Forum Topic

Leasehold & Freehold (Reform) Bill

Yesterday we had the BBC local news on in the background at home.  A woman who lived in an apartment block, aka block of flats, in Canary Wharf said her service charges had gone up to £33,000 per year.  I asked my husband if I had heard that right, £33,000 per year, because I was only half listening.  It was correct. I hope that Michael Gove really does do something about these extortionate bills that are ruining the lives of people trying to put a roof over their heads.  It isn’t just enormous services charges, it is the land rent scam which sees the amount doubled fairly frequently.  I feel so sorry for people caught up in these situations.  

Martine Guy ● 61d47 Comments

Developers appear to have started to try to sell everything new leasehold.This website is useful:https://hoa.org.uk/advice/guides-for-homeowners/for-owners/leasehold-reform/And this is what happened to cause problems with new houses being sold leasehold instead of freehold:https://www.thisismoney.co.uk/money/mortgageshome/article-7188849/Developers-banned-selling-leasehold-new-build-houses.html  (June 2019 but this only applied to new new- build housing and was not retrospective.) I'm sure this subject will be returning as there are still lots of problems including the ones with leasehold flats.

Philippa Bond ● 28d

Unfortunately it shows how the UK economy is so much dependent upon the property sector.Not just individuals who have chosen to invest in property instead of traditional pensions but pension funds themselves.Like all addictions it will take time possibly a few decades

Ed Robinson ● 29d

Lucille is correct to distinguish between ground rent and service charges. I think the latter is supposed to cover servicing  and maintaining the common parts of the building. The landlords or their managing agents may or may not provide a good service at a reasonable charge.I believe the recent debate is about ground rent which you pay for the privilege of living on the ground the freeholder owns. Apparently this can increase astronomically over the years in a way which many  purchasers were unaware of and which can become a significant financial burden. The whole debate surprises me because in the late 1970s I bought a house in Dulwich.  Much of Dulwich was leasehold, the freeholder being Dulwich College. The then Labour government brought in a Leasehold Reform Act whereby leaseholders could demand to buy their freehold. I did this; it wasn't a massive amount. So I'm amazed the topic has cropped up in such a damaging way; I thought the whole issue had been sorted.

Elizabeth Balsom ● 30d

If leaseholders have control because they are the owners of the freehold then it surely makes sense regardless of the legal position to plan in the service charge for future maintenance which could be described as a sinking fund.Otherwise any unplanned and substantial maintenance event will cause a sudden call on contributions from the leaseholders.You should be alerted by your lawyer on purchase what the service charge arrangements are and who controls them.  If you do not have a share of the freehold then you are likely to be at the mercy of the freeholder in setting service charges.

Philippa Bond ● 30d

One way of looking at this is as follows: financial services has the principle of "Treating Customers Fairly" and is regulated by the Financial Services Authority with the need for staff to be qualified and principle staff and directors to be registered. Given that property is in many cases the biggest asset owned by many people then that asset should be treated in the same way: leaseholders should be treated fairly by law and not "ripped off" (or, if they are, an industry fund should compensate them from a levy on other regulated companies similar to the Financial Services Compensation Scheme) and bad managing agents or freeholders should just be shut down by a regulating authority and their directors and senior staff banned from the industry. As with financial services it would be no problem for those following the law and regulations, only the cowboys.

Michael Ixer ● 32d

I'm sure Labour will put it right.

Andy Pike ● 32d

I see in The Times today that “ Dozens of Tories revolt over gaps in ‘fleecehold’ reform” ”The MPs ….say it fails to fulfil the manifesto pledge to ban the sale of new leasehold flats. They also say that the bill includes loopholes that allow developers to impose exorbitant service charges on homeowners, who risk losing their property if they do not pay”. Instead of leaving behind something good when the Conservatives lose the next election, Michael Gove surrendered to the developers and pension funds.

Martine Guy ● 32d

As far I see it, the Government had a chance to leave behind something good with the changes to Leasehold.  Also they could have changed VAT so that it benefits the refurbishment of old buildings, which would have helped save some of our heritage that is so easy to demolish at the moment.
Ground rent is money for nothing.  People have bought leasehold flats with so many outgoings to the Freeholder, it is like they are paying a rent on top of their mortgage. Yes, they’ve given up Lucille, I agree.  What I read ages ago was that they know the country is in such a bad state, they don’t want to win the next election

Martine Guy ● 35d

I think the Conservatives have given up completely Martine. Pity the new government who takes over. I live in a leasehold flat but fortunately my service charge is nowhere near that of Canary Wharf! Ground rent OTOH paid to the freeholder is money for absolutely nothing. Gove has obviously been nobbled by Tory landlords/freeholders with regard to his Bill.

