Ex-Local Authority Blocks
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.
It is widely believed that you cannot collectively enfranchise with an ex-local authority block. In fact, this is not entirely true, although it can be very difficult. But CE would be possible with, say, a block containing 18 flats, of which 14 are on a long leasehold. The bigger the block, the greater the problem.
But Richard Towes, Head of Home Ownership at the London Borough of Hammersmith and Fulham, says:
We’re more than happy to lose control of the building. In our borough, several blocks have already enfranchised, and the building has passed entirely into private ownership, meaning we have nothing more to do with it.
Where a block has enfranchised, but there remain council tenants, the council becomes a leaseholder, and pays service charges to the new freeholder. In other words, the role is reversed, and the council would have to buy the new lease from the enfranchisers instead of the other way round.
LEASES SHORTER THAN 80 YEARS
This is a common problem within this sector. When a former council tenant buys a lease from the council, this is for 125 years.
In normal cases, this can be extended for 90 years as it starts to run down – in the same way as in the private sector – for a suitable fee. This means that most leaseholders in these blocks have nothing to worry about.
But when it comes to high-rise blocks built in the 1960s, and the council may be the head leaseholder, rather than the outright owner, problems can occur. For one thing, the original leases granted to the council may have been shorter than 125 years, so by the time the council tenant comes to exercise right to buy, they could have become very short indeed.
There are three high-rise blocks opposite Shepherd’s Bush station, in West London. These were originally built by a private company which wanted to develop commercial property in the area. The council on this occasion insisted that at the same time they built residential accommodation for social tenants. The property developer remained the freeholder.
In time, a proportion of these social tenants exercised their right to buy. But because the council was the head leaseholder, rather than the freeholder, they had less control over length or extension of the leases. This has resulted in some leases becoming very short indeed, under 70 years. In addition, it is difficult, if not impossible, to get a mortgage for higher than the seventh floor in blocks of this type.
Again, Richard Towes explains:
Where we are not the freeholders, as in these blocks, we cannot grant a longer lease. But as the law allows a leaseholder to extend the lease, we have to refer potential buyers to the freeholder. Potential buyers have to be very aware of the sell-on possibilities in blocks of this type.
All over the country, there are high-rise ex-council blocks where the council is not the owner. This is something to find out before buying, as very often these blocks are in wonderful locations and have stupendous views.
Also, contrary to popular belief, many are extremely well kept, with concierge services 24 hours a day, 365 days a year.
A NOTE ON MORTGAGES
Council tenants living in high-rise blocks who want to exercise their right to buy at a discount normally have no difficulty in obtaining an ex-local authority mortgage.
Problems arise when that leaseholder comes to sell and the property goes onto the open market. Many property investors buy these flats to rent out, knowing that they have a wasting asset, but calculating that the rent payable for the life of the lease still gives them a considerable profit on the investment.
Increasingly, local authorities supply an information pack for new owners which sets out all the terms under which they have bought the lease.
These are levied according to a different principle from the private sector in that local authorities are not allowed to amass a sinking fund. This means that service charges can seem extremely cheap.
When you buy from a local authority, the information pack should state this, saying that you the leaseholder will be liable for your share of any major works.
Richard Towes says: ‘Local authorities are not allowed to hold money in trust, as in the private sector. This means that whenever there are major works, leaseholders can suddenly be clobbered for large bills.’
The reason for this is the presence of the council tenants. If you have 10 leaseholders and 40 council tenants in a block of 50 flats, the local authority is not in a position to put money into the sinking fund on behalf of the rent payers.
Richard Towes continues:
When former council tenants buy a lease, they have to start paying service charges, which did not happen before. We point out that their share could be a lot of money. Nowadays, this is made abundantly clear, although it was not always spelt out in the past, which is why there have been so many stories of ex-council leaseholders suddenly having to find four-and five-figure sums.
It has to be said that local authorities are now getting much better at keeping leaseholders informed about service charges and how they are apportioned. In most cases, leaseholders receive a booklet each year with their service charge bill, setting out each element of the cost.
