7 September 2018
To: Select Committee on Housing, Communities and Local Government
Call for evidence by the select committee on Leasehold Reform
This response to your call for evidence is on behalf of The Federation of Private Residents’ Associations, which as far as we know, is the only national body that represents the voice of leaseholders in England and Wales. We were established 47 years ago to campaign for leasehold reform.
We have over 500 member associations representing tens of thousands of individual leaseholders.
In preparation to this response, soundings have been taken of our members and discussions including our panel of over 30 experts in the leasehold field.
The basic premise of this consultation is excellent and is supported by our members.
It is however, dealing with one aspect of a bigger problem, so whilst it is welcome in itself, we urge you to also look at the bigger picture and look at the numerous consultations over the last year and the detailed responses we and others have made to those consultations.
In particular whilst we recogonise your committee is mainly involved in the Ministry of Housing, Communities and Local Government the leasehold sector is affected by numerous other government departments and legislation and each can impact on the other sometimes contradictory
There are many unfair practices throughout the leasehold sector and there is an urgent need for leasehold reform, but we would not want to see badly prepared legislation that would adversely, all be it unintentionally, and be to the detriment of an already complex situation.
In our 47 years of campaigning there have been several important leasehold reform Acts of Parliament.
Many previous attempts at reform have whilst creating some long needed and well appreciated reforms have also created a situation where legal advice and disputes have abounded, with far too many situations ending up in the courts.
We have not therefore restricted ourselves strictly to your enquiry because to do so would be to fail in providing the bigger picture that really is needed.
We would at this point also bring to your attention that one of our volunteers Ken Allcock has in a personal capacity made a detailed and confidential personal submission and he has shared this with us and we would strongly support the points he makes. We have therefore, not repeated the same submission, but have instead bring your attention to the following general points.
1. Law Reform/Legislation
Leasehold law is unnecessarily fragmented and complicated.
This has made interpretation of leasehold law very difficult, even for the legal profession, never mind the average leaseholder or tenant.
Further, many of the processes and systems created by Acts of Parliament would benefit from simplification and/or updating so as to make them more workable.
There are trade bodies in the sector that are aware of abuses in leasehold management and try – through their codes of practice and membership – to improve an unsatisfactory situation. But they lack any real sanction on their members and membership of any trade body is completely optional, with there being no legal barrier to anyone, however disreputable, setting up in the sector.
A full redress scheme for professionals such as an ombudsman scheme may be appropriate but your committee needs to also consider that most leasehold properties are smaller and self managed. The existing ombudsman schemes are fragmented and also social housing complaints are clearly not designed for the leasehold sector.
Leaseholders who seek redress over abuses find the process complicated and expensive, whether taken through the Courts or the less formal First-Tier Tribunal.
The costs of legal action can be excessive with the worry of having to pay the landlord’s costs as well.
FPRA continues to address this because of the glaring need to consolidate all landlord and tenant legislation.
2. Taking Control: Enfranchisement and the right to manage
One of the successes of our campaigns and legislation over our 45 plus year history, has been the introduction of leaseholders’ right to enfranchise, by acquiring the freehold of their building. So encouraged, significant numbers of leaseholders acted together to take responsibility for the management of their homes, many forming Residents’ Associations, Residential Management Companies, Right to Manage Companies, Flat Management Companies etc. and become members of FPRA. Just the number of types of groups listed gives you an idea of the complexity.
The solution, as used in practically every other country in the world is ‘Commonhold’ under its various names but there has been a lack of political will, to make this system work, by allowing leaseholder owned blocks to convert to Commonhold with the agreement of a majority, rather than 100 per cent, of the leaseholders.
FPRA considers that the directors of freehold and right to manage companies should not bear the same onerous duties as those borne by commercial companies. They are volunteers who give freely of their own time to make a difference to their community. We have also produced a comprehensive booklet, A Guide to Formation, Recognition & Running Your Association which is available via our website.
No new leasehold residential properties should be allowed to be built and all new built property should be Commonhold.
3. Protection of Leaseholders’ Money
Leaseholders are usually required by terms of their lease, to make advance payments towards the service charge, and to contribute to a sinking or reserve fund. These sums can be substantial, especially if major works are in the offing.
