Response in Parliament to Select Committee Leasehold Reform

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    #31
    Leaseholders tend to have problems following the law.

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      #32
      Originally posted by leaseholder64 View Post
      I've seen a solicitors' quote of £350 for doing an LPE1.
      That does not make it reasonable. I used to be involved in replying to the LPE1 enquiries and we used to charge £60. I suggest £80 would be reasonable today.

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        #33
        Lawcruncher - error sorry, see next post

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          #34
          Lawcruncher - we have the legal system in place, it just does not go far enough. The FTT can disaallow service charge expenditure but it cannot order the landlord to repay monies so all that means is that the service charge funds are depteted and the landlord can continue overcharging.

          The Ombudsman could carry out audits but does not seem to want to get involved.

          The accountancy profession comes out with no glory either. What is the point in giving advance notice that they will check the bank balance on the last day of the year and leave the other 364 days unchecked? They should check the balance on random dates.

          Comment


            #35
            Originally posted by eagle2 View Post
            The accountancy profession comes out with no glory either. What is the point in giving advance notice that they will check the bank balance on the last day of the year and leave the other 364 days unchecked? They should check the balance on random dates.
            That probably goes beyond the level of a full audit. Most leaseholder companies wouldn't want to spend the amount of money needed for a fully audit, yet alone the level of check you propose here. Normal accountant checks are not intended as a reliable means of detecting deliberate fraud.

            There is also a concept of materiality. Even with a full audit, anomalies will be accepted, as long as they don't materially affect the apparent shareholder value of a company.

            (Most high street professions are more about having somebody with insurance to pay if things go wrong than actually getting them right.)

            Comment


              #36
              Originally posted by leaseholder64 View Post
              Leaseholders tend to have problems following the law.
              So do landlords and agents!

              We need something like the Spanish system which goes something like this:

              A developer builds a block. Before selling he makes a declaration setting out the community rules. As I understand it, these are subject to minimum requirements, but some variation is permitted to allow for the fact that not every development is identical. That means that all blocks are subject to essentially the same rules. Each unit is sold on the equivalent of freehold. The community of owners get together and elect a president who has certain duties. A professional manager is appointed. Since the president usually lives in the block he is available for owners and others to report problems.

              Since the rules are the same everywhere books explaining them abound and guides for presidents are also available. Property owners tend to know their rights and duties just like drivers (hopefully!) know the highway code. The professional manager, apart from managing, is available to give advice. Property management is carried out by a range of professionals including lawyers, accountants and estate agents as well as specialist firms.

              Under this system there is no ground rent and no opportunities for managers to conjure up excessive fees. What owners can and cannot do is governed by the general law.

              Naturally disputes and problems arise, but the point is that the owners are in control and no third party treats them as a milch cow.

              Comment


                #37
                Originally posted by leaseholder64 View Post

                That probably goes beyond the level of a full audit. Most leaseholder companies wouldn't want to spend the amount of money needed for a fully audit, yet alone the level of check you propose here. Normal accountant checks are not intended as a reliable means of detecting deliberate fraud.

                There is also a concept of materiality. Even with a full audit, anomalies will be accepted, as long as they don't materially affect the apparent shareholder value of a company.

                (Most high street professions are more about having somebody with insurance to pay if things go wrong than actually getting them right.)
                Not at all, it would be a stsndard report as it is now the only difference would be that the bsnk balsnce would be checked at a random date chosen by the accoluntant instead of the last day of the year.

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                  #38
                  One of the problems, the way the UK is going, is that there is unlikely to be a candidate president in the blocks, as all the younger, more professional, leaseholders are likely to be absentee landlords.

