Younger managing agents seek answers over leasehold reform (without the usual agendas of the trade bodies)

Yesterday saw an excellent small conference for leasehold property managers in Southampton.

Most of the audience were considerably younger than normal events. It was not organised by one of the trade bodies, it wasn’t in a ritzy London location and it probably did not cost much.

It was just an occasion for those employed in management companies, or running smallish new start-ups, to get together and question those of us involved in the process to reform leasehold.

The event was organised by Matthew Lewis, head of residential leasehold property at Coles Miller Solicitors LLP. It was thoroughly to be welcomes and one hopes that there will be similar ones across the country.

Unlike the gatherings of ARMA, the meeting was not dominated by the agenda of the large property managing agents – which are large because they are appointed by developers and freeholders rather than by the leaseholders who pay for it all.

So, there was very much less of a political axe to grind – or grand-standing to defend freeholders and their rights to make all decisions over a block of flats while owning 3-5 per cent of its capital value through the freehold acquisition.

Instead, there was a genuine appetite to question those involved in the process of reforming leasehold, and to share some insight into the daily frustrations of being a residential property manager – a role so often pitched in the middle between a freeholder, who may or may not want to sweat his asset, and those who live in it courtesy of their leases.

Professor Nick Hopkins, who used to teach at Southampton University, explained the work of the Law Commission: his task to make leasehold enfranchisement and lease extension easier, cheaper and more simple, and to review commonhold to consider how it could be made to work.

He referenced the project of another of the five law commissioners, Stephen Lewis, who is tasked with examining right to manage legislation.

He reassured the conference that the work on commonhold, about which less is heard, will be dealt with, but after the enfranchisement study.

Leasehold enfranchisement

Initiation Pre-consultation Consultation Policy development Reported Initiation: Could include discussing scope and terms of reference with lead Government Department Pre-consultation: Could include approaching interest groups and specialists, producing scoping and issues papers, finalising terms of project Consultation: Likely to include consultation events and paper, making provisional proposals for comment Policy development: Will include analysis of consultation responses.

Barrister Amanda Gourlay, of Tanfield Chambers, who on many occasions has taken on cases involving the leaseholders’ interest, explained the workings of the property tribunal and aspects of leasehold law that are examined by it.

Although Miss Gourlay would not necessarily be flattered to be termed a journalist, she maintains a lively website dedicated to leasehold issues, which is highly regarded by leaseholders and professionals alike:

About Amanda Gourlay

Welcome to Law and Lease, a blog recording and commenting on decisions made by the Lands Tribunal and courts of record in England and Wales about residential service charges. I am a barrister called to the Bar of England and Wales in 2004.

Andrew Bulmer, who heads the Institute of Residential Property Managers which is tasked with the training and qualifications of property manager, was also speaking at the event.

Of all those on the commercial side of the sector, Mr Bulmer gives the most persuasive analysis that the trajectory of consumer power is heading towards the leaseholders – irrespective of the fate of the particular reforms currently under consideration.

He refers to the “iPhone” generation, who expect easy, quick and customer-oriented information about the management of their block, and who want it almost instantaneously.

Mr Bulmer understands, as the traditional freeholder-appointed sector doesn’t, that information is now so readily available, and permanent, and that the means by which leaseholders can connect with each other and unite is to such an enormous degree facilitated.

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Copyright © 2018 – The Institute of Residential Property Management Limited Company Limited by Guarantee.

He did not reference – but could – that the last major reform of leasehold was driven by the London Evening Standard, involved a large reporting team and had the backing of a tetchy editor, Stewart Steven, who may well have been a disgruntled leaseholder himself.

LKP website, on the other hand, costs around £35 a year to register.

Mr Bulmer has referenced the formation of the 12,000 National Leasehold Campaign on Facebook, and the fact that 6,000 submissions were made to one of the innumerable calls for evidence on leasehold from government.

It has brought considerable pressure on MPs to join the All Party Parliamentary Group on leasehold reform.

LKP would recommend all leaseholders to join this closed group on Facebook, where leaseholders swap information and provide each other with advice. It has no dealings whatsoever with the government-funded Leasehold Advisory Service, which it appears to regard as compromised.

You can join the National Leasehold Campaign Facebook group here https://www.facebook.com/groups/786983251448976/

Another speaker was Tracey Hartley, director of residential at the aristocratic £3.2 billion (2014) Howard de Walden Estate, which has 92 acres of central London in Marylebone, and the freeholds of 850 properties.