Lucille Grant ● 35d

Sunday Times today: “Leasehold Dream Over as Gove Plan Quietly Crumbles” One of the main parts of Gove’s proposal was to reduce ground rents to a peppercorn, but this has been abandoned because of resistance from The Treasury following “intensive lobbying” by pension funds. ”Harry Scoffing, founder of the campaign group Free Leaseholders said: ……..He is siding with rent seekers, middlemen and extortionists against homeowners, and betraying a whole generation of young people whose only chance of homeownership is to buy a leasehold flat.” Are the Conservatives deliberately trying to lose the next election?  I read this ages ago and when you read things like this, I have to wonder if it’s true?  How many MPs will they have left after another vote loser like this?

Martine Guy ● 35d

I'm not sure what percentage of leaseholds have sink funds and if they do how sufficient those funds are.Some quote 60% of leaseholds. Many council privatised properties do not have a sink fund. Wandsworth properties do not as far as I'm aware.With small or low rise properties maintenance costs are fairly easy to determine although still not without difficulty.However with larger properties the costs seem to spiral with many having been originally sold at very low prices compared to future maintenance costs.For example a low rise flat may have originally been sold in the early 80,s for 30K. Five  years later it needs a new roof that will then cost 10K. If the people were lucky they would have sold on the flat during the boom that saw property prices double.However many leaseholders are not so lucky. Of course ignoring the 17% interest rates - a couple of decades later and that property is now worth 250k but only if they sell it.In the meantime they have retired and another roof replacement is now due not to mention the other numerous mayor repairs in between.Some of the high rises the prices are more extreme and many less able to afford those high costs.Together with some buy to let landlords this partly explains the resistance that is encountered when doing some improvements that make economic sense in the long term such as replacing single with double glazing.I should say that I bought my flat privately at the hight of the late 80's boom and subsequent 17% interest rates but still considered myself fortunate compared with younger people trying to buy a property.

Ed Robinson ● 56d

I'm tempted to ask if there is such a thing as a good management company ... the problem is that it is the freeholder who appoints the management company but the leaseholders who pay the service charges. It ought to work better where the leaseholders own the freehold company but many managing agents seem even then to forget that they should be providing a service for the charges. I know of one block in London where the leaseholders who also own the freehold are looking to change the management company for the second time in around five years because of poor service. On a point of detail, if leases do not make provision for a sinking fund then there us no legal basis to create one.

Michael Ixer ● 56d

Ed has shown the reasons why a good management company is necessary (it can be the freeholders) and a sinking fund is always necessary not only for sudden repairs needed such as a new lift or roof repairs etc but also routine ones.  Keeping service charges really low and then suddenly presenting leaseholders with thousands of pounds worth of repair bills can obviously be a big problem and cause bad feeling.  Some structure is needed.

Philippa Bond ● 56d

Ed, I think maybe some leaseholders buy without thinking about future service charges because they can afford the charges at the time of buying a property.  If you own a house freehold, you have to maintain it, so asking an annual service charge on a flat isn’t that unreasonable.  I also think service charges and ground rents are more reasonable where the Freeholder is a local authority. What’s unreasonable are the extortionate increases on service charges and ground rents that are casing such distress to some leaseholders.  I really feel sorry for these people and hope they can be helped.

Martine Guy ● 56d

Basically there are lots of problems with leasehold properties in the UK.  Old and new ones.  Change is also made more difficult by those with vested interests like the 40 landlord MPs who vote against change and what about those in the Lords?https://www.parallelparliament.co.uk/mp/george-eustice/debate/2024-02-27/commons/commons-chamber/leasehold-and-freehold-reform-bill

Philippa Bond ● 56d

Unfortunately very little can be done by any government without upsetting the housing market even if they wanted to. A few tweaks here and there but nothing substantial will happen.It would be fairly simple to pass a law that the estimated service, maintenance and repair costs for the duration of the lease be put along side the selling price.This alone would send many running.Roofs may be replaced every 25-30 years, windows possibly 15-20?, lifts, brick work, painting outside, rewiring, water pipes, fire alarms, intercom, paths, tarmac for car park - the list is endless.If you own a leasehold property for more than ten years you are likely going to get hit by a big repair bill. You may just be unlucky and get hit by one straight away.Clearly a lot of properties are not worth the asking price with many just to costly to maintain.Successive governments since Thatcher pushing owning your own home and subsequent government forcing people to invest in property for their pension rather than traditional private pensions. It will take decades to wean the UK off high house prices and unsuitable leaseholds.

