Why does it take 60% of leasehold residents to create a tenants’ association – and only 30% of his constituency to elect Housing Minister Mark Prisk?

The Leasehold Knowledge Partnership is strongly urging Housing Minister Mark Prisk (right) to change the rules to recognise tenants’ associations, as leasehold residents’ associations are formally known in law.

At present they can only be set up when 60 per cent of the residents ask for one to be recognised by their freeholder. This is a very difficult target to achieve, especially in blocks where so many of the leasehold owners are not owner-occupiers. LKP wants the bar to be set at a more reasonable 40 per cent, and makes the point that in the housing minister’s own constituency of Hertford and Stortford he achieved only 30 per cent of the vote.

Mr Prisk would doubtless be indignant if it were suggested that he was not the democratically elected parliamentary representative.

LKP urges all leaseholders to form residents’ associations. The protections of leasehold law only work if you act collectively and forming a tenants’ association is a crucial first step. Needless to say, they are strongly resisted by freeholders and managing agents

It helps prevent those who have a particular grievance fighting it out alone with the freeholder – and his lawyers – and coming seriously unstuck.

 Plantation Wharf, in Battersea, provides a chilling reminder here. At least three leaseholders have had forfeiture proceedings against them in various disputes.

Because they were acting in isolation, they have been picked off with Dennis Jackson, whose £800,000 flat is under a forfeiture notice, being the latest example.

On the face of it, the powers of a recognised tenants’ association seem little different to those of any leasehold resident:

The rights include being able:

• ·ask for a summary of costs incurred by their landlord in connection with matters for which they are being required to pay a service charge
• ·inspect the relevant accounts and receipts
• ·be sent a copy of estimates obtained by the landlord for intended work to their properties
• ·propose names of contractors for inclusion in any tender list when the landlord wishes to carry out major works
• ·ask for a written summary of the insurance cover and inspect the policy
• ·be consulted about the appointment or re-appointment of the agent managing the services.

But one real power provided to a RTA is not even mentioned in the Residential Property Property Tribunal Service guidance: the right to appoint a surveyor (S84 and Schedule 4, Housing Act 1996).

This is hugely useful because a chartered surveyor can in turn appoint an accountant who can look at all matters concerning the service charge.

Leaseholders can then have a full management audit carried out on their behalf (S76, Leasehold Reform, Housing and Urban Development Act 1993). This is not a power of a tenants’ association, and instead requires 66.6 per cent of all leaseholders  separately to vote in favour of an audit (to be funded from their own pockets).

Both these processes were used by the leasehold residents at Charter Quay in Kingston, where Peverel was dumped in favour of a court-appointed managing agent – HML Andertons, who are accredited to the Leasehold Knowledge Partnership.

In four separate LVT actions the leaseholders also won back more than £500,000 in over-charging by their freeholder.

Here is the full paper from Leasehold Knowledge Partnership on this subject prepared on request for the Housing Minister Mark Prisk:

LKP/Campaign against retirement leasehold exploitation Recognition of Tenants Associations feedback to the Housing Minister.

Executive Summary.

Following a meeting with the Housing Minister at the end of November last year, LKP/Campaign against retirement leasehold exploitation were asked to submit a paper explain their support for a reduction in the percentage of leaseholders required for the creation of leasehold Recognised Tenants Association (RTA). DCLG responded to this paper on behalf of the Minister to which we now reply.

We know that evidence is held by DCLG illustrating the difficulties faced by many groups in meeting the 60% requirement. We do not understand the Department’s view that democracy is best served, by default, in continuing with a system that does not provide a group voice to leaseholders unless they can show the TA is actively supported by at least 60% of all leaseholders on a site.

We set out reasons why we consider the DCLG reply is misconceived in the way it seeks to continue to justify the 60% figure. We also note that DCLG fails to address the recommendations of LKP/Campaign against retirement leasehold exploitation to improve the ways in which leaseholders might be allowed to contact their fellow owners, to help form a recognised group, and the actions taken by some landlords and managing agents actively to frustrate this process.

LKP/Campaign against retirement leasehold exploitation’s position remains that the guidelines should be changed. We recommend that:

1. under normal circumstances no more than 40% of leaseholders should be required to establish an RTA;
2. that the guidelines should make it more clear that landlords and managing agents should encourage the creation of RTA’s, not to put unnecessary hurdles in the way;
3. guidelines should set out the ways in which a TA’s is to be provided with information to allow it to contact all leaseholders to invite them to join to facilitate the creation of an RTA.

