.
I am at the mercy of the freeholders who have increased the service charge on the promise that they will complete the forms but have failed to do so.
This is daylight robbery.
If there is a solution please let me know as the government are asleep at the wheel of this car crash outdated system that only profits some unethical freeholders.
Looking at Longharbour accounts it’s difficult to see how they sustain the argument about investing more of their resources in looking after these buildings post Grenfell.
In 2016 they had a turnover of £5.5 million (remember most incomes go via other companies in the group) that income more than doubled to just under £13 million in 2021.
Management staff numbers were static at 5 involved in management in 2016 and 5 in 2021.
Staff working on investment increased from 14 in 2016 to 27 in 2021
Staff involved in admin and operations were 6 in 2016 and 12 in 2021
Nothing in those figures seems to suggest an increase in staff numbers post Grenfell linked to offering extra support to their sites.
The numbers actually show the opposite as the number of staff relative to turnover went down in the period 2016-2021. Total staff increased from 25-39 i.e an increase of 56% while turnover went from 5.5 million to 13 million i.e an increase of 136%
My worry js the cost of extending a lease, my freeholder will only extend for 90 years which makes the flat virtually unsaleable when compared with 999 years or shared freehold. The cost to me extending for 90 years will be the same as 999 years as the cost is in the solicitors fees for both sides, the surveyors report for both sides and the cost if the freehold. I hope the government will take away the 90 lease and allow every one to extend for 999 years. And allow a flat rate for the costs.
You illustrate where the government can deliver on its promise to make lease extensions cheaper easier and quicker
The calculation of prescribed rates where set for the capitalisation and reversionary rates along with a prescribed deed would drastically cut costs – I would also make the landlord bear his own costs if the freeholder acquired their interest post 1993 – the freeholder knew there was a possibility of enfranchisement and or a lease extension when buying or creating the interest
A lessee typically pays around £5k to £7k in costs in a statutory claim as they have to pay their own costs plus the landlord – where the legal structure in the block is a simple freeholder to leaseholder – no intervening legal structure it is staggering why it should cost so much – I know because I have granted numerous lease extensions – it’s a very straight forward process
Stephen,
A very interesting and welcome posting. What would you consider to be a fair and reasonable cost for the granting of a lease extension and alternatively the out right purchase of the Freehold?
I appreciate that my question is quite broad based but a general indication of the costs involved will be very much appreciated, based on your example of Freeholder to Leaseholder.
Stephen,
I forgot to mention in my previous post that about fifteen Years ago my Wife & I bought the Freehold to our last home. At that time it was a fairly new build constructed to a good standard and specification on a large plot of land.
The local firm who built our home wrote to us out of the blue, and offered to sell us the Freehold for £ 1,000 all in, which we did.
The whole process took about a Fortnight and during the transaction period the seller told me that cost to the seller in terms of time, effort and cost incurred was neither here nor there, and the sale price was profitable. In other words a win, win for seller and buyer
Which leads me to wonder why the current cost to extend a Lease can be between £5k to £7k or more? And to buy the Freehold would seem to be worked at the throw of five or six loaded dice.
I would like to see in writing a costed explanation and justification for the cost of Lease extension, or out right Freehold purchase from the “Professional Freeholder” or their specially selected managing agent?
Now I fully appreciate that many “Professional Freeholders” are off shore and only wish to maximise their profits through the Legal exploitation of around 4.6 Million Leaseholders so a simple acknowledgement of this request may have to suffice.