Ed Robinson ● 58d

Yes, but what’s that go to do with this Thread?  I don’t have a problem with the Freeholders being the Leaseholders, do you?  I think that’s a good thing actually.

Martine Guy ● 58d

When the freeholders are also the leaseholders there can be a problem with maintenance as it has to be agreed between them.  You can see a lot of homes across the country in disrepair - especially those which have been divided into flats - where there can be a problem with not just agreement but actually getting all the leaseholders to pay their share.

Philippa Bond ● 58d

Totally agree, Lucille, and have said so above in this thread.
It would seem, however, not everyone agrees: In the Bricks & Mortar Section of today’s Times, there is an article on a new pressure group called “Pensioners for Ground Rent (PGR)”.  They are saying that “leaseholders don’t actually mind paying the rent” “that managing agents are the real villains who push-up service charges; that buildings would fall into disrepair; and that elderly voters would suffer if ground rents were abolished because pension funds invest in the sector”. The group’s spokesman isn’t a pensioner, but 46 year old Steve Whybrow, a freeholder of 12 buildings “including blocks of flats, and he is worried that the government’s leasehold reforms could rob him of his retirement income”. I agree with Rachel Maclean, Conservative MP for Redditch, who receives hundreds of letters a day “from leaseholders who have faced bankruptcy or losing their home because of escalating ground rents.”  She says “This is human misery on a massive scale”.  I know that Redditch has a lot of new build housing, so this doesn’t surprise me. 

Martine Guy ● 58d

The other major issue with leasehold is Ground Rent. This money is paid to the freeholder with no benefits to leaseholders at all.This sum which in my case is currently £250 p.a. goes up after a certain number of years and in some cases is such a high amount that, when selling a flat, the buyer may be unable to get a mortgage due to the high cost.

Lucille Grant ● 58d

The responsibilities should be detailed in the lease. In small blocks or conversions cleaning or gardening would normally be a responsibility shared by leaseholders but in larger blocks it would normally be a freeholder responsibility and contracted out as part of the service charge, although if there is an on-site porter (whose wages are covered by the service charges) cleaning might be their job. There are sometimes ambiguities in leases; I seem to recall one case where the responsibility for maintaining balconies went to court - as not all flats had them some thought it should be the responsibility of individual leaseholders that had one but I think the court ruling was that as the balconies were part of the fabric of the building and hence key to its integrity so it was a shared responsibility covered by everyone's service charge.

Michael Ixer ● 60d

Well that's funny because I do the cleaning and gardening for nothing. They still have to pay service charge. So for checking lighting in hall nothing else.

Barbara Stevens ● 60d

Well I was talking about and individual house.

Barbara Stevens ● 60d

No not for large jobs like windows etc for whole block of flats.

Barbara Stevens ● 60d

Andy. I think it's probably true that insufficient due diligence has been carried out by many purchasers' solicitors - and also some managing agents have allowed some blocks to be inadequately maintained over the years meaning it cames as a nasty shock when work can no longer be postponed. (Remember, the managing agents are appointed by and work or the freeholders even though the leaseholders pay their charges, an anomalous situation.)It sounds like Wandsworth are relatively benign landlords. Others are just greedy and selfish - I won't go into details but they use lawyers to frustrate leaseholders' rights and bocks are often sold to offshore companies with faceless owners. The company owning the freehold of my mother's flat in Essex was Chinese, although fortunately it was easy to sell when the funds were needed for care home charges. In my opinion a regulator similar to the financial services one is needed - after all, property is often someone's biggest investment and needs to be protected from abuse in the same way as pensions or other savings.Even jointly owning a block with other leaseholders has issues: there may not be agreements on work needed, there's often a reluctance to enforce lease obligations against leaseholders (such as mandatory carpeting or noise proof floors) and many management companies are still lackadaisical not understanding they now work for the leaseholders who are also the block's owners! (And I heard of one instance where the agents tried to run off with the service charge funds.)

Michael Ixer ● 60d

Andy, re the Lands Tribunal, I would imagine dealing with Local Authorities as Freeholders, is probably far easier than dealing with a Freeholder who has no conscience about issuing service charge demands for £30,000 per year.

