Leasehold and Freehold Reform Bill

Written evidence submitted by CommonholdNow (LFRB60)

Founder, Karolina Zoltaniecka

Consulting Member, Helen Jansen

Constituency- Holborn and St Pancras

We thank the Committee for the invitation to provide oral evidence on Tuesday 16th January and this written submission is provided as a supplement to support that evidence.

Authors’ Credentials:

Memberships: Royal Institution of Chartered Surveyors, Chartered Institute of Securities and Investment, Financial Conduct Authority, Chartered Institute of Management Accountants, Institute of Chartered Accountants in England and Wales.

Education: Reading University (Landlord and Tenant), City (Cass) University (Valuation and Planning), London Business School (Masters), University of Western Australia (Masters Business Administration) including Valuation and Digital Transformation.

Professional Experience: Property valuation (international), execution and transaction management of all property tenures in various international markets including England and Wales. Lease Extension and Enfranchisement Valuers and RTM legal process. Specialist Consultants in property for Commonhold, leasehold and share of freehold in flats and on estates.

Personal: Ownership of commonhold equivalent (‘strata’) in Australia, leaseholder, director of a Residents’ Management Company (RMC) and Right to Manage (RTM)

Summary of Views:

We broadly support the various reforms included in the Bill as currently drafted and we agree with all the recommendations produced by the Law Commission although we are disappointed that approximately one third of them were not included in this Bill.

We also support all the further amendments that the Committee has made as at today’s date and those the Government has indicated that it intends to introduce, in particular, the following:

(a) Requiring freeholders who manage properties to belong to a redress scheme.

We consider it important that any redress scheme, including penalties for non-compliance, be integrated into the existing system; simplified, enforced and independently reviewed and monitored.

(b) Integrating the new safety regime introduced by the Building Safety Act 2022 into the general property regulatory regime.

Post Grenfell tragedy, it is incumbent on all stakeholders to understand their functions, duties and responsibilities and we believe there is a need to ensure that health and safety is made of prime importance within all general property regimes. Language for procedures to be followed should be as simple as possible to reduce complexity.

(c) Legislate to remove and ban the forfeiture sections from the leasehold Act.

Overall Strategy and Execution

The consensus from academics, professional experts; both domestically and from modern progressive countries abroad, is that the case for private residential leasehold is weak and therefore, it does not dominate any residential housing and ‘estates’ market like it does in England and Wales. Indeed, the risk of forfeiture is particularly punitive: for a very small amount an individual (and their family) loses the entire value of the asset and that is disproportionate from any economic or moral viewpoint.

However, as a positive next step towards ‘invigorating’ Commonhold; the Bill does resolve a number of ‘leasehold’ issues and we comment including recommendations, as follows:

1. We Recommend Regulation of Managing Agents

There is widespread consensus that agents need to be regulated and set an even higher standard for block managers than for sales and lettings because the risks are higher. That distinction is rational due to the nature of large buildings occupied by hundreds of people subject to complex health, fire and safety risks, the quantum of service charge money held, and the capital value of these buildings. Leaseholders will have the confidence to take control of their buildings and employ suitably trained managers when they are appropriately qualified and regulated including criminal record checks for handling monies in trust. There are educational and institutional bodies in England and Wales that are recognised worldwide and can be mandated to execute and implement the necessary training and qualifications. This is overdue and should be straightforward.

2. We Recommend Transparency

The transparency of promptly provided information is key so that leaseholders can make informed decisions and challenge unreasonable charges and behaviours. We recommend that sellers, managing agents and landlords be required to promptly provide what available information is readily available, for example, a summary schedule of the lease to include ‘onerous’ terms during the marketing of any property and a ‘management pack’ including, but not limited to, meeting minutes and all recent service charge accounts prior to negotiations. Also the standardisation of financial statements and a transparent and timely complaints procedure.

3. We Recommend Alternative Dispute Resolution and Mediation

There needs to be a simpler and more integrated system linking the Courts to the Tribunal and one Ombudsman. Within an integrated system, the introduction of a panel of experts with diverse skills to review and mediate non-urgent cases so that, for example, service charge disputes may be resolved informally before they proceed to the litigation process. Removing the obligation for leaseholders to pay freeholder’s costs, irrespective of whomever is the losing party, is also important.

4. We Recommend Simple, Easy, Cheaper Enfranchisement and Extensions

We support measures in the Bill making it easier and cheaper for leaseholders to extend their lease or purchase the freehold, for existing leaseholders and those immediately taking ownership of a property. We welcome raising the commercial proportion of any mixed-use building or estate, in order to qualify, from 25% to 50%, and raising the percentage further.

We support a simplified calculator and recommend the Government use the Sportelli case deferment rate of 5% for flats or a higher rate to benefit leaseholders. We also strongly urge the capitalisation rate is set, referring to specialist industry graphs. Ensuring these align with Government aims to make buying the freehold and extending leases much cheaper and easier.

5. We Recommend Building Maintenance Plans

It is prudent to engage long term maintenance plans (10 years) with phased reserve funds for the health and longevity of buildings/grounds for the owners’ benefit. This would be statutory regulating for 10 units or more and managed by qualified managing agents.

6. We Recommend Peppercorn Ground Rent

We support the Government’s measure to reduce residential leasehold ground rents to a ‘peppercorn’ (or zero) and recommend the Government bring forward an amendment to ban the sale of new leasehold houses at the earliest opportunity. Going further, we recommend the Government implement the Law Commission’s proposed reforms to enable flats to be sold as freehold in blocks or on estates.

7. We Recommend Easier Right to Manage

Simplify and make the RTM and enfranchisement easier with less steps and notices in this complex processes.

8. We Recommend Commonhold

There is widespread consensus that the introduction of commonhold has stalled because there is no incentive for freeholders; whether it’s a developer or a ‘noble custodian’ landowner, to relinquish the power and ‘profits’ they currently enjoy, for the benefit of a ‘modern’ progressive housing market.

From our vast experience within countries that are dominated by a commonhold system; the tenure is not a ‘panacea’ but it works well insofar as it significantly simplifies how people outright own, manage, and live in homes and communities with a standardised community statement. It is long overdue.

We recommend future new blocks of flats and estates are built as commonhold, to be in line with freehold houses. In addition to currently ease the conversion to commonhold and decrease the agreement rate from 100% to 75%, by special resolution.

A standardised framework for maintaining commonhold within the land registered for blocks of flats including mixed use structure/agreements. Currently this is very confusing and needs simplifying.

24 January 2024

 

Prepared 25th January 2024