/ 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

Having been a leaseholder for the best part of 28 years, every year I receive my maintenance bill, I always have to ask for an itemised bill!
There are 22 dwellings in the block, and only 5 are leased.
Any charges are split ie. 1×22.
I live on the ground floor, but have to pay the charges for the cleaning of the stairway to the 1st floor dwellings. I once offered to do the job for half the price they were charging, but my offer was declined.
I dread the day that the roof needs renewing!

Member

Our detached house was leasehold which we bought for the then substantial sum of £600 over 20 years ago.
We cannot see any advantage to leasehold for a standard self contained terraced,semi or detached home. In fact we are glad that we own the land and don’t have any restrictive covenants, need to refer to someone else about our own home?
Buy the house and land, keep it simple,

Member

After living in freehold houses for 35 years, I down sized and moved to a flat in a converted former hotel building, 3 years ago. I never expected to have to put up with continual demands for money from the Managing Agents which they were unable to substantiate. I have take a stand with the latest demand which I have refused to pay, as it includes an item I do not have, (solar energy maintenance charge which only applies to the new build flats on the estate), the electricity estate bill is 3 times the amount for previous years, and an increase in Managing Agents fees of 45%. We have only had one meeting of residents in 3 years, and the Managing Agents refuse to let us set up representatives for the flats, because they say they cannot do it until all the flats are sold. 2 out of 51 remain unsold. Managing Agents seem to think they can charge you what they like, and then threaten you with Court Action or Bailiffs if you don’t pay up.

Member
David says:
28 March 2014

Hi Graham,
I suggest that you look at the Leasehold Advisory Service web site. There is lots of information on there which is very useful to leaseholders in explaining their legal rights. It tells you about setting up a Residents Association. From experience I know that, whilst it is always a battle when dealing with “Management”, an association with a combined voice can make a difference.
Good luck, David

Member
Graham H says:
28 March 2014

The freeholder seems to hold all the aces and leaseholders have none. It can be a pain to get leaseholders to form a common view on anything relating to the property overall, and often it falls to a few key individuals to fight the freeholder to keep the building properly maintained and serviced at fair and reasonable costs.

As an individual freehold property owner, you have, within legal boundaries, the sole right to decide when works ned to be done and how.As a leaseholder you are one voice amongst many other leaseholders, many of whom will have different issues than yours. And then you also have the freeholder whose interest may be completely different. Getting the freeholder out of the way and having only other leaseholders to deal with would be a good first step. But Commonhold has gone nowhere since it was made available, which suits property companies!

Member
John Chappell says:
28 March 2014

As a Chartered Surveyor managing approximately 100 leasehold residential properties, we always send out detailed invoices showing breakdown of costs, which are based on the wording of the Leases, which normally means actual expenditure, rather than a figure plucked out of the air. The only addition to these costs is where specified in a Lease that a management charge of x% of maintenance expenditure incurred should be charged.

However, there are local developers, even here in Skegness, building leasehold new properties who have clearly used Hans Christian Andersson to calculate their annual charges, which have no basis in fact and never fails to amaze me how many people just stump up these convoluted bills without question. They are of course, not Chartered Surveyors !

I would be very happy for the OFT to look at the whole scenario with the same force as insurance and LIBOR mis-selling scandals because millions are being ripped off by unscrupulous builders who have no idea what “an honest day’s work” means. I am not all for the Leaseholders and act only for Landlords but I am all for fairness, openness and honesty.

Member
Philip Moss says:
29 May 2014

John,
Regretfully you are one in a million. This is what we should have in every walk of life,integrity, fairness openness and honesty. It needs two or three leaseholders to get the ball rolling so that
the individual flat owners control the upkeep of the block, using agents where necessary.
That said I have come across some leaseholders management companies who do not believe
in the principles mentioned by John, and it is extremely difficult to get every one to demand that they do..How do we get people to be involved even when their home/investment is badly managed ?. As an indication of general apathy ,
in the recent Euro Elections only one third of us voted, so much hot air over UKIP when only 10% of those eligible to vote, voted. for them. We seem to have lost the ability/desire to get involved.

Member
skittykat says:
28 March 2014

I have lived in a leasehold flat for almost 30 years. It is a third of a Victorian property and we all share the bills, although there is an admin charge of £1,250 per year also shared between the three flats. About seven years ago I extended my lease back to 99 years (the freeholder would not allow me to extend it more). Since then I have realised that I could have extended it further and ended up with a peppercorn rent. I am thinking of going along this route now although I have 90 years left on my lease and could do without the expense and have no idea how much it could cost me. I wonder if I should do this sooner rather than later. Does anyone have any ideas. Many thanks.

