Following a recent article regarding leasehold reform possibly not helping leaseholders enough, some conveyancers believe that freeholders’ rights and needs should also be considered. Are ‘multi-millionaire’ freeholders exploiting the system or innocent pensioner investors being ignored?
In their critical report on the Law Commissions reforms, Leasehold Solutions claim: “It is also disappointing that the Law Commission is proposing to Simply tinker with existing legislation when more radical reform is desperately needed.
“Leasehold Solutions has been campaigning for leaseholders’ rights since 2002 and knows that whenever reforms are made in a piecemeal fashion, the result is multi-millionaire freeholders and their cunning lawyers challenging reform at every stage, thus completely thwarting attempts to improve the system for leaseholders.
“We believe that just tinkering around the edges will just allow this cycle to repeat itself, wasting millions of pounds of leaseholders’ money in future lengthy legal battles.”
In contrast, Paul Sams, Partner at Dutton Gregory Solicitors claims: “I find it very frustrating that people seem so upset about the Law Commissions proposals for reform on leasehold matters. I expect that a lot of those in the media, who like to paint landlords/freeholders as being the devil incarnate, did not bother to submit their proposals to the Law Commission. I know I did.”
Some of the arguments made by leasehold Solutions refer to the language that is used by the Law Commission and the ambiguity or contradictions that can be made. According to the Leasehold Solutions Briefing Note on the Law Commission point 2.24, which concerns leaseholders obtaining freehold status for their property, they believe that by the Law Commission, using language like “’ensuring sufficient compensation is paid to landlords.’ Such compensation will favour the landlord…Leaseholders have for a long time suffered at the hands of rapacious freeholders and their machinations to extract more money. It is impossible to make the leasehold extension process ‘easier, cheaper and more transparent’ without affecting how the freeholders are currently compensated. Therefore, this seems worryingly contradictory.”
In reply to the arguments concerning the plight of leaseholders, Paul Sams, Partner at Dutton Gregory Solicitors claims: When it comes to the level of service charges being charged by a landlord, I agree that limits should be in place. They should not be allowed to charge what they want and need it to be reasonable.
“However, with ground rent, I take a different view. We live in a capitalist economy. If a buyer is willing to pay a certain ground rent, then why should we be agreeing to limit ground rents because owners made bad decisions or were poorly advised by their lawyers at the time of purchase?
“My profession has become overly concerned about the 1988 Housing Act that may mean that ground rents above £250.00 could allow freeholders to claim that they can forfeit the lease for non-payment which has caused mortgage lenders to panic. A simple piece of legislation to state this will not be the case would suffice.
“What the media and my profession forget is that one of the largest groups of commercial landlords that hold freehold reversions are pension funds. They hold the freehold reversion as a safe way of receiving income from the ground rents, from the leasehold properties, within the blocks they hold the freeholds for.
“Limiting, or heaven forbid, removing ground rents, will severely undermine everyone’s private pension. Is that what the ‘do-gooders’ intend? I am not saying the system is perfect, but the demonization of freeholders has to stop to have them engage in the process, so we can all see if a better solution can be reached.”
Whether the reforms allow ‘multi-millionaire freeholders and their cunning lawyers’ to exploit the current system, or, innocent pensioners potentially losing out on the investments made on property is up for debate. In essence, the Law Commission’s intentions are certainly firmly balanced on the tightrope between the two concerns.
Do you think these reforms line the pockets of the multi-millionaire freeholder and their lawyers? Or, should the reforms take our capitalist economy and investors’ needs into deeper consideration?
9 Responses
It should not be a capitalist investment …it is your HOME…we have a right to enjoy our home without fear of a fictiious section 146 to cash grab our hard earned cash fraudulently by crying breach of lease without evidence or fairness..The system.if FTT is institutionally corrupt biased against leaseholder always…Manipulative greedy freeholders can abuse exploit the system to claim flsely witjout evidence a breach of lease! So simple like takung candy from a baby…is tjis fir and legal to mug off a leadeholder. Yes..All perfectly legal…Legal mugging is alive in 2018 with no protection to deceptive freehold who exploitels their position to the max financially gaining a windfall and your flat as compensation for alledged mete BREACH..such as changing upgrafing your bathroom without freeholder permission
Well said Charlie. My freeholder has increased my 2 bed Flats insurance up to £622.
