Your Money: A common distrust of sharks

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The Government is set to publish a consultative document on leasehold reform, which is expected to explore the possibility of abolishing the existing system in favour of "commonholds". Karen Woolfson explains what this means and looks at some of the options on offer.

The proposals would give flatowners the individual freehold of the properties on which their flats stand, plus shares in the collectively owned freehold of the common parts of their blocks.

Under the current system, many leaseholders put their life savings into buying their apartments, only to discover that their dream homes are managed by unscrupulous freeholders who abuse the system for their own gain.

Leaseholders in this predicament are a valuable resource. Some of them have contacted The Independent suggesting that the Government set up a working party, with leaseholders who have experienced difficulties with landlords, and are familiar with the strategies that the rogues pursue, being given the task of considering the proposals.

One area likely to be transformed is that which governs landlords and managing agents. They may be required to register before taking on any duties.

At present, landlords and managing agents can take on huge responsibilities for hundreds or even thousands of tenants without any qualifications, training or proper regulation of their performance. This aberration could be ironed out by imposing strict rules or standards on landlords and managing agents.

Gerry Fox, the managing director of property managing group Fineman Lever, who chaired the working party that produced the Service Charge Residential Management Code, believes a "landlord" regulator or ombudsman with the power to enforce the law may be the answer. Landlords would be required to register with the watchdog body and pay a small sum each year to help fund its activities.

The organisation could be run by a committee of leaseholders working hand in hand with members, ensuring standards are met. Additional funds could be raised by levying fines on landlords who fall foul of the rules.

If a regulatory body is introduced, leaseholders will have a better chance of resolving disputes quickly, simply and without spending money. Although Leasehold Valuation Tribunals are a step in the right direction, they are slow, ponderous and expensive. One leaseholder comments: "LVT's are much better than the courts, but it's still not really worth arguing about anything less than pounds 1,000. There's got to be an easier process of dispute resolution."

Another area likely to come under scrutiny is collective enfranchisement, whereby a group of leaseholders jointly buy the freehold from a landlord. The process needs to be simplified and include a statutory right of participation. Only a qualifying majority are now needed to buy the freehold collectively, and leaseholders who are left out of the action have no rights. One reader alleges this has led some individuals suffering discrimination, because they are being left out - deliberately, according to my correspondent.

The whole rigmarole of sorting out how much you will have to pay to buy a freehold collectively or to extend your lease also needs a radical overhaul. The existing process is complex and the tenant bears the full cost of both his own and the landlord's valuers.

One objective valuer appointed by a regulatory body could spare both the freeholder and leaseholders much of the confrontation that occurs during the valuation process.

Leaseholders who take the collective enfranchisement option could simplify their lives by creating a way of converting their tenure into a commonhold, a form of tenure that may be introduced in the not-too-distant future. The Lord Chancellor's department is considering the best way to deal with various proposals which have been submitted about commonhold schemes.

But until commonhold becomes a reality, people who collectively buy their freehold may find they have swapped one horrendous landlord for another. The most common complaint: one person or a group seizes power, appointing themselves directors of the jointly owned company set up to manage the block, and failing to adhere to legal procedures.

One reader suggests that the memorandum of articles for every company set up to run a block be standardised. In the case of a collectively owned freehold company, each flatowner in a block of up to 10 flats should be given the right to a directorship on the board.

Whether or not every flatowner decides to take up his or her directorship, each flatowner should be given the right to attend all meetings and have access to all the documents, accounts, correspondence and any other related information to verify that expenditure is justified. Twenty-one days' notice and three potential dates should be the only requirement to gain access to the past five year's accounts and supporting documentation.

For blocks of more than 10 flats, it is recommended that 10 per cent of the leaseholders or the residents' association be given the right to inspect the accounts every 12 months.

Other changes are also needed. But if the Government fails to directly involve in the reform process the leaseholders who have suffered landlord abuse, it will be ignoring the true source of experience which has the knowledge to help provide the answers.

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

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