Member
Graham Randall FRICS says:
28 March 2014

My advice as a lease enfranchisement surveyor to skittykat is to make a section 42
application now under the Leasehold Urban Housing & Development Act 1993.
The cost of lease extension will be relatively low with over 90 years unexpired term.
Unless the lease goes below 80 years there is no marriage value.
The Freeholder has to give you the statutory extension term of 90(existing)
plus 90 years.He cannot debate the term.Do not try direct negotiations with
the Freeholder just serve them with the notice after you have had a professional
valuation to assess the premium payable.

Member
Robert says:
28 March 2014

For the last 7 years I have owned (from new) a leasehold on a flat in a small block of 6. The 6 leaseholders are the only (and equal) shareholders in the Management Company which owns the freehold. We are therefore the directors. The Management Company is a limited liability company registered at Companies House. We have to make an annual submission of required returns and company accounts. We are not registered for tax as we avoid having taxable income (e.g. investments) and we ensure that we do not make payments to any of the directors which reduces the reporting requirements. The legal framework ensures that when a leaseholder sells, he also sells his share in the Management Company (and therefore the freehold) to the new leaseholder. I’m not sure that this has been set up as a Commonhold, but it is close to it.

We are very fortunate to have in one of the directors a good company secretary who is also our treasurer and ensures that all returns are submitted in a timely manner. The alternative would be to employ an accountant to do it for us, but that would add cost. However anyone thinking of going down this route must ensure that they do keep on top of all the requirements of Companies House. The penalties for late submission are in 3 figures.

We pay a nominal ground rent of £5 pa to the Management Company and find that a £30 monthly charge covers shared costs – miscellaneous maintenance, buildings insurance, common areas electricity and gardening, plus it puts a little aside for major expenditure. We have no incentive to create an excessive capital reserve as if any individual sold his lease, his share of the reserve is passed to the new leaseholder, however we need to protect ourselves from a large bill.

I am so glad that we do it this way rather than have to pay a separate management company who has no incentive to keep bills down, plus we have no admin costs. I guess if the block were larger it would get more complicated and we would probably have to employ an accountant and have a more formal facilities management process in place to ensure maintenance got done.

The problem with the situations where leasehold flats are managed by a separate Management Company which owns the freehold is that the leaseholders do not seem to have legally enforceable representation rights. Natural justice would require the leaseholders be allowed to elect representatives to the Management Company board – like employee directors in industry in Germany – with a substantial voting rights, maybe even 50% if their responsibilities were appropriately defined and by statute.

Member
D Goodwin says:
28 March 2014

I live in a block of former council managed flats. The council role has now been taken over by mostly x council workers forming a management company and our service charges have dramatically increased. We are invited to meetings express our concerns then the management company continue to increase charges.

Member
Sandy Robertson says:
28 March 2014

Our freeholder refuses to tell us names of other leaseholders in our estate, despite being obliged under law to do so. His excuse is that request aren’t “formulated” properly without saying how they should be worded! Leasehold Advisory have been little help as they refuse to comment on how requests should be worded! They advise using pre printed form but freeholder won’t say whether he’ll accept that. The Managing Agent claims, wrongly, he can’t give the info about leaseholders due to data protection rules and won’t accept Advisory advice that he’s wrong in law, saying he’s only allowed to inform associations not individuals. When asked to cite the law he says he has to ask Trustee who is away. It seems we are stuffed as these people just do what they like.

Member
Graham Randall FRICS says:
29 March 2014

Sandy does not need to bother with the managing agents.Just pay the Land Registry Fee
& they will supply all the title information you need.
Looks like you are not pleased with the current arrangement. Suggest you get together with
the lessees and enfranchise so you have control as freeholder and manage the building more effectively.
This requires an application under Section 13 of the Leasehold Reform Urban Housing & Development Act 1993.Consult a specialist lawyer but for basic procedure outline see
Lease Advisory website.Professional valuation for the premium to pay will be needed.

Member
Bechet says:
28 March 2014

I used to own a leasehold flat. The freeholder was the builder. Initially the maintenance charge was low ~ and stated in the lease. Then it was increase way above the level stated in the lease. The builder said that he was entitled to do this by law. Since he sent us detailed accounts we paid until he insisted on adding a charge for window cleaning which, because we were on the top floor where the window cleaner’s ladder wouldn’t reach, we never enjoyed. I deducted the charge and paid the difference until, finally, after a burglary, we sold. Then we had to pay in order to sell.
I wouldn’t buy another leasehold property, especially now that they are unlikely to benefit from the flood insurance arrangement agreed between the insurance industry and the government.

Member
bechet says:
28 March 2014

There’s something wrong with your system. When I try to submit comments it says that I’ve already said this !

Member

That’s frustrating. Sorry about that – is the comment you were trying to submit the one above?

