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Fridaysmove reviews liberal think-tank’s report on Leasehold flats

Fridaysmove’s review of Liberal think-tank CentreForum’s report on leasehold property ownership concludes that their recommendations do not go nearly far enough. Rather than calling for root-and-branch reforms of the whole system, they merely call for a bit of ‘light-touch regulation’ and a few minor changes and improvements which would make little useful difference to the majority of flat-owners.

The report is undoubtedly a thorough review of the way in which leasehold tenure has become the normal method of ownership of flat in England and Wales. Congratulations are due to the authors, Thomas Brooks and Chris Paterson for the thoroughness of their research.

As they point out “Leasehold cannot simply be dismissed as a niche issue or an anachronistic quirk:

Industry figures suggest that there are up to 5 million people living in 2. 5 million leasehold properties in England and Wales. ” 

The report also highlights the disturbing fact that this form of anachronistic tenure is now “almost a uniquely Anglo-Welsh system – the rest of the World has developed alternative approaches which allow individuals to own flats and houses on estates in perpetuity and which give them control over management. ”

The authors categorise the problems and difficulties that many flat-owners experience – problems that Fridaysmove has reviewed elsewhere – such as;

  • Excessive service charges and lack of information about calculations
  • Freeholders arranging management and maintenance to be carried out by companies which they control
  • Freeholders accepting excessive insurance quotes and pocketing commission on the premiums
  • Difficulties and expense for leaseholders in seeking legal remedies
  • Lack of equality of bargaining power – the system is skewed in favour of freeholders  

Having concluded that the present form of leasehold ownership for flats has many faults and is not fit for purpose the authors make a number of recommendations for reforms. They state “Rather than advancing a new system of ownership, we seek to improve the existing leasehold infrastructure. ” 

However Fridaysmove review of their proposals is that they don’t go nearly far enough, and are merely tinkering with things. A new, and arguably better, system of ownership of flats already exists – i.e. Commonhold – it just needs the political will to make it universal.

Specifically, the report recommends:

  • The introduction of an independent regulator. Managing agents should be licensed, and follow a code of conduct. Such a system has already been introduced in Scotland, and would be useful in England. However Housing minister Grant Schapps has scoffed at the idea. In any case this proposal does not get round the problem that managing agents are appointed by freeholders, not flat-owners.
  • Managing agents should subscribe to an ombudsman, “Light-touch regulation and licensing would ensure that all managing agents subscribe to an ombudsman, guaranteeing leaseholders a free and accessible arbitration. ” The review suggests that the use of one central ombudsman delivering public judgements would not only offer a more consistent service for leaseholders and freeholders but would also improve understanding of the system. While having undoubted merits, Fridaysmove cannot help thinking that agents would rapidly find ways of avoiding the system, or it would become too slow and complex to use.
  • Reform of the Leasehold Valuation Tribunal process to reduce power and information asymmetries and deliver a fairer service. The report graphically shows the steep rise in LVT cases and the difficulties and expense which leaseholders face. Reform is to be welcomed, but this needs to go beyond mere procedural changes. In particular leaseholders should never have to pay a freeholder’s legal and other costs.
  • The threat of forfeiture of properties for failure to pay service charges should be removed. At present freeholders have the right to terminate a lease if service charges and ground rent are not paid – this effectively strips the flat owner of their property. In other words, an owner might lose a home worth hundreds of thousands over an argument about a few hundred pounds.  
  • Freeholders should not be able to charge for permission for alterations unless they can prove that such work reduces the value of a property. Freeholders can currently demand payment in return for granting permission for alterations, especially when retrospective consent is required for work which has already been carried out. This often leads to a ‘hostage’ situation when an owner is in the process of selling and the buyer won’t complete until the consent has been obtained.
  • Commonhold should be promoted, with priority on new properties. Fridaysmove reviews of the benefits of Commonhold are published elsewhere on this site – our view is that this system should be made compulsory for new developments within the next year or so. The present legislation also needs to be amended to make it easier and quicker for owners of leasehold flats to convert their blocks to commonhold without penalties.
  • The Right to Manage (RTM) scheme should be promoted. RTM allows leaseholders to assume control over management without having to pay to own the freehold, but it can be difficult to gain the 50 per cent qualifying support required.  The report proposes that flat-owners should be able to ask their freeholder to forward letters to all leaseholders, and service charge demands should include information about the right to manage.

While all these proposals are welcome, in many ways they are unnecessary. Commonhold should become the norm for ownership of flats – the legislation is already there, all it needs is some way of ensuring that it must be used for new developments, together with a simple method of converting existing leases.

Flat-owners must make their voice heard – the present government seems prepared to listen to the views of property companies, but members of parliament might like to remember that leaseholders across the country have far more votes.  

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