Liz Hodgkinson is an experienced property developer, landlord and journalist. Over the past decade she has bought, renovated and rented out or lived in many flats of all kinds, from new-build to Victorian, from purpose-built 60s and 70s blocks, to conversions and mansion blocks. She contributes a regular landlord and tenant column to the Evening Standard and also writes for the Mail on Sunday, The Lady, Saga, The Independent and Daily Mail.
As we have seen, it is no simple matter to buy a flat.
Although there are now many checks and balances in place to try to ensure that the leaseholder paying a lot of money for a lease and then annual service charges on top, is not cheated and ripped off at every turn, the fact is that lessees still often have a mightily expensive and long, drawn-out fight on their hands when they want to increase the value and security of tenure of their home.
Over the past few years, very many firms of lawyers and advisers specialising in untangling leasehold law, have sprung up, not to mention the government’s LVT and Leasehold Advisory Service.
The Citizens Advice Bureau and local authority Homeowner Panels also exist to fight injustices in the leasehold system.
The fact that leaseholders can now legally extend their lease to 90 years, secure the RTM and also collectively enfranchise, means that things are much better for flat owners than before.
But they are by no means perfect. In very many cases, freeholders cannot be found. In my building, we have been trying to trace the freeholder of an adjoining block for several years, without success. It has cost thousands, and we are nowhere. In other cases, freeholders may be large corporate companies who own very many blocks of flats. Again, it can be very difficult to discover who actually owns the place. Obfuscation in this area runs rife.
In other situations there is a complicated layer of ownership, with a freeholder and a head leaseholder to tussle with, before the residents can get any satisfaction.
Then the landlord or freeholder may own many flats within the building, which makes Collective Enfranchisement extremely difficult.
With some leasehold properties, leases have become extremely short and the cost of extending them is way beyond the pocket of the owners. This is especially the case when the owners are elderly and have only a pension to live on. Make no mistake, tough freeholders do not feel sorry for frail octogenarians who have only ten or so years left on their lease – and had no idea when they bought that the value of their homes would eventually dwindle down to nothing.
The matter of selling lease extensions and freeholds is part of the tough commercial world of property investment, and has become lucrative for freeholders and lawyers alike. It is no accident that over 50 per cent of the world’s richest people have got that way through property dealing.
The continuing anomaly of leasehold tenures has also allowed freeholders and managing agents to be intimidating and threatening – and there have been very many cases of frightened leaseholders caving into the bullying demands of their freeholder.
Flatowners are themselves often to blame for their own predicament, it has to be said. Very many highly intelligent people who live in flats have no idea of the length of their lease, no idea who the managing agents are, and no idea whether or not they own a share of the freehold. Most have never heard of RTM, CE or lease extensions.
It all sounds boring and convuluted, so they don’t bother to find out where they stand. Yet most lessees have paid well into six figures for a lease, the terms of which are quite unknown to them.
When I asked one friend, a journalist colleague, about the tenure of her flat, she admitted she had no idea. A few days later, she came back to me with the information that she had found out it was leasehold – and she has not only been living in the block for 11 years, but paying £600 a quarter to an unknown management company all that time.
’Do you own a share of the freehold?’ I asked her. She looked mystified. ‘Well, there is a management company...’ she said vaguely. She is not alone, by any means.
I hope that this book will go some way towards explaining just how complicated flat ownership can be even once the building has enfranchised.
So, is there any way of making the whole thing simpler, fairer and easier to understand?
These are my suggestions.
All new developments should as a matter of course be
At the moment it is far more profitable for developers to retain the freehold so that they can receive service charges and ground rents, and also sell on the freehold if they wish. Developers can also make a lot of money by selling the freehold to the leaseholders.
The government is dragging its heels over commonhold, maybe because it fears that if developers do not retain ultimate control over their buildings, they will not be so ready to construct new housing.
At the time of writing, commonhold remains a choice, and a choice which nobody has yet taken up. But if it were made compulsory, this would be a start at doing away completely with outdated leasehold tenure.
Of course, there must be stringent laws on the payment of service charges, occasional levies and any other charges which may be necessary from time to time to protect the building.
If all flatowners know for a fact that nobody is making a profit out of them, there would be more willingness to pay these charges.
At the moment, the requirement for service charges to be ‘reasonable’ means that a lot of time, money and effort is being taken up with LVT hearings.
It seems to me self-evident that the old lease system should disappear, and be replaced by a new type of tenure whereby flat dwellers own their unit in perpetuity, such as happens in most other countries.
What about non-payers?
My other suggestion is that the old idea of forfeiture should vanish completely, and be replaced by a system of enforced sale when service charges are not paid, or when flatowners exhibit other forms of anti-social behaviour.
What would happen here is that non-payers would initially receive a letter warning them that they will be forced to sell their flat if the charges are not met or if the bad behaviour continues. They will then be given a certain length of time to mend their ways and when this time is up, the Commonhold Association (or similar) puts their flat on the market, above their heads with no messing about. This clause would be firmly embedded in the Commonhold Community Statement, or similar, that all new owners sign on purchase.
Once the flat is sold, the former owner receives all the money due from the sale, minus the outstanding charges and costs of selling, redecorating or repairing. When the sale is completed, they are sent a breakdown of their charges. These cannot be challenged in a court of law.
There would be no deviation from this, and it would ensure (a) that anti-social people or those who cannot afford to live in the building do not ruin it for others and (b) that the former owner has some money to start again.
No requirement for reasonableness
If everybody owned their own unit in perpetuity, and the Residents’ Committee was the only arbiter, there would be no requirement for ‘reasonableness’, as service charges and other costs would be decided democratically by all the flatowners.
As there would be no outside freeholder to pay, the only costs and charges would be those agreed by the majority of the owners. Detailed breakdowns of all expenditure would be sent to all owners annually, with the proviso that anybody can have a look at the original bills.
There would be a Board of Directors, as now, chosen from the flatowners and these Directors could be voted on and off the Board, as with any other directors. They would, of course, be voluntary.
There would be no opportunity for anybody to cook the books, or line their own pockets, as all sums paid in service charges would be for the common good.
Leasehold tenure would disappear
If Commonhold came in, eventually the old leasehold system, which no longer works, would disappear and along with it, all the anomalies we have discussed throughout this book.
When that day dawns, then flat dwelling would become simple, enjoyable and neighbourly, rather than fraught with disagreements, lawsuits and court cases, as now.