/ Home & Energy

Is it time to loosen the leash on leaseholds?

Model homes in grass

Earlier this month the OFT confirmed its market study on ‘residential property management services’. But why could this innocuous sounding study be such important news for millions of consumers?

Well, the OFT’s inquiry is actually about the perils of owning leasehold property; something that affects many millions of English and Welsh consumers (leasehold as a form of ownership does not exist in Scotland, nor in any other EU nation). It’s such a complex area of law for consumers to navigate that the Government funds the Leasehold Advisory Service to support people with help and advice.

The Leasehold Knowledge Partnership estimates that there are currently more than five million leasehold properties in England and Wales which must mean there are many more millions of consumers affected.

And it is a growing sector: latest statistics suggest that around 40%, and an increasing number of new build developments, are sold on a leasehold basis. The number of consumers living in or owning leasehold property can only rise in future.

As leasehold property is often a flat in a larger block or new development, it isn’t surprising that first time buyers are particularly affected, especially in London and large metropolitan areas where house prices are very high. But owning leasehold property also affects other groups too.

Leaseholds vs Commonholds

These groups include anyone who has either exercised their right to buy their council home or has bought a former council property that is a flat or has shared estate facilities. We’ve been campaigning behind the scenes to ensure the market study covers these groups too – and the OFT has responded positively to our requests. Another affected group is older people living in sheltered retirement housing, a sector the OFT has already investigated.

So what exactly is the scope of the inquiry? We’ve asked the OFT to consider the ‘legal framework that underpins freehold and leasehold arrangements in England and Wales’. In other words, why property in England and Wales is still built and sold as leasehold when there is a more consumer friendly alternative – Commonhold. Commonhold has been a legal form of property ownership since 2004; in the 10 years since it is estimated there are just 100 commonhold properties in the whole of England and Wales.

The OFT has decided to focus its study on whether managing agents and freeholders have the same interests as leaseholders, whether leaseholders have sufficient influence on decisions taken by freeholders and whether there are barriers to switching.

It’ll also be looking at whether it works well in practice when leaseholders exercise their right to manage their own properties.

We’d like to hear your views – the pros and cons – of living in and/or owning leasehold property; we’ll be submitting your comments to the OFT in any additional response we make.

Comments
Member

When commonhold was introduced ten years ago, why weren’t leaseholds banned on sales of all new residential property? There is no justification for leasehold; it serves only to advantage the freeholder in an unfair and uncontrollable way.

Member

I’m currently looking to buy a flat, but coming from another country where there’s no such thing as leasehold, I find it very unsettling to pay a lot of money for only a part-ownership of a property.

The system where I came from is that once a property was built on a piece of land that land doesn’t exist as separate entity any more. The flats owners nominate a committee that is in charge of the building’s maintenance. Decisions are taken on democratic basis in accordance with the law and safety regulations. Each flat pays a part of the expenses, in proportion to its relative size. I think that this is a much fairer system. Can this ever happen here in a society where historically land owners have been far too privileged?

Member
Sandy Robertson says:
4 April 2014

You are abso-freaking-lutely right. There’s no earthly reason why a flat should not be owned outright. One hopes that the rumblings at the moment about bringing down these villains who milk freeholds and run management companies like N**i gauletiers will actually come to something. I fear the government is unlikely to rattle the cages of their business cronies. Move to Scotland – they don’t have leasehold.

Member
Sandy Robertson says:
4 April 2014

I’m amused to see you censored my last comment! Why can’t I use a pejorative four-letter non-swearword that refers to a political system run by a chap named Hitler to imply authoritarian behaviour by freeholders and managements? Don’t be so childish. By censoring all but the letter N some folk may think I was using the disgusting “n” word, so you’re making things look worse!