Another way in which service charges in this sector differ is that they are levied in arrears, not in advance. You pay for services already supplied. It is the same with major works. The council borrows money to carry out major works, such as installing new windows in the whole block, and you are billed maybe two or three years later.
But all leaseholders have to be circulated with the estimates and quotations in advance, with an accurate estimate of their share of the cost.
For instance, I was billed just over £2,000 for my share of new windows in my ex-local authority block, years after their installation. But I was informed of the quotations in advance.
There was nothing I could do about it, although as a leaseholder I do have the legal right to take any charge I feel to be ‘unreasonable’ to the LVT. Not all local authority leaseholders realise they have this right, but the law does try to be even-handed on this matter.
A bone of contention is that whereas leaseholders pay service charges and for major works, council tenants pay nothing on top of their subsidised rent. But councils argue that council tenants do pay, and that their rent goes towards all these costs.
To sum up: the main difference regarding service charges is that in the private sector, leaseholders put money in before the works are carried out, whereas with council blocks, the local authority does the works, then bills the leaseholder.
For those who cannot pay a single large sum, most councils have schemes in place whereby leaseholders can pay over five years-with interest added, of course. Or they can pay over one year, without interest added.
Any leaseholder having difficulty with paying a one-off sum for major works should contact the relevant authority and work out a payment plan together.
There is also the fact that in the private sector, the aim is to make a profit, but local authorities are not allowed to make a profit. So when major works are indicated, the council do not take an extra ten per cent commission.
Richard Towes says:
The private sector landlord often has another building and maintenance company, and gets a kickback from this. We are not allowed to do this. It is also not always realised that leaseholders are entitled to nominate their own contractor if they do not like our estimate for works.
Many local authority blocks and estates have thriving Residents’ Associations. These have to register with the local authority and be open to all residents, tenants or leaseholders to join.
The Association must also have a proper constitution. Nowadays, many local boroughs have Federations of Residents’ Associations and run regular forums for these Associations in their area.
There is also likely to be a leaseholders’ panel which all leaseholders are invited to join. These Associations are important as many issues that arise concern tenants and leaseholders alike, such as security, gardening, state of common areas or caretaking.
BREACH OF LEASE
Local authorities can take exactly the same action for breaches of lease as the private sector. Where there is a dispute, a leaseholder can be taken to court, to the LVT or expect a visit from a debt collection agency.
It is still the case that an ex-local authority flat will tend to be cheaper than an identical flat in an equivalent area which is not local authority. There is a slight remaining stigma regarding these flats, although it is lessening all the time.
But the presence of the social tenants means that the value is always likely to be lower.
IS THERE A BEST BUY?
The best bargains, in my view, are to be found in so-called ‘gap sites’, where the council has built a small block of less than 20 properties in the gap between other housing. Although these buildings are not as pretty as the surrounding houses – for example, you often see a ‘gap site’ in a row of pretty Victorian cottages – they are often in brilliant locations and once you are inside, you can forget about it being ex-council.
Ex-council flats are often very well designed and spacious. But they do need a lot of help to obtain a designer feel and make them chic.
The most difficult buys are those on huge estates, where the difference in price is astonishing, compared to a non-council property in the same area. For instance, a large four-bedroom ex-council flat on the White City estate, near to the BBC, costs (at the time of writing) £220,000, whereas the same size property in the private sector only two streets away costs at least £500,000. Yes, you get a bargain – but will it increase significantly in value and how long will you have to wait for this to happen? In the meantime, you are living in the middle of a vast council estate, which is not everybody’s idea of an ideal location.
Property investors are snapping up ex-council flats fast, believing that if the location is good, they will one day be extremely valuable. But you need a strong head and a long time frame. From a buy-to-let perspective, snapping up one of these large flats can make a lot of sense, as you get exactly the same rent for a bargain four-bedroom council flat as for an expensive four-bedroom Victorian terrace house in the next street.