Leaseholders watching the progress of the government’s proposed changes to leasehold legislation have been on a roller coaster ride of highs and lows. The irrefutable low point came with Heather Wheeler’s car crash appearance before the select committee on Monday.
It was a staggeringly fallacious display of distortion and chicanery. Leaseholder’s were left feeling despondent at the tone of her smirking performance. Is this really the government’s view on leasehold reform or is it merely one MP’s personal view?
The one thing which became glaringly obvious in the course of her select committee debacle is that she does not understand leasehold at all, which a disconcerting thing to see in a housing minister. This could be forgiven, to an extent, as leasehold is mind bogglingly complex. What can’t be forgiven is the fact that she seemed to agree with freeholder’s viewpoint on virtually every point made by the MPs. She was there to defend the freeholders and to blame leaseholders for the mess they found themselves in.
Let’s examine some of Heather’s blether which she spouted in the freeholder’s favour and add some leasehold facts to see how well her arguments stack up.
Heather stated that the possible cause of the leasehold scandal was due to the buyers getting so carried away with the purchase of their new home that they simply overlooked the implications of leasehold. She said: ‘There is a contract, there was legal advice but perhaps people are caught up in the moment because it is their first purchase and it is incredibly exciting.’
There you go. It’s the leaseholders fault. There was a contract written all clear and nice by our beneficial freeholders, if only you had read it. Your solicitor gave you all the advice you needed but you ignored it, if only you had listened. Instead you were too busy choosing curtains and wondering where your settee would look best in the living room.
The ‘contract’ Mrs Wheeler was alluding to is your lease. It contains the terms of the tenancy in your leasehold property. However, reading your lease is not as simple as reading the latest John Grisham novel. Leases are written by very clever land lawyers and the terms are purposefully obfuscated to ensure only other land lawyers can make any kind of sense of them.
Worse than that though is the fact that lease do not spell out the all terms of the lease.
Let’s imagine that you were not so squeakishly excited to be moving into your new home that you did read the lease. In fact, you read it from cover to cover, twice. You then paid the world’s greatest enfranchisement lawyer to study it for you for £1,000 an hour. Finally, you had the words of your lease tattooed all over your naked body so you could refer to them wherever you went. It would be a good effort but it wouldn’t help you.
There are still many significant terms of your lease you could never predict or budget for. For example:
Your lease terms will not contain the fees your freeholder will demand for service charges. The fees charged must be ‘reasonable’ but they can rise at your freeholder’s whim.
You have no idea if your freehold also owns the managing agent he gives the work to or not. The ownership of freehold companies is complex. Freeholders often own hundreds of companies and tracing them all would take months of investigation. Freehold companies are often owned off shore which makes identifying the owners impossible.
Your lease terms will not contain the fees your freeholder will demand for any ‘major works’ they plan on your building. They don’t consult you on these works but they expect you to pay for them.
Is your freeholder linked to the company they have given the work to? Are they over charging for the work as they profit from this too? Are they getting some kick back?
Your lease terms will not contain the ‘administration fees’ your freeholder will demand for collecting the service charges from you. These fees must just be reasonable.
Your lease terms will not contain the ‘administration’ fees your freeholder will charge you for collecting any late ground rent payments. The fees just have to be reasonable.
Your lease terms will not contain the fees your freeholder will charge you for granting their permission to sell your leasehold property, the fees just have to be reasonable.
Your lease terms will not contain the fees your freeholder will charge you for licences and permissions, for subletting, alterations, improvements, keeping a pet and a whole host of other made up permissions you must apply for to live in your own home. The fees charged must be reasonable though.
Your lease terms will not contain what level of ‘finder’s fee’ your freeholder will take from insurance premium of your building. They generally have a legal right to insure the building themselves and you have a legal obligation to pay it to them. The ‘finder’s fee’ must be reasonable but can be anywhere between 30-70% of the total premium you pay.
Your lease terms will not contain the cost of you extending your lease or buying your freehold. How much you will pay for a lease extension or to buy your freehold depends on how greedy your freeholder is. They will employ the best and most aggressive valuers to argue a higher figure on their behalf. The cost of employing the best means nothing to your freeholder. The leaseholder is legally bound to pay the freeholder’s ‘reasonable’ legal and valuation fees as well as their own and the actual cost of the extension decided on.
I bet you are regretting having the words of your lease tattooed on your naked body now, aren’t you? There are so many aspects of your lease that are arbitrary and left to your freeholder to decide. If you had memorised your lease and could recite it backwards, it wouldn’t help you.
Caveat Emptor she cried, buyer beware! If you are buying something you should really read the small print, it’s obvious isn’t it? If you don’t, well you only have yourself to blame!
Caveat Emptor only seems to apply to leasehold properties in this country.