The Howard de Walden Estate does not seem that bothered by the moves to reform leasehold, and has engaged in no organised lobbying to thwart it.

LKP’s view of the the aristocratic estates that own swathes of central London is: it is a very small price to have paid for England’s political stability.

Land tenure has caused many upsets (France in 1789; Russia 1917; Ireland since the Anglo-Normans first arrived).

But the upside of England’s political stability is that we can reform our society without killing each other; the downside being there are some archaic aspects to our land tenure law.

Leaving aside that these posh estates feather their own nest with lease valuations that favour freehold owners, as we saw with Sloane Stanley Estate and the Wellcome Trust in the Parthenia court case, and lick-spittle toadies like Gerald Eve and Savills provide the mathematical modelling in order that they do so, we don’t get too upset about them.

Property tribunal upholds lease extension ‘scandal’ that pays millions to freeholders

Would you choose a good night out, or 500 freehold acres of Mayfair and Belgravia?

What we don’t want is to create a terracotta army of new rentiers, which we are in danger of doing at present with leasehold accounting for 40% of new build registrations on the Land Registry.

One Duke of Westminster is really sufficient.

Also present was Anthony Essien, CEO of the Leasehold Advisory Service, which at present is the sole monopoly government funded organisation concerned with leasehold issues.

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Apologies to the other panelists for not taking notes of their contributions to this conference (which is difficult when you are also participating).

We have invited all speakers to share their thoughts, which we are happy to publish here or via links to their own websites.

The following responses are from Sebastian O’Kelly, LKP director, but they may be fuller answers than those actually given to the conference.

The government has announced that there is going to be a new regulatory body to oversee long leasehold managing agents. One of the points considered is a requirement for managing agents have a nationally recognised qualification to practice. Agents will also be required to undertake continuing professional development.

Do you think this is going to have a real impact on service standards considering a lot of businesses owners directors are not practising but imply property managers who do the day-to-day work and are usually qualified?

Sebastian O’Kelly, LKP: Leaseholders pay for this entire edifice and obviously they want the best qualified and most competent managers for their blocks.

Certainly, we want property managers to be proud of their profession and strive to improve professional standards.

But the best driver for improved standards is when managing agents are employed by leaseholders who have the biggest financial stake in a block of flats, rather than a third party speculative freeholder, whose revenues are not impacted by the physical state of the building at all.

Last month, we rustled up 50 RTM directors for the Law Commission. They included around a dozen from prime London sites, responsible for complex assets worth hundreds of millions of pounds.

My fellow trustee, Martin Boyd, is chairman of Charter Quay, an enfranchised site beside Kingston Bridge with river frontage, the Rose theatre, assorted restaurants, worth just under £200 million.

The idea that he and his directors are going to opt for low cost amateurs is risible.

But slightly more important than an emphasis on standards is protection of the money, which is supposedly hold in trust and should hold in separate bank accounts.

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Should the government work closely with existing providers in light of the incoming regulations and should that be a joint effort from organisations such as IRPM, ARMA, RICS and BPF?

SOK: Leaseholders are missing from this list of trade bodies. Why? They pay for all this, and for conferences such as this one.

These trade bodies have frankly have done absolutely nothing to highlight the issues of leasehold abuses.

Did they alert government to the spread of leasehold houses; or doubling ground rents; or Grenfell cladding costs being dumped on leaseholders?

Should government suddenly pay more attention to the BPF (British Property Federation) because some panicky speculators in residential freeholds have recently joined it for some eleventh hour special pleading over ground rents?

Frankly, I don’t think government need pay attention to any organisation in this sector that has not alerted it to fundamental problems with it, or organisations that stayed schtum when those problems have revealed themselves.

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It has been sometime since ARMA-Q was introduced. Has ARMA’s self-regulation been effective enough, or did it push too many companies out who now don’t need to adhere to its standards?

SOK: We thought ARMA-Q was a good thing, although it got diluted and far too many “must’s” got transformed into “should’s” when the code finally appeared. But I pay tribute to the work of former CEO and ex-civil servant Michelle Banks’ work on this.

According to Nigel Glen, the current CEO, ARMA lost 25% of its membership over ARMA-Q.

This included Countrywide, with over 100,000 flats under management.

Unfortunately, no effort was made by ARMA to involve us or the MPs in the All Party Parliamentary Group, of which we are the secretariat, to remonstrate publicly at these companies turning their backs on higher standards.

The opposite: we were criticised for making these issues public.

Frankly, I do not blame any property management company for not being a member of ARMA or RICS, nor should leaseholders be reassured when they are. Far more important than the trade body, is who employs the managing agent. In other words, where the money lies.