I have money saved in a pension fund and also I own a house that is “Fleecehold” – a freehold with an unregulated estate maintenance charge, a separate £5 fixed rentcharge and permission fees (currently in the region of £200 incl VAT) for such things as extending the property or remortgaging. I live on a new estate, where most of the houses are leasehold with ground rent ps that rise every 15 or so years with RPI or even double.
The bottom line is that it’s unethical to use people’s homes as a source of unregulated
Income. Developers have been allowed yo get away with manipulating and corrupting traditional leasehold in order to squeeze more profit for themselves and investment companies at the expense of ordibnary people who simply want to own a home. People were told they could buy their freehold after two years in their newbuild home, only to find it sold on to investors who then hiked up the cosypt of that freehold by thousands of pounds.
People were not fully informed about such things as doubling rent clauses, permission fees and unrefpgukated estate charges. Had they known the full facts of future financial burden. They would not have accepted the terns.
Developers have now turned to selling homes as Freehokd, when these homes are, in fact , freeholds with fees and estate charges.
At a time when there is a housing shortage , with supply very restricted and government schemes encouraging first time buyers to buy bpnewbuikd properties, more and more homebuyers are being lured into the dream.
Those fighting for Freehold and Commonhokd home ownership,are doing what is right, There is still room for pension funds and other investors to invest in the industry without the need to rip off homebuyers.
When will you actually click that this is my home! It should NOT be someone’s pension pot. It was certainly not sold to me as an investment for a pension fund for someone else. This is MY pension, MY retirement plan, MY HOME, why is this FACT missed every time I hear about freeholder rights. This is not an ethical investment so it has to be stopped NOW!
To adapt Jean-Paul Sartre’s comment on soccer “the complicating factor of owning a partial interest in property is the presence of others holding other interests”
This has to be addressed whether the interest is perpetual (freehold) or time-limited (leasehold)
We need a national framework for co-operation between those holding property interests which applies by default to all cases of multiple interests subject to agreed and reasonable amendments which are themselves subject to safeguards.
Take detail from existing provisions (eg party wall legislation) and add more as time allows and circumstances prompt. Have conciliators and (online?) tribunals to resolve disagreement on what is reasonable.
No more piecemeal solutions. Impose reasonable working together on all.
Leasehold Solutions are quite right, this residential leasehold system needs to be radically overhauled or scrapped altogether in favour of commonhold. If Commonhold is not feasible, then to reform the lease system, the cost of extending a lease should be made cheaper, get rid of the “marriage value” costs, set a maximum premium amount that a freeholder is allowed to charge and make the freeholder pay their own legal and valuation costs. The whole leasehold system as it stands now is totally UNFAIR and biased in favour of the freeholder. It goes back to Medieval times, and has NO place in 21st century Britain.
As for Paul Sams’ “poor little pensioners” argument – has he considered the many “poor little pensioners” stuck in a leasehold trap who after a lifetime of having paid a mortgage, now have to find a wad of money to extend their shortening leases, otherwise they cannot sell their property? It is so, so, wrong this whole system! It urgently needs to change.
How many leaseholders can afford a private pension? By the time they have paid and paid and paid their landlord what’s left for themselves?
And paying for what exactly? The flats where I live are all leasehold, and old. Freeholder does no structural repairs at all to the buildings or the grounds, yet wants a pile of money from leaseholders for extending their leases, and then “revises” the ground rents. Nice job and lots of free money for nothing being a freeholder!!
If the Net Present Value of the ground rent was disclosed in the prescribed clauses of the lease using a defined discount rate. This figure when added to the premium paid would represent the total consideration paid with stamp duty paid on that combined figure. Had such a proposal been in place the 10 year doublers would have stood out and buyers would have been able to negotiate those terms away. There is nothing wrong with ground rent if the terms are clearly explained to the purchaser prior to them commiting to the lease . In theory the imposition of a ground rent should lower the premium paid for the property as the ground rent is deferred consideration for the property. As it is for no service then it is a burden on the property and therefore it’s imposition should lower the value of tnhe property