Money: It's time to make leaseholders feel they're kings of the castle

Landlords simply have too much power over their tenants.
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The Independent Culture
LEASEHOLDERS COULD be given the right to take over the management of their block of flats without having to prove that the landlord was in any way at fault, according to a new government consultation document. The Government's initiative comes as leaseholders campaign for changes to legislation, which many claim allows landlords to exploit their tenants.

Among the proposals outlined in the consultation document is a relaxation of restrictions to the right of flat owners collectively to buy their freehold. At present, for buildings to qualify for enfranchisement, no more than 10 per cent of floor space must be non-residential. This disqualifies smaller blocks, where the ground floor may be laid out as shops. The Government proposes to lift this to 25 per cent.

It is also proposed that the "residence test" - whereby at least half the enfranchisement group must have occupied their flats as principal dwellings in the 12 months before the date when the initial notice is given - simply be applied from the date when that initial notice is given.

Alternatively, would-be enfranchisees will be required only to have been living in their flat for a period totalling 18 months out of five years, rather than three years in the last 10. The proportion of "qualifying" tenants who can call for collective enfranchisement could also be dropped from two-thirds to a half.

Other proposals include:

y regulating the activities of property managers, including the selection of contractors, and improving the security of tenants' funds;

y controls to ensure landlords provide effective insurance cover, stamping out the practice of "placing" insurance to maximise commissions;

y the Lord Chancellor's Department to consult on the introduction of a new type of tenure for flats, called "commonhold", which would give flat owners the individual ownership of the property on which their home stands;

y options to cut down on the arguments over the price of buying a freehold, avoiding the need for expensive professional advice;

y a "no fault" right for leaseholders to take over management of a block without buying the freehold. To qualify, the non-domestic proportion might be limited to 10 per cent, rather than the 25 per cent proposed for enfranchisement.

Terence Michael, spokesman for the Flatowners Network, says: "I welcome the direction the Government is moving in, but the document wastes time on technicalities, it is turgid to read and fill of uncertainties. I want a government that takes a strong lead and makes a powerful stand on crucial issues. The consultation paper suggests they are sitting on the fence."

However, Mr Michael says the primary focus should be on "regulating the new breed of leasehold landlord managers" whether or not they have collectively bought their freehold (known as "enfranchisement") or not.

Mr Michael also points out that the Government's emphasis on simplifying the enfranchisement process must go hand in hand with regulating what happens after this takes place, otherwise it is likely to face a huge backlash in the future. "It's very short-sighted. People with a house that enfranchises are OK, but flat-owners who enfranchise face a whole range of risks they were exposed to with their former nightmare landlord, such as inflated service charges. Leasehold landlord managers, and the property company they run, must be regulated."

Peter Haler, head of the Leasehold Advisory, says: "I'm pleased with the document, although I had hoped for something more solid."

Mr Haler also believes leasehold managers must be subject to strict regulations, whether or not the property has been enfranchised. He says leaseholders must be legally obliged to follow a standard structure, which includes setting up a company designed specifically for this purpose. He adds: "The company that leaseholders set up to run the block must give each individual the same rights to get redress and follow strict procedures for holding annual general meetings and handling disputes, for example.

"It would ensure complete transparency of all expenditures and everything else. The more you can regulate and write down, the fewer problems there will be, because everyone will know where they stand and what their money is being spent on."

In order to prevent new leasehold managers from stepping into the shoes of former landlords, leasehold groups and Mr Haler call for criminal prosecutions, fines and the removal of directors of self-managed companies if they fail to manage according to the rules. Tight regulation should apply in the same way to managing agents and anyone else considered to be assuming the role of a manager.

"I would like to see a regulator and ombudsman rolled into one," says Mr Haler.

The Government could take the Financial Services Act as an example for legislation covering leases. This forced all independent financial advisers to apply and pay for a licence in order to ply their trade, which covers selling investment products. Property is usually the biggest investment a person makes in a lifetime, yet the management of a leaseholder's biggest asset is still not regulated, which is an unpardonable anomaly in British law. This country's two million leaseholders, whose property is worth many billions of pounds, need to be given the protection they deserve, and only an official regulator can provide this. Codes of conduct in this industry only scratch the surface, and those that exist are often ineffective.

Decisive, clear-cut, effective rules that are open to as little interpretation as possible need to be firmly enshrined into law. Campaigners argue that to aid clarity words such as "reasonableness" and "due regard" should be eradicated from every description in the regulations.

Leaseholders are asking the Government to sharpen its focus, taking effective action rather than creating complexities to hide behind, to prevent further abuses of the system a few years down the line.

Karen Woolfson welcomes comments for her column: Write to: Homebattles, c/o Nic Cicutti, Personal Finance Section, `The Independent', 1 Canada Square, Canary Wharf, London E14 5DL. Karen regrets she is unable to reply personally to all letters