It is believed that there is no other area in the UK in which money held by a third party is not regulated. It has been suggested that the sums held by unregulated and unprotected third parties may well exceed £1 billion. An individual can set up in business as a property manager without any formal qualifications or experience or insurance – even if they have a criminal background and hold these deposits or other sums.
Perhaps unsurprisingly, this has from time to time resulted in leaseholders falling victim to fraud or outright theft of their payments. Sometimes they lose money through incompetence and the Financial Conduct Authority has no involvement and therefore there is no compensation.
Shocking as this seems, there has been much legislation to protect much smaller sums and housing deposits for renters, but nothing to protect leaseholders’ funds. FPRA believes that it is essential that a system is devised so that funds paid by leaseholders to managing agents or landlords are protected by a scheme similar to the Financial Services Compensation Scheme.
4. Insurance and other commissions and payments
FPRA believes it is immoral and fundamentally wrong that any payments for any service, including the payment of insurance commission be made.
The payment of these commissions is inappropriate and leads to increased charges. Some trade bodies make it compulsory for their members to disclose payments to leaseholders, but even in those cases, it is often well hidden.
All charges to leaseholders, whether it is for repairs, insurance, electricity, entry phone systems or anything else, should reflect the true cost and if a manager or freeholder requires payment, this should be completely transparent and charged separately.
5. Major Works Limit (Section 20)
Leaseholders are facing unnecessary costs and administration because under Section 20 of the Landlord and Tenant Act 1985, there are expensive and time consuming procedures for works over £250. The £250 limit has not been increased for over a decade and is not being kept in line with costs. We are aware that government is looking at revising Section 20 procedures but pending this, the monetary limit should be changed.
Generally (whether justified or not) consumers lack trust in regulation and enforcement by trade or professional bodies and have greater faith in independent regulation.
There is a complete imbalance in the sector between the representation of those that are paid by leaseholders and those that actually are the paying leaseholders. Government and ministers in various forms have shown their willingness to meet with and attend functions put on by trade and professional bodies but not give the same attention to events for leaseholders, the very people paying for all the services and enabling those bodies to exist.
At a recent FPRA event a representative from ARMA spoke and made some excellent points and he threw out some figures that there are around 4-4.5 million leasehold properties in England and Wales: That managing agents who are members of ARMA managed about 1 million that managing agents and others manage about another 1 million and this suggests to us that there are 2-2.5 million leaseholders that are not in any contact with a trade or professional body and like most of our members, self-manage.
We also wish to raise the special vulnerability of elderly leaseholders especially those in ‘extra care’ homes and retirement properties. Many of these leaseholders lack the information, resources and indeed will to challenge poor practice and in some cases, are in actual fear or anxiety of doing so.
It is important that the committee resists any imposition on people who manage their own leasehold affairs or do this collectively through residents’ associations or the numerous other bodies allowed by the legislation for leaseholds who collectively manage their own affairs and whose officers are democratically accountable to their neighbours.
Directors of RTM and RMC companies etc hold office by reason of having been elected by their leaseholder members and are very often unpaid. That, rather than passing exams (or being approved of by ARMA or RICS or others), is their qualification for holding office. We feel strongly that any proposal to impose regulation on such directors should be resisted. It is already often hard to get volunteers in some blocks and it would be totally unrealistic to expect part time volunteers who look after their own homes to take professional exams designed for full time persons working in the sector.
We are aware as mentioned elsewhere that certain in the sector see this as a major opportunity to deter Self-Management and thus achieve business for Managers, who often charge £300+ per unit. Great care must be taken not to inadvertently add a massive cost and burden to Leaseholder. A great many live in converted houses, small blocks etc where there is no great desire or interest for agents to manage because of size in any case. A mistake here could double the Market for Managing agents at massive cost to leaseholder, for little if any benefit.
We are fully aware there is a major gap in protection of leaseholders’ funds and look forward to the committee bringing forward ideas for protection of those funds, possibly in conjunction with the Financial Conduct Authority and the Financial Compensation Schemes.
FPRA welcomes the work of your committee and hopes to have the opportunity to work with government and other leasehold representatives to bring change and improvement to the sector.
FPRA Voluntary Chairman