Member
BLH says:
4 April 2014

As both Freeholders and Leaseholders, we do have a choice, either manage ourselves by way R/A or have managing agents, and have managed ourselves for the last 30 years
But getting people properly involved and to understand the terms of their lease is difficult, in our case some 75% have no such interest and leave it to the remaining 25% to arrange upkeep of the property
One aspect that bothers me personally and others that I know is the total disregard from certain terms of the lease, and one that the law will not support you on. This aspect is ‘noise’ from neighbours. I know that it is fashionable to have natural flooring in older properties and does look very much in keeping. But that is of no interest to people who live below them, the constant noise of people carrying out there normal pursuits can be incredibly intrusive. Even though many leases have clauses to say that certain rooms above ground floor must be carpeted to enable those below to live in ‘quite enjoyment’ of their property. This is being largely ignored, and going to court will gain you nothing.
The government should enforce courts to uphold the legal contract of the lease.

The position at present is put up or shut up and move, because if you make an issue of this officially you will have to state this if asked when selling, so who would buy your property? and equally so if you fail to mention this when asked then you are guilty of a crime, so you are in a loose loose situation.

Member
Sandy Robertson says:
4 April 2014

I’m surprised – despite general annoyance with our management rulers, they’ve enforced the no-wood-floors rule. One flat was obliged to rip out newly placed floors at great expense. Others were, I think, forced to put down felt underlay before installing wood floors. I can’t see why you say going to court won’t work.

Member
David C says:
4 April 2014

The lease dictates the terms of the occupation, mostly to protect the neighbours and ensure their ‘quiet enjoyment’ and to set out the terms under which you occupy and behave. This includes, usually, a term requiring wall to wall carpets and thermoplastic flooring or tiles in bathrooms and kitchens. It will also say things like you cannot play music after 11pm.

Why would it not be reasonable to enforce such terms?

Many of the problems I am reading about here are to do with communal living in flats/apartments and the upholding of the rules and maintenance of the building. They apply whether you live in leasehold, commonhold, strata title or simply rent. It is easy to confuse problems that are universal to blocks of apartments and communal living with leasehold tenure issues.

Leasehold issues are usually caused by a lack of transparency in costs or a landlord (or residents’ management company or managing agent) not upholding the covenants (rules) set out in the lease or worse, abusing them. This is why there is so much legislation around this area.

There is a belief that removing leasehold tenure from the system will fix these problems. It will not – although the issue of a reducing asset value over time would go as would the ground rent.

In answer to why leasehold was not simply scrapped in 2002 there are many reasons, other than the obvious political ones. Much land is owned by local authorities, trusts and individuals who do not wish to relinquish their valuable landholdings. Freeholds are valuable and there would have to be compensation paid – who would pay it? As I have stated before, commonhold could work if the legislation was drafted properly and with more care.

Finally – all the protections afforded by the Landlord and Tenant Acts, the residential tribunals and RICS and ARMA Codes would not apply to commonhold. You would have to rely on the behaviour of the elected officers of the commonhold association. Let’s hope they behave appropriately too.

Member

In most major towns and cities new dwellings are now predominantly leasehold apartments, especially in the centres, on ‘brownfield sites’, alongside rivers and waterways, and where there are views to attractive landscapes. Many of these units have been purchased by absent landlords with ‘buy-to-let’ mortgages and the turnover of occupiers in these developments tends to be high. It makes sense in such cases for there to be a permanent management arrangement that can make sure that the building is properly maintained and serviced. The absent landlords are the leaseholders and, since they can simply recover the management costs through rents, they are have usually been quite happy to have the block managed with continuity by the freeholder or by a separate management company . In those situations individual owner-occupiers can be at a disadvantage and probably have very little opportunity to organise a right-to-manage process as they would no doubt be outvoted by the other [mainly landlord] leaseholders, who possibly feel – with some justification perhaps – that their commercial interests are best served and property values better protected if the building is under professional management. This tendency is also affecting older blocks which were originally owner-occupied but, as flats came up for sale, have been taken over by investors who then let out the units.

The bigger the block the more complex the management and it is understandable why few of the residents, even when they are mainly owner-occupiers, will want to take on any management responsibilities and be at the beck and call of other residents over housekeeping issues. I would guess that the upper limit for amicable self-management is no more than ten units in which case it might be best to go down the right-to-manage route. Commonhold might be a workable method but I can’t see many advantages over group self-management and David C above has outlined several significant drawbacks. It seems to me that worrying about commonhold and urging its wider acceptance is a distraction from the main issue which is to reform leasehold, enfranchise leaseholders, regulate freeholders and management companies so they cannot exploit leaseholders, owner-occupiers or tenants, and place a presumption of fair-dealing on all those engaged in the business so that any unfair practices are by definition outlawed and unenforceable..