Member
Tom Frost says:
29 March 2014

Our freeholder has disappeared. His solicitor advised he has gone abroad and does not know where he is. Trying to buy a freehold when the freehold has gone missing is an expensive nightmare that many solicitors will not take on. It needs to be simplified.

The freeholder stopped paying the building insurance and our flats were not insured for several months. I wrote to the last government saying insurers should be obliged to tell leaseholders when a policy lapses. This suggestion was rejected.

Member
f brown says:
29 March 2014

Any investigation should also take into consideration the position of long leaseholders who have purchased houses from developers who have retained the leasehold with covenants to maintain common access roads/landscaping and external building maintenance etc. Developers are free to subcontract these services and, unless all the leaseholders are united, it is nigh impossible to question expenditure, ensure that maintenance is properly carried out or to even maintain the outside of one’s house without recourse to Tribunal, which can be costly and lengthy. Houses built as holiday homes are particularly prone to this abuse by the head landlord, who can breach covenants with impunity knowing that the leaseholders have no legal standing.

Member
Philip Moss says:
29 March 2014

Leaseholds where ever possible should be run by leaseholders, and every effort must be made to get all involved. At meetings usually apathy shows them selves. You could well have a very autocratic person running the show usually Company Secretary or Chairman. The other
Directors also leaseholders allow themselves to be lead by the nose.I imagine it is because the person who does the work/administration occupies the position of undisputed authority and no one else wishes to do any of the work.
Our particular residents company have now decided to dispense with formal Annual General Meetings taking advantage of the law that allows small private companies not to follow all the rules, I have argued that this is wrong, we have 50 shareholders/leaseholders therefore this does not apply. What can be bone to come back to an open operation? Remember apathy rules.

Member
f brown says:
29 March 2014

I hope that your continuing to argue against the landlord/management company is successful but it is very clear that the law needs to be reformed drastically in this area. It cannot be right that 50 leaseholders with a common interest are held hostage to a head landlord or its management company just because of ‘apathy’. In fact the reluctance to ‘get involved’ is usually more to do with this being a remarkably grey area of the law with little rights for the leaseholders save where social housing is involved or where a single building has been divided into a small number of flats. Perhaps the law should differentiate between short leases (e.g. of ten years or less) and long leaseholds with legislation that provides more or less the same rights to long leaseholders as freeholders.

Member
Tony Hereford says:
29 March 2014

I live in a complex of 10 and we have just formed a Right to Manage company, we have estimated that we can reduce the maintenance bill by up to 50%, the Leasehold Advice Service website can advise on how to do this

Member
Sandy Robertson says:
29 March 2014

Re Graham Randall comment, of course we’d like to enfranchise! Why do you think we want names of fellow leaseholders? And that’s why they won’t give names to us! It isn’t cheap to buy all names from Land Registry for whole estate, and legally we shouldn’t have to. Also, the freeholder’s list will probably be more accurate I feel as he will know who pays him ground rent. As I have said, the freeholder refuses on basis that requests are not formulated correctly but won’t say what he requires! And Leashold Advisory say the can’t comment on wording!

Member
Katharine says:
30 March 2014

Sadly, commonhold isn’t a viable alternative to leasehold (yet) because the legislation is drafted in such simple terms that it doesn’t really work in practice and lenders won’t touch it. They prefer to stick with leasehold, with which they’re familiar.

A similar system, ‘strata title’, has worked in Oz since about the 1960s. Americans have a similar ‘condominium title’.

The Australian law is far more sophisticated than ours. We suggested to the Govt that they take a leaf out of the Aussies’ book and adopt a similar system here, but instead (just to get something on the statute books) they adopted a very simplified system that barely anyone has used. A real wasted opportunity.

Member
Graham Gibbs says:
31 March 2014

The first property I bought was a leasehold flat and I was charged a flat annual fee,(ground rent), then throughout the rest of the year I kept getting bills for painting stairs/railings, repointing chimney stacks(although I never anyone on the roof). When I queried these charges all I was told that they have receipts showing the work was done, but no physical evidence. When I eventually sold the flat to a friend he then got a bill for renewing the guttering for the 10 flats in the block which was a ridiculous price, no quotes from any other guttering company.
A leasehold property is a cash cow for for these companies and the quicker these are banned the better.

Member
Graham Gibbs says:
31 March 2014

I also forgot to add that my next property was a leashold house, but the lease was owned by all the houses in the development and we each had one equal share which was £1 per year. We organised our own maintenance from the funds held in our own bank account and it ran very well. The lease was for 999 years so fear of the lease running out. The only reason we owned the lease was the original leaseholder just disappeared.

Member
David C says:
31 March 2014

My blog from 2012 explored why Commonhold has not succeeded. Nothing has changed. The rushed legislation is shot full of holes and needs substantive revisiting before developers will take it up:

http://davidclarks.blogspot.co.uk/2012/08/why-commonhold-has-failed.html