Martine Guy ● 60d

Andy, regarding Buyer Beware.  I think I read that on some of the new estates buyers used the Developer’s recommended solicitors?  I can remember being young and naive and eager to buy our first home.  Would I have understood quite what I was signing up for, I really don’t know?  In those days we were a bit in awe of people in professions and did as we were told and trusted the “experts”.  We have changed a bit since then!

Martine Guy ● 60d

Yes Michael where there are shops and commercial properties it makes it nigh on impossible to enfranchise but these are the exceptions.The LVT is a relatively cheap way of challenging a service charge and the very rare occasions I have seen them award costs is in cases where the challenge is frivolous or vexatious. Generally, costs were not awarded in my experience and when it was possible the Council did not push for costs ( even though there were occasions when we should have).My experience is of course based on the public sector and Wandsworth in particular I am aware the private sector is a whole different kettle of fish.One final word when I did my law exams some 50 years ago there was such a thing as caveat emptor (let the buyer beware). One does wonder if the buyers solicitors are doing due diligence on service charges and major works charges.

Andy Pike ● 60d

Andy. Some blocks have commercial properties or other complications in them which means it's not possible or viable to take over the freehold. What's needed is reform which gives leaseholders control over management agents and the spend on maintenance without having to take prohibitively expensive legal action. I know of one instance where a leaseholder lost a case against a freeholder and was left with a crippling legal bill as they had to pay the freeholders expensive lawyer's costs. 

Michael Ixer ● 60d

Barbara, there was an error in my posting, it should have read "originally cladding replacement would have been added to service charges". Yes, service charges are estimated and paid annually, and will included routine maintenance such as gardening, cleaning, etc but from time-to-time there will be exceptional maintenance, repainting, window replacement, etc and these will be added to service charges. How those charges are raised will depend on specific leases. Some will make provision for annual contributions to a reserve fund to cover exceptional charges, otherwise they may be raised as separate charges or added to the next years charges. For significant amounts the law stipulates the number of estimates managing agents should obtain and provides some limited rights to challenge those. That's a simplistic explanation to a complex legal area as it depends on wordings of specific leases that may predate new legislation in this area!But I'm not sure we're really disagreeing on this; some service charges are outrageous and some managing agents are useless ...

Michael Ixer ● 60d

Thanks for that Martine seems hugely excessive. What's not clear is if the 14/15 bill for £18k was an exception with more standard Bill's from then on until the latest exception ( ie what were the charges in 15/ 16 and beyond?Why on earth are the leaseholders not using the law to go for leasehold enfranchisement and take control of the management and hence the maintenance and connected charges?  The son seems aware of commonhold so why not go for enfranchisemnet .Even in commonhold all those having a common holding will have to pay their share of management and maintenance costs  but they will have more control over those costs.

Andy Pike ● 60d

Barbara, if you Google “£33,000 service charges BBC”, the story from yesterday’s news should come up.  Also Google “I’m a cash cow for a billionaire” and this will bring up the story on iNews.

Martine Guy ● 60d

BarbaraIt is obviously difficult to comment on individual charges without actually seeing its name up but just to correct on one point.In local authority blocks the tenants do pay their share. This comes out of the housing revenue account.If you have 20 identical properties in a block each property will be charged 5% of the costs incurred by that block. Therefore if 10 are tenants 50% of the charge will be picked up by the tenants through the HRA and 50% by the leaseholders. Leaseholders do not subsidise tenants in any way.

Andy Pike ● 60d

Martine, this is disgusting, could I have a look, where is the property please. Would be interested to see, also who owns the building.

Barbara Stevens ● 60d

Michael you obviously don't know everything, because the young ladies upstairs to me were suddenly told to pay 20,000 each for paying to paint the house front and back, which is only windows not brickwork. That was JCF who organized this, who all the other properties were then taken away from them managing and now with a managing agents in Weybridge. The girls got it down to 15000 each.  But that is apart from Service charge, which is paid yearly.  So 30000 and more is abit much for windows don't you think.

Barbara Stevens ● 60d

Yes, Barbara, but originally service charge replacement would have been added to service charges as part of standard maintenance in the same way that work for repointing brickwork or replacing windows is.