ARMA represents, and accommodates the interests, of the larger property management companies. Not one of them is large by consumer choice, that is by having been appointed by leaseholders. They are large because they have been obliging to developers and large freehold owners.

HML Group plc is the exception. It has 70,000 flats under management and is headed by Rob Plumb as CEO, whose views on the sector make me seem a fence-sitting moderate.

Most of its portfolio comes from leaseholder controlled blocks, and it has been an accredited LKP member since the start, in 2012.

With the All Party Parliamentary Group stronger than ever in numbers, are we seeing a change in the political landscape with more pressure on companies to do the right thing morally and more exposure in the press? For example, the leasehold houses scandal and doubling of ground rents scandals in news?

SOK: Change in this sector has come from outside it. From us getting the scandals of leasehold houses and doubling ground rents into the public domain; from the MPs in the APPG, who now number 160.

I am afraid I have a low regard for the legal profession’s involvement in this.

A leading figure in landlord and tenant law told one of our APPGs:

“Reform of the law is a duty. Laws that are badly framed or badly executed can have devastating consequences on people’s lives, and can cripple whole societies.

“Unfortunately, I don’t think I can defend the law of landlord and tenant in this country. It is very badly in need of reform and nothing really has been done to it since 2002.”

The key question is: are we wanting to reform the law around people’s homes, or simply perpetuate an investment asset class? Leasehold has allowed a raft of dubious characters and companies to monetise the homes of ordinary families, and push them around in the courts.

It is considered a fair amount of issues arise due to a misunderstanding of the managing agents remit or responsibilities. It is also considered that there is a potential problem with attempting to raise standards with managed blocks but there being no regulations surrounding self-managed blocks.

Should there be a minimum level qualification or requirement in order to be a freeholder or director of an RMC / RTM company? For example, a foundation course in what it means to be a director, responsibilities, how a lease should be interpreted, the role of an agent, health and safety, financial management etc?

Mischief-makers in the sector – and both LEASE and ARMA have responsibility here – have attempted to discredit leaseholder management, even though the Competition and Markets Authority found far higher leaseholder / customer satisfaction in leaseholder controlled blocks.

Nonetheless, I am tempted to support this, but not for the reasons that the questioner intends: I would like freeholders to step forward and become qualified, if only to identify the hidden beneficial owners in offshore-owned freehold vehicles.

This would reveal some grisly private equity punters, who are hitching a ride on ordinary people’s homes. So an IRPM course for offshore investors in residential freeholds would be very welcome, and I hope that HMG Inspectorate of Taxes attends as well and makes notes..

For small blocks, I think ARMA and the IRPM do offer RTM / RMC directors some sort of training. If so, well done.

Of course, we need a third party regulator.

ARMA regulator Sally Keeble quit ‘after being blocked’ from ruling on Warwick Estates lift shaft fatality

ARMA’s regulatory regime fell apart when Warwick Estates threatened to leave if the regulator Sally Keeble investigated a negligence allegation involve a death that had already resulted in a criminal conviction and a £120,000 fine.

Another legal action by another to-be-disciplined managing agent has left a £100,000 black hole in ARMA’s accounts.

We experienced just how pathetic and unfit for any useful purpose when the managing agent Benjamin Mire rang rings around its disciplinary process and emerged scot-free – having been barred from ever holding a judicial appointment.

Worse, around 317 stuck off surveyors are back on the roll after flaws in the RICS disciplinary process.

Pointing out the uselessness of the professional regulatory regimes has done us no favours, and I regret to tell Nick Hopkins, though we see each often, we will not be meeting at the ARMA conference next week because they are sulking.

Case against Benjamin Mire collapses, as RICS disciplinary process descends into shambles

Does the property tribunal deserve more money?

None on the panel thought it did.

SOK: This is the supposedly low cost tribunal, which is now an absurdly high cost racket, where leaseholders are in a position of considerable vulnerability in relation to freeholders. Freeholders routinely win the cases because of the very real threat of legal costs.

Far too many of the judges are leasehold sector insiders, usually remunerated from landlords. 

Concerning insurance commissions, at the ARMA conference last year the Secretary of State recommended amount was 10%. What are your views on managing agents receiving commission for insurance and what do you consider is a proportionate amount?

Insurance commission scams are endemic in this sector.

The answer is to make leaseholders a party to the insurance contract so that they can see the level of insurance commission for themselves. More than 10% is simply graft – and absolutely routine in this wretched sector.