 

1) Background

DCLG provided a response on behalf of the Minister on the 12^th January 2013 to the Tenants’ Association paper submitted by LKP/Campaign against retirement leasehold exploitation on 3^rd December 2012. This paper was requested by the Minister at his meeting held on the 27^th November 2012. We set out below a reply and rebuttal of that DCLG response. Both of the earlier documents are attached at the end of this paper. All quotes taken from the DCLG letter or from government web sites are shown in blue.

We note with concern the use of the phrase “deserve recognition” in the DCLG reply. This seems to continue the belief that the leasehold system is one where a landlord is somehow entitled to grant, or withhold privileges to tenants, at his discretion, subject only to court intervention in extreme circumstances. In a more enlightened world, a TA should perhaps be presumed to “deserve recognition”. The question to be asked is: why is there not a basic right for an RTA to exist? A right which should only be withdrawn if it can be argued that that the TA is either not democratic or not seeking to represent the interests of all the leaseholders who wish to participate.

We understand that over the years the DCLG leasehold team has been provided with evidence by leaseholders of many instances where managing agents and landlords have placed deliberate barriers to the formation of RTAs. Further, the managing agent in attendance at last week’s round table meeting, who professed keen support for raising standards and adherence to codes of practice, is well known to DCLG staff as one of the companies most frequently criticised for deliberately placing unreasonable obstacles in the way of forming RTAs at the sites they manage.

The DCLG submission on behalf of the Minister seems to do little more than a reflect the views held by some of its staff for many years. Importantly the letter from DCLG does not address the points raised in our original paper, nor any of the three specific recommendations.

 Responses to the specific points raised in the DCLG reply on behalf of the Housing Minister. 

2) Powers of a Recognised RTA

 DCLG states one of the two main justifications for the need for an absolute and demonstrable majority of tenants to form a recognised RTA is because it has “the ability to act on behalf of the tenants and to be consulted on issues affecting them.”

The DCLG reply does not address the fact that these powers to act are: a) mainly limited to consultation; b) do not allow cost incurred by the RTA to be passed on to a non members; and c) most of the powers listed below are  already provided to individual leaseholders.

The powers provided to a recognised RTA are listed as follows in the RPTS guidance:

• ·ask for a summary of costs incurred by their landlord in connection with matters for which they are being required to pay a service charge
• ·inspect the relevant accounts and receipts
• ·be sent a copy of estimates obtained by the landlord for intended work to their properties
• ·propose names of contractors for inclusion in any tender list when the landlord wishes to carry out major works
• ·ask for a written summary of the insurance cover and inspect the policy
• ·be consulted about the appointment or re-appointment of the agent managing the services.

As such, the main rights of a RTA, over and above those of an individual leaseholder, are extremely limited. There is a right to see the insurance cover and policy, and a perception (but not necessarily an enforceable right) of marginally greater powers to inspect accounting information. The one real power provided to a RTA is not even mentioned in the RPTS guidance1, i.e. the right to appoint a surveyor (S84 and Schedule 4, Housing Act 1996). This latter power is of course also limited in that the costs incurred can only be passed on the members of the RTA. Any rights a RTA has to bring an action at the LVT in its own name are still subject to separate verification by the LVT of the members wishing to take part in that action.

One of powers provided to tenants not mentioned above is a right to pay have a management audit conducted on their behalf (S76, Leasehold Reform, Housing and Urban Development Act 1993). For some arbitrary reason this right is not given to an RTA but instead requires 66.6% of all leaseholders to separately vote for such an audit. Again those voting for this action must then fund  it from their own pockets and have no right to pass on any costs to other tenants, whatever the outcome.

At first sight the powers provided to an RTA and indeed a leaseholder seem comprehensive but it should be noted that powers given to a RTA are diminished because, while the RTA and individual leaseholders have the right to be consulted on certain matters, there is no obligation on the landlord to take cognisance of their views. Provided he can, if required, show he is acting within the broad scope of LVTs’ statutorily prescribed definition of “reasonable” a landlord has no obligation to give any weight to the tenants’ or the RTA’s views, recommendations or concerns.

We would therefore suggest the position on this point, as set our in the DCLG reply on behalf of the Minister, is entirely mistaken. The assertion that a great deal of caution is required because an RTA is able to act on behalf of all tenants, is factually incorrect. It at most has the right to be consulted and make limited decisions on behalf of its own members which may, or may not, then be acted on at the landlord’s discretion.