Michael Ixer ● 60d

In 2014/15 the service charges on the flat were £18,230.  If the Leaseholders don’t pay their bills there is the possibility they will lose the property.  The lady in the article says it is a no frills block, with no swimming pool, gym or garden.  Pipes are often leaking in the communal areas.  She wonders if the service charges will one day reach £100,000 pa. I don’t know how long it takes to go to a Lands Tribunal, but can’t you put yourself in the shoes of these Leaseholders, the stress must be terrible. 
As regards, the frequent doubling of ground rents, it’s a scam in my opinion and is daylight robbery by men in suits.

Martine Guy ● 60d

Yes they do also charge extra on top of service charge for Lifts, windows or painting the property or anything else they can think of, roofs etc.  I remember a lady who cleaned for where I worked was so worried, this was flats in Putney Heath, they suddenly wanted £8000 from for the renewing the lift. The renters don't have to pay just the leaseholders. When your getting older and on your own this was a lot of money 25 years ago.

Barbara Stevens ● 60d

Martine, I think there is a lack of detail in the report as to what the £33k represents. I cannot believe it is just for day to day service charges.Even so if a leaseholders believes the charges are wrong they can go to the Lands tribunal ( used to be called leasehold valuation tribunal) who will scrutinise and rule on the fairness or otherwise of the charge. This is a relatively inexpensive route and as she would be only one of a number if leaeholders in the block I would suggest they form a group and together challenge these charges.It seemed a pretty prestigious block and what we don't know is what services they receive.Is their a 24 hour concierge? What security arrangements are in place? Leisure facilities in the block etc etc.Even so if it is not in part to dk with the major works element of the service charge it does seem high, and should be challenged in tribunal and not through a 10 second BBC interview.

Andy Pike ● 60d

Michael Service charge isn't to do with cladding. Service charge is for gardens and cleaning of the properties or engineers to look at communial lighting lifts etc.  Surely cladding was put there when the buildings were built, but nobody had a clue the wrong material had been used.

Barbara Stevens ● 60d

From what I’ve read, England and Wales are now the only countries in the world where Leasehold is still widely used.  And that is because the laws are so complex in England, it makes getting rid/changing them to another system difficult. On the BBC website, the £33,000 is for the service charges, not for anything else.  The Freeholder is a billionaire.

Martine Guy ● 60d

The abolishment of leases is fraught with many practical issues ie who does pay the Bill's for maintenance and renewal.if not those ( the landlord and the leaseholders) who have a stake in the building?I suspect the £33k quotedcwas not an annual charge but an exceptional major works charge , still dear but looking at the block hardly unexpected when you take in the just one simple factor of  access for instance.The complexities of undoing millions of leases and replacing them with what ? Will meanittle changes but the unfair leases on new built houses that double the charges periodically. Traditional leases will need to be replaced by something similar under another name.

Andy Pike ● 60d

A quick Google and Labour do not have any policies on this.If they did it is questionable how long they would last.Unlikely unfortunately that leaseholders will see legislation on this issue with red or blue flavours of the same government.The Greens do have a policy. Would they actually implement it if they did come to power????

Ed Robinson ● 60d

I think Gove has worked hard on this and has certainly come up with some positive action on the cladding issue, although there are still some legal complexities with that. However,  my understanding is that some of the changes he wanted to make to leasehold law, particularly with regard to flats, were blocked, allegedly by the prime minister. The problem is some wealthy property owners and developers are Conservative donors, and a few may still occupy the remaining hereditary seats in the Lords. This might discourage radical changes in the law to avoid upsetting these powerful lobbyists. This could be another vote loser for the Conservative party as the best option is a Labour government who wouldn't have the same incentive to retain the feudal aspects of leasehold law and have said they'll abolition or reform the House of Lords. Our local MP, Fleur Anderson, has also been very supported this issue raising it with ministers and in the Commons.

Michael Ixer ● 61d

Martine people buy their Properties, then it seems they know nobody will be able to afford the Service Charge, so they will have to sell them, but nobody will want to buy with the high price.  Margaret Thatcher years ago gave people the right to buy, then they put the interest up high so they couldn't then afford it. It seems to be a game.

Barbara Stevens ● 61d

It really is disgusting, Barbara.  How are people expected to find these huge amounts of money in a cost of living crisis?  Or at an time, £33000 pa is massive, nearly £3000 per month. Even though the laws may change, I read there will be loopholes that developers can use.  Eg, I think can still charge what they like if they are retirement properties

Martine Guy ● 61d

Yes Martine, it's disgusting.

Barbara Stevens ● 61d