The big worry for leaeholders is the control of management expenses. So rich are the pickings that there are companies that assiduously look for parcels of residential freeholds to buy, not because they will make a fortune out of the ground rents [which give a decent return but no better than many other investments] but because they can get their hands on the management arrangements where big money is to be made. They either have their own in-house maintenance company that miraculously wins all the tenders for redecoration, repairs, cleaning and maintenance or they are in league with other firms who engage in creative pricing onto which the managing company can add its 15%. Billing and administration costs can also be inflated. It’s easy to see why these companies are loath to release the names of leaseholders desiring to act independently as their entire business plan would end up in tatters if they lost the profits from management and the values of their freeholds was thereby diminished. In some cities there has been such a surfeit of new apartment blocks built over the last few years that rental rates are depressed and I think the landlord-investors are now starting to get worried about the management expenses as good tenants, who can afford rents incorporating higher management charges, shift to newer, smarter developments; if the management charges keep rising while the rents are held down by over-supply, and at the same time the turnover rate and void periods increase, then coverage of their mortgages is at risk. I’m not saying we should show too much sympathy to property speculators but a surprisingly high number of ordinary people have gone into property investment as a hedge against other economic setbacks.

I have no direct personal interest in this topic but feel that, since being at ease with one’s housing situation is a fundamental part of having a satisfactory life, it’s about time a sound and fair legal structure was put in place for the millions of people [and rising] who find themselves in leasehold property, especially the resident leaseholders whose interests do not coalign with those of the investors and speculators who increasingly rule the roost.

Member
Sandy Robertson says:
4 April 2014

In my estate the same firm always miraculously bids low enough to get contracts, and their inept and surly workers bungle the jobs. Police had to be called to stop one worker messing up a job for a leaseholder who was dying of cancer. I have NO sympathy for investors and manager cronies who refuse to divulge names of fellow leaseholders – let us remember, they are BREAKING THE LAW by doing so.

Member
David C says:
4 April 2014

Excellent points well made John. I suppose my concern is that management problems are not the sole domain of leasehold. There are plenty of examples worldwide where elected community representatives abuse their positions, appoint related companies to do the work etc etc.

One advantage of leasehold (there are amny disadvantages I know) is that it is framed in fairly tough statute and regulation, it has tribunals and ombudsman and proper regulation, independently panelled, is coming in the form of ARMA Q. Yes it is industry driven, but if you read the consumer charter you will be impressed by its scope and powers.

Commonhold is not the panacea people assume it is. 90% of the issues in communal living will remain the same. Buildings are increasingly complex and expensive to maintain and those built in the last urban residential boom are no exceptions. Expect cost pressures to continue to drive the dissatisfaction amongst consumers who, after all, are rarely willing purchasers of this necessary service.

Member
Sandy Robertson says:
4 April 2014

Excuse me while I laugh. If the statutes etc are so tough, why are all these crooks still getting away with such shenanigans, even ignoring clearly stated laws that they’re obliged to give out leaseholder details? We had a very feisty woman with a legal background (now dead) on our estate. She was aggressive and relentless yet got nowhere with all the tribunals etc. She won a few hollow victories but gained nothing in the end. People don’t mind service charges – IF they’re fair.

Member
David C says:
4 April 2014

I don’t disagree Sandy – the law is complex and creates loopholes for the unscrupulous. It needs clarifying and consolidating.

Its just that the commonhold rules are currently even worse and completely unworkable.

Where large sums of money are concerned there will always be a small minority looking to abuse their position – landlords, resident directors, contractors etc. It pays therefore to use accredited, regulated experts with a track record. Currently though the market is dominated by cheap, cheap, cheap solutions and the problems will continue until management is fully professionalised.

It is coming though.