3) Why is changing to 40% membership such a problem?

The question remains: what rights accrue to a RTA which might be prejudicial to non-members if the membership requirement were lowered to 40%? None of the rights and permissions set out in the guidance above appear to have any scope for oppression of minorities. To our understanding there is also no evidence held by DCLG that a reduction to 40% would somehow lead to undemocratic RTA’s. The suggestion that lowering the percentage might give rise to such a position seems purely speculative. Conversely we are aware DCLG has a body of evidence provided to it of the extreme difficulty in obtaining enough members to form an RTA, particularly on large modern developments with a higher proportion of buy to let and/or overseas owners.

The main reason for people not jointing a TA are more likely to be: a) the leaseholders are unable to contact their fellow leaseholders; b) a general lack of understanding amongst leaseholders of why there is a benefit on joining a RTA; c) pressure particularly in the retirement sector to dissuade tenants from joining an RTA.

DCLG rightly point out the potential difficulty where a site has just two flats as part of it’s justification for the 60% rule. We would suggest this is clearly atypical of the market. They will also be aware that most small sites are likely to be self managed. Also, since RTAs have such limited powers, beyond those of individual leaseholders, it would have no significant impact on the running of a site.

It is also important to consider the potential benefits which an increase in the number of recognised RTAs might bring: a point also not addressed in the DCLG reply. An RTA at a minimum should act as a more efficient communication channel between leaseholders managing agents and landlords. A formal relationship between the parties may also act to dissipate the distrust that often arises when individual leaseholders try to resolve issues on their own.   The current system has, we suspect, been failing for years and we believe DCLG holds no data on the number of RTAs being formed. We would also suggest that the lack of an RTA is of benefit to no one other than a bad managing agent or landlord.

4) The Courts and the Guidelines

It seems a poor use of the public purse that the route to dispensation for sites who are unable to reach the 60% hurdle is the courts. We set out in the original paper the various government documents where the 60% figure appears. DCLG respond:

“The Guidelines clearly state, however, that an association with less than 60% might in certain circumstances deserve recognition.”

We would respectfully suggest this reply is factually inaccurate. What the guidance states is:

The Panel has a discretion as to whether recognition should be granted and will need to be satisfied that the Rules of the Association are fair and democratic – also that the actual Membership of the Association will represent a significant proportion of the potential Membership. As a general rule, the Panel would expect the Membership to be not less than 60% of those qualifying to join the Association. In very exceptional circumstances, if a dispute of fact cannot be resolved by correspondence, the Member may arrange an oral hearing.

There is nothing in this statement which “clearly state(s)” that there are circumstances where less than 60% will be considered. There is no reference to circumstances where the 60% barrier would routinely be lowered.

We would also point out that MoJ Court form T544 includes the same statement that there should be  “not less than 60%”. In these circumstances it cannot be argued that a lay person would interpret these guides as indicating that a site with less than 60% might be deemed to “deserve recognition”.

From reading the DCLG response, it is still not clear on what basis it can be argued that a RTA must have an absolute majority of members before it “deserves” to exist. There are few other circumstances where it is mandatory that a significant majority must vote before representation is permitted. We have no such rule for parents’ associations or local or national elections. The Housing Minister was elected with approximately 30% of the electorate supporting him: the voting for Police and Crime Commissioners attracted jut 15% of votes on average.

We would suggest the current requirement for proof of an absolute majority in support of a tenants’ group is arbitrarily prescriptive, and has no relationship to the powers provided to the TA. Logically, the more important an issue is considered to be, the greater the percentage of support which would be expected to be required in order to proceed. It is entirely illogical that the power to take over the Right To Manage a site requires 51% support, but that 60% is needed merely to be granted a group voice, to be consulted under the landlords management, when there is not even any obligation on the landlord to take note of those views.

5) Making it easier to form RTA’s

 We believe DCLG have been provided with evidence over many years to show one of the main reasons why people do not join a RTA is simply that the leaseholders’ group is unable to contact the relevant leaseholders, particularly in sites where there is a large “buy to let” market. DCLG is also aware of the barriers some bad landlords and managing agents place in the way of allowing the creation of a RTA.

In the retirement sector there is also some evidence that House Managers seek to dissuade residents to form a RTA believing it’s existence will put the residents in conflict with the management.

