Housing and Planning Bill Committee

Written evidence submitted by Leila Allen (HPB 120)

RE: Current leasehold legislation is discriminatory

I understand from Nigel Wilkins of CARL (Campaign Against Residential Leasehold) that presently the House of Commons Public Bill Committee on Housing and Planning Bill 2015-16 is being brought before Parliament.  CARL believes that this is an excellent opportunity to address the serious shortcomings contained within the current Leasehold Legislation.  In addition to the five key reforms that CARL is campaigning for ( http://carl.org.uk/pages/our%20aims.htm ), I'd like to highlight further discriminations against certain groups of leaseholders within the leasehold community which must urgently be revised.

The Leasehold Reform Act of 1993 offers the opportunity of "Collective Enfranchisement" to leaseholders of flats, however this enfranchisement process needs to meet certain criteria and unfortunately therefore  can not be enjoyed by all leaseholders equally .  

I am a leaseholder of one of two flats within a house conv
ersion in North London .  The leaseholder of the other flat within the property simultaneously owns the freehold on the building.

Under current legislation, I am excluded from the Right to Collective Enfranchisement.  While the threshold for participation for most leaseholders fell to 50% under the Leasehold Reform Housing and Urban Development Act 1993, Section 121 (3) of the Commonhold and Leasehold Reform Act 2002 introduced a requirement for both flats to participate in cases where there are only two qualifying tenants in the premises.  Although following government consultation in July 2009 it appears that this subsection has been permanently shelved, transitional provisions (Subsection 2, Schedule 2 of Commencement no. 1, Savings and Transitional Provisions) (England) Order 2002 [SI 2002, no. 1912]) have not been withdrawn meaning that it is effectively in force.  The consequence of this is that in a situation where the freeholder is also one of only two qualifying tenants, the provisions effectively ensure the freeholder can veto participation because he has a combined interest as freeholder/leaseholder - of course the freeholder has absolutely no motivation in sharing the benefits and entitlements bestowed upon him as freeholder and furthermore there is absolutely no obligation on him to co-operate in the enfranchisement process in his capacity as the second leaseholder. This is
discriminatory because it denies a qualifying tenant in these circumstances the same opportunity as those where there are more than two flats and the minimum requirement for participation has been reduced to 50%. The principal justification for discriminating against leaseholders in my position seems to be that the freehold could potentially end up being passed back and forth between the two parties as the disenfranchised half successively seeks to reassert its right - however, it ignores the fact that the freeholder is ALSO THE OTHER LEASEHOLDER and would quite legitimately be able to participate in the enfranchisement.  If the freeholder, in his capacity as second leaseholder  is obligated to participate in enfranchisement , it seems obvious that the enfranchisement should simply enable both leaseholders equal participation in the freehold on a joint (i.e.: 50/50) basis - the freehold would therefore not swing back and forth between each half as has previously been suggested.  I do not see that the freeholder in this position should be obligated to finance the enfranchisement process (these costs will be borne by the other leaseholder), however the freeholder should not be allowed to stand in the way of any enfranchisement request.

There are other situations where obligating the  resident freeholder(s)**  to participate in an enfranchisement process would be for the greater common benefit - take the example of a property containing five flats which has already undergone enfranchisement.  Say, for example, only four of those flats within the 5-flat property initially participated whilst the fifth leaseholder doesn’t participate for some reason.  Say that fifth leaseholder then subsequently sells their flat.  The new buyer is effectively frozen out of ever obtaining an interest in the freehold because enfranchisement has already taken place and there is no 50% majority that would willingly participate in a further enfranchisement to enable the fifth flat owner to obtain a fair stake in the building.  

Furthermore, by conferring the power of veto on a freeholder who is also a qualifying leaseholder current legislation makes a nonsense of the protections and rights contained within leasehold contracts:  This is because where a leaseholder is in breach of their lease it is the responsibility of the freeholder to enforce the covenants.  Where the freeholder is the leaseholder in breach, this would involve him taking action against himself.  Moreover the other leaseholder would be obliged to indemnify him for doing so.

Because I am a leaseholder in a building which contains two flats, whilst the other leaseholder simultaneously owns the freehold on the building, I am also excluded from the Right to Manage because it requires both leaseholders to
participate in the RTM company (Commonhold and Leasehold Reform Act 2002:  Part 2, Chapter 1, Section 79 (4).  

I am excluded from the Right of First Refusal which requires qualifying tenants to be in a majority to exercise the right. (Landlord and Tenant Act 1987, Part 1, Section 8A (1)).  Where there are only two flats and one is also owned by the freeholder, the other leaseholder can never be in a majority. The legislation also specifically excludes cases where there is a Resident Landlord (Landlord and Tenant Act 1987, Part 1 section 1 (4). So even when the freehold changes hands the leaseholder is denied the right to participate. 

The introduction of the 'marriage value' (which relates to property values) in to the calculation of lease extensions greatly inflated the value of freeholds.  At the same time the government has introduced legislation which specifically excludes those in my situation from the rights and protections afforded to other leaseholders while making the cost of a lease extension crippling.  Almost inevitably in this situation both parties involved are individuals which makes it intensely personal and engenders extreme levels of stress and acrimony. The freeholder has been handed a powerful financial incentive, the opportunity and the advantage to bully a vulnerable leaseholder and his oppressive position, so fiercely protected by Ministers and their civil servants, can not be justified.

In my recent letter to Greg Clark, MP on this subject, his response states: "It is difficult to frame legislation to deal with every particular circumstance, and the qualifying criteria for enfranchisement are designed to ensure that they remain workable without creating any unforeseen difficulties or consequences."  I believe this to be extremely arrogant on the part of government to state that current legislation is fit for purpose - given the two examples above, it shows precisely why the current legislation is NOT fit for purpose and the resulting devastating consequences of such. 

The investments leaseholders have made in their dwellings are substantial (on a par with those of resident freeholders) and this investment should be recognised as a legitimate holding rather than a wasting asset.  Leaseholders in either scenario described above need to have the opportunity to participate in the freehold.  In my view, obligating resident freeholders to participate in enfranchisement processes will level the playing field for those leaseholders currently barred from the process because of legislation favouring resident freeholders.  Lady Gardner of Parkes and Lord Goodhart have acknowledged
the disadvantaged position of those in my plight and Peter Bottomley MP is all actively engaged in campaigning for leasehold reform.  I am therefore appealing to you to do all you can to redress this acutely unfair and highly unequal situation and amend the relevant sections within the Housing and Planning Bill to obtain obligation for residential freeholders to participate in enfranchisement processes in order to allow leaseholders a fair and equal opportunity to participate in their building.

December 2015

** resident freeholder(s)  could refer to one or more freeholders owning the leasehold(s) on and physically living in flats in the building they own, or - as in my case - owning the freehold on the building and leasehold on a flat within that building, but renting it out on assured short-hold tenancies.

Prepared 8th December 2015