Caveat Emptor doesn’t apply if you look to put your money in some sort of investment vehicle. There is very strict legislation in place which protects potential investors. In fact the more complex the product the more legal protection you receive, except for leasehold that is.
Caveat Emptor does not apply when you are considering taking out a loan. There are all sorts of legal requirements and protections for the consumer.
Caveat Emptor doesn’t apply when you buy a new car, you have legal protection designed to protect you and to ensure the product you buy meets a certain standard.
Caveat Emptor does not apply if you decide to buy a new toaster from Asda. You have consumer rights which ensure the product you are buying meets a certain standard.
Caveat Emptor though somehow applies to leasehold properties. It seems to be the only product you can buy in this country where it does apply.
It is perplexing to realise that you have more legal protection if you buy a toaster for £10 than you have when you buy a leasehold property for £300,000.
Heather labours under the illusion that all freeholders are basically decent and honourable people who are here to help in any way they can. She suggests that in the unlikely event that you cannot agree with your affable landlord you can always take them to the First tier tribunal and get the impartial judges to decide what is fair.
Well that gives us a nice warm fuzzy feeling doesn’t it?
You may have noticed, because in a rather heavy handed manner I included it on each point above, that all the fees demanded by your freeholder must always be ‘reasonable’. That sounds promising. However, there is no legal definition of what reasonable is. If you believe your freeholder is being unreasonable you do have the legal right to take them to Tribunal.
Going to Tribunal against a professional freeholder is eye wateringly expensive though. Your freeholder will go all out, they will be represented by a solicitor, a valuer and usually a barrister. If you go representing yourself, they will eat you alive with their legal knowledge. The cost of going to Tribunal is many thousands of pounds per day. If your freeholder loses they will simply appeal and you will have to do (and pay for) the whole thing again in the Upper Tribunal.
Your freeholder will be looking to set a legal precedent on costs that will increase the value of their whole portfolio. Leaseholders only want to pay a fair amount and to get on with their lives.
Freeholder’s Tribunal fees are usually tax deductible. Leaseholders Tribunal fees are paid from their life’s savings.
Not really the reassuring option of justice Heather flippantly offered is it?
The reality is that freeholders constantly use the threat of the costs of going to Tribunal as a way to bully leaseholders into over paying fees to them. It’s very profitable for them!
She was keen to play down the scale of the problem. She claimed that the numbers effected by onerous leasehold clauses could be as low as 12,000 and not the 100,000 cited by campaigners.
Heather is understating the scale of the leasehold house scandal, it is closer to 100,000 people who are effected. Every single day more people realize just what they have bought. However, the leasehold house scandal is a tiny percentage of leasehold.
Tens of thousands of flats have doubling ground rents, onerous clause in their lease and regularly overpay for service charges, major works, licenses and permissions and lease extensions. At least 40% of all leases extended each year are informal lease extensions, the majority of these will end up with doubling ground rents.
The scale of the leasehold abuses is huge. The cases that end up in Tribunal are only the tip of the iceberg for the reasons I quoted above.
Heather gleefully informed the committee on Monday that not all freeholders monetise ground rents.
I have a database of 1.6m leasehold properties across the whole country. I know the lease length, who the freeholder is, the property value and how much the ground rent is. From this database I can tell you that I have 891 properties that do not have a ground rent fee attached to them. That is 0.0006% of properties that have no monetised ground rents!
Hardly worth shouting about I would say.
Mrs Wheeler said she would prefer to rely on developers and property companies voluntarily giving families better terms. Mrs Wheeler said legal advice showed legislation would be ‘horrendously expensive’, adding: ‘I’d much rather go down the voluntary route.’
Let’s be very clear here. The leases with onerous terms were written by housing developers and freeholders to maximise their profits at the expensive of the leaseholders. The terms did not end up in the lease by accident.
It wasn’t like one day at a board meeting the CEO said “Oi, Harry! I’ve just read this lease and you’ve only gone and accidently included a clause that says the ground rent doubles ever ten years. And look at this one, it says the leaseholder has to pay five grand for permission to build a conservatory in their garden! What were you thinking, you doughnut? Tsk, I hope no one ever finds out’.
All those terms were designed to maximise profits. If it’s left up to the architects of the leasehold scandal to rectify the issues, well, hell will freeze over before leaseholders will be happy again. It is a preposterous suggestion and one that is deeply insulting.
The question we are left with is this. Was Mrs Wheeler’s woeful performance due to good old fashioned ministerial ineptitude or was it driven by darker ideological motives? Only time will tell.
When she was appointed in her role last year she promised that she would either reduce the number of homeless people on the streets or resign from her position. After seeing her in action, it would be uplifting if she were to make a similar pledge for leasehold abuses. Housing ministers these days come and go like buses, let’s hope Mrs Wheeler moves on quickly to a role that suits her better.