A yet further barrier is lack of understanding and apathy. For many leaseholders there is no reason to understand why they need to be part of a TA and the work needed to create one is often very great and dependant on individuals at the site having time to undertake that work.

We set out in the original paper a series of mechanisms by which it could be made easier for recognised RTA’s to come into existence, by providing facilities to contact potential members at no cost to the State. We pointed out there could be clarification on the rights under s11(3) Leasehold Reform, Housing and Urban Development Act 1993 to give information to TA’s to enable them to contact leaseholders at their billing address. Or there could be guidance to require landlords to include a letter from the prospective RTA, inviting leaseholders to join to be  sent out with the service charge demands.

DCLG’s response appears to face in two directions. It argues that because of the democratic imperative, recognition of a TA should not be permitted by default at less than 60% membership. At the same time it is aware some managing agents and landlords actively seek to withhold the information needed to enable a TA to contact leaseholders so they might reach the 60% level to enable them to gain group representation.

Ministers Reply in response to the LKP/Campaign against retirement leasehold exploitation Recommendations for recognition of Tenants Associations.

As provided by Ian Fuell of DCLG 12 February 2013 18:08

I have also been asked to reply on behalf of the housing Ministers Private Office with whom you have also corresponded.

As you are aware, formal recognition under Section 29 of the Landlord and Tenant Act 1985 allows the Tenants’ Association – in addition to the rights afforded to them as individual leaseholders – the ability to act on behalf of the tenants and to be consulted on issues affecting them.

As you are also aware, there are no statutory Regulations setting out the criteria for a Recognised Tenants’ Association, including the 60% criterion you are principally concerned about. Instead, there are Guidelines which are referred to by the Rent Assessment Panels, and these set out the general rules and basic expectations when applying for recognition. As Guidelines, rather than – for example – secondary legislation (Regulations), these allow the Panels a degree of discretion and flexibility when considering an application for recognition.

The Guidelines include the expectation that the actual membership of the Association represents a significant proportion of the potential membership, has a fair and democratic constitution, and that as a general rule membership of the association will be not less than 60% of qualifying tenants.  The Guidelines clearly state, however, that an association with less than 60% might in certain circumstances deserve recognition.

The guideline of 60% ensures that the Recognised Tenants’ Association would always consists of a majority rather than a minority, for example in situations where there are only two flats in question. As I have mentioned, the lack of prescription allows the Panels sufficient flexibility to consider circumstances that could not necessarily catered for in prescriptive Regulations, but which could otherwise prevent the recognition of an association. These could, for example, include situations where less than 60% may be appropriate, or where the association may include sub-tenants.

Recommendations for formal recognition of leasehold Tenants Associations[1]

A paper submitted by LKP/Campaign against retirement leasehold exploitation 3^rd Dec 2012

The guidelines on Tenants Associations (TA) and Recognised Tenants’ Associations (RTA) derive from the powers provided to the Secretary of State under s29 of the Landlord and Tenant Act 1985. DCLG stated at our meeting that there are no formal guidelines issued by the Secretary of State. However, all government documents state there should be a minimum of 60% of leaseholders on a site for formal recognition of an RTA and the industry follow this lead (see details below)

There seems no logic to such a high figure for an RTA when it has few rights and no control. This threshold conflicts with the statute for RTM which sets a threshold of 50% of leaseholders as sufficient even though this statute provides the right to take over management of the site.

The 60% membership figure for an RTA seems to have been used for the last ten years without review. Changing this percentage to 40% and offering clear guidance on a number of other matters would provide a number of efficiencies. All parties benefit from the more structured relationship between leaseholder and freeholder (landlord)/managing agent via an RTA. It is unclear why government has not felt the need to encourage more RTA’s. A reduction to 40% threshold would also save the public purse expense by reducing the number of instances where an TA needs to seek recognition through the Rent Panel of the RPTS because the landlord refuses to accept the TA has passed the barriers need to become an RTA.

Background

While formal recognition provides limited benefits and no powers to an RTA, it has a strong psychological impact. More importantly there is strong negative impact if residents feel unable to reach the 60% barrier set by government. Although landlords claim to support the creation of RTA’s, they often place barriers in the way to ensure the threshold of 60% is never met. Landlords also oppose the recognition of a TA because it very often indicates the leaseholders intend to take some form of action at the LVT.

