Leasehold and Freehold Reform

Landlords and other home owners are often infuriated by poor standards of block management. In this blog post, David Lawrenson of www.LettingFocus.com looks at the need for freehold and leasehold reform and at the work one organisation is doing is doing to try to improve block management.

About twice a week, I get an email from a flat owner asking for help with a leasehold issue or for advice on how to fight for their rights against an awful freeholder or block manager.

People familiar with this blog will know that as a result of my early experiences with owning and letting flats, my inclination has always been to buy freehold houses and avoid flats wherever possible. The only exception to this rule was where the management structure associated with a flat allows me to have some real degree of control over the management of the block / estate.

I still do have a few flats in my portfolio that fit the bill. In two of these flats, each flat holder is allocated shares in a company and we are able to hire and fire the managing agents if they don’t perform. There is a secretary and chairman who both live on the estate and for now, and for the last 15 odd years that I have owned the flat, the estate has been very well managed.  This suits me just fine and the guys who volunteered for the Chairman and Secretary have no idea what my day job is – which is just as well as they would probably love to rope me in for a bunch of unpaid work.

Irritations

All the same, there are irritations, one of which is referred to in my book, “Successful Property Letting”. Every few years, the freeholder of these flats sends me a dumb letter attempting to extort money out of me by pompously pointing out in a rather Gestapo like fashion, “It has come to our attention that you let your flat out and hence under the terms of the lease, you owe us £300.”

I always write back pointing out that there is no such provision in the lease and to please stop wasting my time. I also enclose an invoice for £300, this being “the time it took me to write this letter”.

They ignore my letter and invoice, of course, and this is the last I hear of them for another year or two. But this is a small example of a typical way in which many freeholders behave.

Federation of Private Residents Association

One of the smarter people I met last year at an otherwise pretty dull conference was Bob Smytherman of the Federation of Private Residents Association (FPRA).

As I’m not really an expert on Leasehold-Freeholder-Block Manager issues, leaseholders who feel aggrieved with the way they are being treated by freeholders and property management companies would be well advised to check out what the FPRA are doing.

In one of their recent campaigns, Conservative Peer Baroness Gardner of Parkes took up in parliament a current FPRA campaign calling on the Coalition Government to introduce a minimum standard for private sector property management for blocks of flats and protection for leaseholder’s service charge monies. And earlier this year the same Baroness asked another question calling for a new statutory code of practice for all those carrying out property services in the flat management sector.

Under the last Government, the FPRA and a wide section of property professionals took part in a Department of Communities & Local Government (DCLG) task and finish group to look at the issue and the group reached the general consensus that some form of independent redress was required for long-leasehold home owners to raise the standard of the property management industry.

FPRA Chairman Bob Smytherman said, “The Coalition Government’s policy to rely on self-regulation has resulted in a very patchy level of service to us flat owners with the sector relying heavily on the vested interests of trade associations such as ARMA (Association of Residential Property Management) and the Royal Institute of Chartered Surveyors (RICS) who both tend to put the interests of their members before the flat owners that they are supposed to serve, equally there are some excellent property managers who see little or no value in being a member of a trade association choosing instead to concentrate on excellent customer service”.

RICS Code Lacks Teeth and Awareness

He went on to say, “The RICS Code of Practice is not only voluntary for property management companies it is virtually unheard of by most flat owners, equally there are around 50% of property managers who don’t even belong to any trade association despite collecting and holding large amounts of service charge funds often amounting to millions of pounds and not covered by any code of practice or regulation”.

The FPRA want to get the ‘rogues’ out of the sector by having a compulsory independent licensing scheme with a high minimum standard, along with severe penalties for breaches of those required standards.

One of the key concerns is the insurance commissions that many Freeholders & their Managing Agents make at the expense of flat owners who are usually required to pay for insurance of the structure of the building via the service charge. Many freeholders and managing agents see this kind of thing as a profit-making opportunity and the whole insurance market for blocks of flats is, as a result, distorted by the payment of excessively high commissions and quasi-commissions in various guises to brokers, intermediaries and others, often amounting to 30%, 40%, 50% or even higher percentages; thus, the premium charged to the flat owner is substantially higher than it should be.

My Smytherman points out, “Although legislation requires that service charges, including insurance, must be ‘reasonable’ and if not, is referable to a Leasehold Valuation Tribunal; however, unlike other charges, such as maintenance, cleaning, etc. in the case of insurance, the protection afforded by the law is ineffective”.

Ban Unfair Insurance Commissions

The FPRA have proposed to Government a similar regulation such as in the Life and Pension market so that unfair commissions are banned altogether to protect leasehold flat owners from inflated insurance premiums.

Some professionals claim that commissions are already transparent and this may well be the case with good property managers. However the FPRA are aware that this is not always the case for all flat owners as ‘hidden’ commissions are frequently paid direct to freeholders without the knowledge of the flat owner concerned.

Many property professionals’ only disclose commissions on request as required by the RICS code and not automatically therefore the vast majority of flat owners would not even know of this abuse or their right to challenge it.

Other concerns the FPRA have are with the current unregulated system for the majority of flat owners who are obliged to pay advance payments and contributions to sinking/reserve funds.

FPRA and Other Contacts

The Federation of Private Residents’ Associations is at www.FPRA.org.uk.  Their website also has links to other useful sources of help and advice such as the Leasehold Advisory Service, News on the Block and the Campaign against Residential Leasehold (CARL).

Leaseholders should check out all these sites for help in fighting back against a feudal freehold-leasehold system that unfortunately has many friends drawn from among the wealthiest landowners in the UK.

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