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A leaseholder’s wish list

Monday, 13th March 2017 | by: Matthew Price

The leasehold valuation team here at Peter Barry recently attended the annual Leasehold Advisory conference that brings together tenants, managing agents, solicitors, valuers and all other people/bodies that have a interest in the current leasehold sector. The conference was celebrating its 15th year and whilst a lot has changed since 2002, many of the gripes and bugbears of the various groups had a decididly familiar theme, that leaseholders across the country are still getting the bum end of the deal.

The UK’s ongoing ‘housing crisis’ has many strands. Apart from the main headlines of supply and demand and prohibatively expensive house prices, ‘greedy’ freeholders have also been getting their fair share of stick (rightfully or wrongfully, you decide!). Your house should be a place to call home, but even if you are lucky enough to get on the housing ladder, your home can so often be a cause of stress and headaches and seemingly a cash cow to outside investors. So what are the top 5 items on the leaseholders’ wish list? I’ll start with a few of the most commonplace ones and end with a suggestion that will almost certainly never come to pass!

1. A more regulated property  management system

One of the top complaints from leasehold owners of properties in typical medium to large blocks is the farmed out system of block management. Whilst your typical Victorian converted house will have a very shallow system with leaseholders directly linked to their freeholder, these types of blocks employ their own block managers who deal with everything from ground rent and service charge collection through to the organisation and execution of repairs. The main trouble here, it would appear, is the variable quality of the management.

Some companies appear to be as inactive as possible making it very difficult for leaseholders to collectively organise and demand that the external parts of the building are maintained to an acceptable standard. Others appear to be constantly inflicting huge Section 20 bills onto leaseholders with schedules of works that, in the eyes of the tenants, are excessive. This coupled with the fees charged for such a pleasure, often leaves a sour taste in the mouth.

One thing the Government could insist upon is for all management companies to be part of a regulated body such as ARMA or ARLA. That would at least ensure that all managers were up to a certain standard and that they would be subject to an appropriate redress mechanism.

2. No more leasehold houses

Whilst leasehold flats have been around for almost a century (and there are still a number of older leasehold properties in existence), developers have only recently been offering leasehold houses to the marketplace. At an initial glance this appears to be nothing short of another source of income for freeholders flung on unsuspecting leaseholders. Unlike a traditional freehold house, the lease on a leasehold house is likely to contain various restrictions on what alterations can or cannot be undertaken which means that when any such request is made, the freeholder is in a position to charge large premiums in exchange for permission.

The benefit of owning a house over a flat used to be very transparent. You are pretty much free to do what you want, but with a leasehold house this is far from the case! Also, unlike a freehold interest, a leasehold house is likely to be subject to a ground rent that will escalate over the course of ownership. This leads me onto my next item:

3. No more nightmare ground rents

Another topic that has received even more news coverage is that of unscrupulous ground rents. Gone are the days when these were set at a barely noticeable £50 per annum. The definition of a modern ground rent a few years ago was perhaps £250, now it is more likely to be £350. But not just any £350, £350 that is reviewed on a far more frequent basis, perhaps doubling every 25 or 33 years or in some cases every 10 years. Now the effect of time on the value of money means that these future amounts are never worth what they are on paper in today’s money but there are plenty of examples of the damaging effects of this type of clause.  There is the Taylor Wimpey property for which a buyer paid £101,000 back in 2010 but which is now unsellable as the ground rent is set to spiral to £8,000. The Government could move to legislate against ground rents over and above a certain ‘reasonable’ threshold but what would be the definition of reasonable?

4. A move to Commonhold ownership

The Government’s revision to the Leasehold Reform Act in 2002, was meant to lead to a much simpler and fairer way to own and manage leasehold properties. Unfortunately, almost 2 decades later, the poor take-up can only be seen as an abject failure.

This Act was originally designed to address flats and their shared ‘common parts’ such as hallways, the roof, the foundations, lifts etc.  Under Commonhold these parts are owned by a Commonhold association and the details are decided in the association’s memorandum. Technically, existing blocks can be converted to Commonhold, however this is rare and the more popular route has been to establish a share of freehold structure through enfranchisement. Whatever the detailed reasons behind the poor take up of the form of ownership, the Government could either make it more appealing to convert or build developments under this form of ownership, or at the very least make the public more aware of the opportunities and the upsides.

And finally…in a fantasy world, far far away:

5. Abolish marriage value

Of all the suggestions that greeted the floor at the Leasehold Conference, this one received by far the most widespread laughter! For those of you with a little less technical knowledge, marriage value makes up a very large chuck of the premium payable by a leaseholder to a freeholder when they come to either extend their lease, or buy their freehold under the Leasehold Reform Act. Whilst this is only payable once a lease drops below 80 years, recent case law developments have led to leaseholder’s paying noticeably more in what appears to be another swing of momentum in favour of big corporations. The abolition of marriage value would save leaseholders across the country tens and hundreds of thousands of pounds and would also put leasehold valuers such as myself out of business in an instant! As such, this is merely an entirely ambitious pipe dream. If 2017 can be the year that even a couple of the above issues are partly addressed, perhaps item number 5 can become a reality in another 50 or 100 years time!

Peter Barry Surveyors provide valuation advice and undertake negotiations in respect of lease extension and freehold enfranchisements. Should you require advice or a fee quote please do not hesitate to contact us by email or on 020 7183 2578