Member
Sandy Robertson says:
4 April 2014

A consummation devoutly to be wished, as someone once said, David! Our management have changed their name, been censured, and involve a maze of firms interconnected all with the same directors. They’ve even done things like banning me from reading my own water meter. Thames Water say they no longer take people to court for this sort of thing, so they were thus emboldened to go on and lock the electricty meter cupboard for “security” reasons and tried to force me to BUY a key! Something must be done and soon.

Member

The “consummation devoutly to be wished” was, I believe, one of the regular responses uttered with a touch of irony by Jeeves who was the gentleman’s personal gentleman for Mr Bertie Wooster. While Jeeves had an exquisite knack of getting Wooster out of scrapes with aged aunts and soppy girlfriends, I fancy he would be no match for the ghastly behaviour of property management companies.

Member
David C says:
4 April 2014

Harry Potter?!
Perhaps we need some Wizardry.

Member
Sandy Robertson says:
4 April 2014

I thought it was Poe quoting Glanvill, but you may be right. Dumbledore (Sir Michael Gambon) is a friend of mine – maybe I should see what he can do.

Member
David C says:
4 April 2014

Wow, gothic witchcraft, opium addiction…perhaps too far off topic.

I wish you luck getting your issues resolved. Persistence usually pays.
Have a good weekend.

Member
Z Strachan says:
7 April 2014

As a leaseholder with Ealing Council as their landlord. Have to say we are being bled dry with their constant demands for upgrading even though they have received money from the government for this. We are their cash cows and tenants pay next to nothing. Worst decision made buying the property.

Member
Anna Fitzjohn says:
29 May 2014

can anybody answer the following questions below:
-how is leasehold only 99 years long justified? (but, people paid with the same mortgage like a freehold)
– how is lease extension buying justified, why we have to pay aprox than £15000 to extend the lease of our property; the property is already bought with the same amount of money/mortgage like any freehold?
– how is lease extension delay justified, even 6 months, (if selling property you lose a buyer, and the property which you want to buy) and live 6 months in a mental hell
– how is justified that leaseholder MUST pay freeholders expenses for the lease extension?

Member
Anne says:
18 October 2014

We have recently sold our leasehold flat. 6 month before the sale the management company was changed. However, we have now received additional (new) bills from the old management company. As we no longer own the property and the management company is no longer involved in managing the flats, are we still liable to pay these bills, bearing in mind we had no idea that these bills even existed? Also, should this not have been dealt with by the new management company when they took over the management of the flats?

Member

Flats are frequently sold before that year’s management expenses are available [sometimes taking months after the year-end to be submitted] and the second half-year is often bigger than the first-half bill because it includes various annual charges like insurance, certain maintenance costs, and the bulk of the management fee [because it is pro rata the expense profile] and this can cause difficulties during the conveyance as the buyer’s and seller’s legal people try to get their heads round the apportionment [largely by reference to the previous years’ figures]. Perhaps they didn’t do it diligently in your case. When there is a change of management company there is an imperative to get this sorted out, as you say, by the incoming management who should be taking over the accounts and ensuring that adequate provisions are made for accruals. It is possible that the freeholders were delinquent in not securing a competent hand-over. I suspect that liability for the new bills from your old management company might be shared between yourselves and the person to whom you sold the flat depending on the origin and timing of each item. Every leaseholder can expect annual management charges and sometimes these are payable in two or more instalments so you should be able to check whether or not the amounts charged relate to your own period of ownership. In the first instance I would go back to the person who did the legal work on your sale and ask why they didn’t see this coming and advise you appropriately.

Member
stephen says:
10 October 2015

I have just been informed that the builder who had my lease hold has just sold it to a company in London ,He did not inform us or given me chance to buy ,The problem now is getting in touch when I come to change my mortgage deal. Why would anybody buy the lease on a little house with 999 yrs and 100 pounds for the life

Member

A simpler problem than most here, but what are the rights of the leaseholder if the freeholder is refusing to allow the installation of high speed broadband (internet) without reasoning and is forcing them to go with a broadband that runs far below their internet needs and will not be upgraded for atleast 6 months to superfast? I am asking for a friend who is having a real issue with this and needs more internet speed that is currently being allowed from the freeholder without any reasoning as of yet.