The leasehold golden goose
All conveyancers are aware of the rip-off faced by clients buying leasehold flats – the fees for the management pack, the fees for the deed of covenant, the fees for giving notice of the transfer of ownership etc. The Conveyancing Association has been in the forefront of campaigning to provide more protection for buyers and had proposed that managers of leasehold flats should be compelled to join one of the existing property ombudsman schemes so that speedier redress could be obtained. However, the Government has announced that it was not prepared to implement this proposal. Department for Communities and Local Government Minister Lord Bourne is reported as saying that the government ‘is not persuaded that more burdensome approaches to regulate landlords would be effective’. But what about protecting consumers, is that not also important?
Yes, for some of the issues, an application can be made to the Tribunal on the basis of the fees being ‘unreasonable’ but that is not helpful advice in the middle of a conveyancing transaction. And yes they can pay and then when the purchase has completed then apply to the Tribunal, but ‘going to court’ is not an attractive proposition for anyone and the Government should not be encouraging it. Indeed, the whole focus at the moment by the Department of Justice with regard to civil litigation is to avoid court proceedings and to use alternative dispute resolution.
In any event, going to the Tribunal is not possible for the payment of the fees for entering into a deed of covenant with the management company. And for many buyers with limited budgets actually finding the money needed to pay the fees can itself be an issue.
The writer’s view is quite simple; most of these fees should simply be abolished altogether. It is perhaps justifiable that the costs of answering the questions about service charges etc. on form LPE1 and providing service charge accounts etc. should continue, but not the rest.
If I buy a house or flat I have to notify the Local Authority that I have taken over responsibility for the council tax, but I don’t have to pay them a fee for telling them this, so why should I when I give notice to the landlord? Obviously it is necessary for such notice to be given but why should I have to pay to do that? How is any payment at all ‘reasonable’? The cost to the landlord of noting this information should be part of the costs of running the business as it is for any other business.
But if this is not enough to pay, many leases require payment of an additional fee to tell the landlord that the property is subject to a mortgage. How can a full extra fee be justified in such a situation where it is given at the same time as the notification of the new leaseholder? It must take all of 10 minutes to update the records, receipt the notice and stick it in an envelope to return it.
One lease seen by the writer required payment of a notice fee of £150 to the landlord for the notice of assignment, a further £150 for notice of the mortgage – and then the same two fees for giving notice to the management company – £600 in notice fees! Many conveyancers will not have charged that for actually buying the flat! Sheer exploitation.
And then we have the fees for consents to sublet – often payable even when there is a re-letting to the same tenant. A further burden on buy to let investors. Some landlords seem to manage without being notified of this at all. Is this just a money-making provision?
And of course we have the fees for the buyer entering into a deed of covenant with the management company enforced by means of a Restriction in the Proprietorship Register of the leasehold title. This deed of covenant is, of course, legally unnecessary – the reason that we have leasehold flats rather than freehold flats is due to the fact that the benefit and burden of all covenants automatically pass to the new leaseholder on an assignment of the lease. So the buyer is bound to pay the rent or service charge whether or not a deed of covenant is entered into. So buyers have to pay to take on a responsibility to pay that they are bound by anyway!
Of course, all of this would need legislation and the chances of this would appear slight. But that is not a reason for giving up. And dare I say that perhaps the fact that it is lawyers pressing for change is not ideal – we do not have a good reputation, unfortunately. People may think we are only doing it for our own benefit. We need to convince consumers that they should be more involved – they are the ones who pay, after all – not the conveyancers.
And what about the developers who build the new flats – can we try and convince them that there might be commercial advantages in the favourable publicity in getting rid of some at least of these fees in their new builds?
And is there any way we can find out exactly how much it does cost for a typical management company to provide answers to the standard LPE1 enquiries? Does it really cost over £300? If this could be publicised, it might put pressure on others to reduce fees.
And finally, do we make it clear enough to clients that we have no control over any of these fees and that they are payable to third parties not ourselves; clients do tend to just look at the bottom line of the completion statement and see how much is being demanded of them by their conveyancers without fully appreciating it does not all go in our pocket.