For all larger sites even finding and locating owners is a huge burden to a TA. The problem is made worse by the growing number of buy to let and overseas leaseholders who can make up more then 50% of the leaseholders.  Many landlords also refuse to provide owner details or contact information to thwart the formation of an RTA. (see footnote 7 at the end of the document)

Government and industry statements on the 60% threshold

The 60% minimum figure for an RTA appears in the following documents:

DCLG Residential Long Leaseholder -a guide to your rights and responsibilities states:

“To gain recognition from the landlord, the Secretary of the association should ask the landlord for a written notice of recognition. Once your landlord has recognised the association, he must give six months’ notice should he wish to withdraw recognition.

Alternatively, you may apply to your local Rent Assessment Panel for a certificate of recognition. This will be granted at their discretion. Usually the certificate will be for four years, but the Panel may cancel it if recognition is no longer appropriate.

As a general guide, an association should represent at least 60 per cent of the flats in the block in respect of which variable service charges are payable.”[2]

The NDPB The Leasehold Advisory Service (LEASE,) points to what is now the MoJ web site, and the relevant LVT document. of the complex, “Tenants’ Associations Application for Recognition Guidance on Procedure” states:

“As a general rule, the Panel would expect the Membership to be not less than 60% of those qualifying to join the Association” [3]

The guidelines set by the representatives of managing agents mirror these figures, for example: The Association of Residential Managing agents (ARMA), also uses the same 60% figure highlighting this opt-out for landlords:

“You should reserve the right to withdraw recognition if:

• ·membership falls below 60% of lessees.”[4]

The Association of Retirement Housing Managers (ARHM) Code in the retirement sector mentions the official 60% figure but adds a 51% option

“Managers should recognise an association (subject to the landlord’s agreement if required), which has a membership representing 51% or more of the leaseholders and other tenants on the scheme that contribute to the same costs by way of a variable service charge, and where the association has a proper constitution and elected officials. It is recommended that managers should retain details of the constitution, officials and membership and ask the association to supply details of any changes as they occur.”[5]

Elsewhere ARHM in guidance it recommends more stringent stipulations which are sometimes intended, or perceived, as intimidatory:

“Managers should require that Residents’ Associations seek annual renewal of recognition and require a list of officers and a signed list of members each year. might only be recognised for one year rather than 4.”[6]

Landlords have the option to recognise a TA at a lower rate than set out in the guidelines but the reality is that it is often the most belligerent landlords, where an RA is perhaps most needed, who refuse recognition and require an TA to seek formal recognition through the Rent Panel of the LVT.

While the Act makes no statement on the question of what information must be provided by an RA to a landlord about its members, many landlords create hurdles to prevent the creation of an RTA. These include demands such as: signed membership forms; contact email addresses; or full contact information and company seals attached to memberships for company owned flats. Others, particularly in the retirement sector, demand to be provided with the names of all those members deemed to be officers of the residents association. Some even demand proof that membership fees have been paid.

Recommendations

It is recommended that the Secretary of State considers a number of changes under his discretionary powers provided under s29 of the 1985 LTA as follows:

1. Reduce the required percentage of members needed for a RTA to 40% of the leaseholders at a site.
   Notes: The potential risk of a less then 50% membership somehow leading to a risk for two large rival residents groups to form is at best remote. An RTA has no real powers and no control so there seem limited issues of potential democratic unfairness. If a position somehow arose where two groups had 40% membership on the same site the guidelines could require that the larger group becomes the recognised one. This is a better position than the current situation where neither TA would be recognised. The 40% figure is of course arbitrary but should be this low level to reflect the difficulty of finding and persuading residents to become members.
2. Provide any TA or established RTA with the right to send a one page letter to all leaseholders once a year, this letter to be sent by the managing agent with the service charge demand to each owner either at their billing address[7].
   Notes: This would help overcome the biggest problem faced by many TA’s in making contact with owners who may sublet or live abroad.
3. Provide guidelines detailing that the name and flat address of the members are to be provided to the landlord as proof that a leaseholder is a member of an RA.
   Notes: Given the very limited powers of an RA there seems no reason why there is any need for an RA to provide the landlord with anything further than a simple list of the members flat numbers and names. If the landlord does not accept the list it would be for them to contact the relevant owners to confirm whether or not they were members of the RA.

The above list is not intended to replace the existing guidance on other issues such as an obligation for a democratic and accepted format of an RTA constitution nor is it intended to be an exhaustive list of potential guidelines.