                  Comment


                    #39
                    Originally posted by Lawcruncher View Post

                    The argument that ground rent is part of the consideration is a bit hard to swallow. That is not how purchasers perceive it, What they look at is the premium. In practice two identical flats, one with a peppercorn corn rent and another with an increasing rent are going to have the same sale price. In any event, why the need to allocate part of the purchase price to rent for flats when it is not done for houses?
                    It is patently clear that the ground rent is for no service - the lease terms will confirm that - therefore it is a negative burden on the property and should be considered on purchase

                    The enormous press coverage now helps as it makes purchasers think and challenge ground rent terms and appreciate that it is a burden that needs to be considered on purchase - if they don’t why should the landlord be prejudiced - the suggestion that it is unnecessary as it is just extra profit for the developer is weak - any vendor in this free market economy can be expected to seek the maximum price the market will bear. Vendors tosh out kitchens and dress them to help achieve a better price. The cost being far less than the extra proceeds they get, nobody (yet) is suggesting this is unfair and that legislation be introduced to redress this problem

                    The lessee see has professional representation throughout the whole process and other have based decision on those contracts and on the principal of English law. The Law Scoiety are on record as stating

                    "It is important to consider the essential public interest in the maintenance of the rule of law. This entails upholding and applying a stable system of rules that govern public interactions and contracts [ … ] For this reason the Law Society would not normally support retrospection with regard to legislation. Knowledge of what the law entails, and confidence that the law will be upheld, is essential to maintain the stability of complex markets such as the property market, in which a number of different actors hold significant interests. Any threat to this stability could have a significant adverse effect on consumers and property owners, which could (depending on what form any retrospective legislation were to take) have an impact on property values, property transactions, housing supply and the wider economy"

                    So if a ground rent has an initial starting sum in excess of £250 or 0.1% of the value of the property it should stand - It was there for all to see. There is no justification for jumping over Human Rights to help lessees who have purchased in the full and certain knowledge of the rent . The argument becomes even more difficult if the rent is very large and it is clear that the premium charged for the property reflected such a large rent

                    If it rises in line with the RPI that is wholly reasonable and fair to both parties provided that in times of deflation the rent must also fall

                    Rises in excess of inflation , may be examples of abuse where the developer knew the purchasers and their advisers would not consider the implications, and possibly for these reasons amendments may be necessary

                    Onerous rent needs to be defined - I would suggest that an onerous rent is one that changes during its currency to adversely change the valuation of a property. So a ground rent of £5,000 per annum resulting in a reduction of £100,000 in the premium asked for a lease is not onerous because the value of the flat reflects this high rent. A rent which the lessor can control and set at whatever figure he likes would be onerous . Until lenders agree a more detailed definition of an onerous rent it could well cause problems for lessees with rents that exceed £250 or 0.1%

                    Indeed the whole issue of onerous rents is a result of lenders introducing such terms without explaining how they arrive at their figures. The consequence of such a knee jerk reaction is to kick over large swaths of the leasehold market from being saleable to "difficult to sell" . Their behavior whilst well meaning is having significant impacts for some lessee.

                    If a lessee has a ground rent of £350 on a £275K Flat is that really such a problem as to make the flat unmortageable and therefore blighting its sale prospects ?. I really dont think so. This could easily be resolved by allowing a lessee to seek a reduction in the rent only - not extend the lease. The valuation required would be modest as it would be a desk top calculation and if prescribed discount rates were used then the matter should not be contentious in the vast majority of cases. Therefore a lender would have confidence that if the rent was a bit high and if the property had to be sold the rent could be quickly rectified . The landlord would receive proper compensation

                    But suggestions of no compensation and jumping over human rights will only polarise the parties and preclude the swift reforms in other areas of leasehold property that need attention

                    Comment


                      #40
                      Originally posted by leaseholder64 View Post
                      Leaseholders tend to have problems following the law.
                      I think that it is more accurate to say that leaseholders, including those in positions of responsibility such as directors of RTM's, typically have a very limited understanding of the law.

                      I suspect that it is generally only in a minority of cases that leaseholders think that they can intentionally ignore the law (although a disproportionate number of these cases likely end up brought to the attention of people who frequent forums like this one).

                      Comment


                        #41
                        Originally posted by sgclacy View Post

                        It is patently clear that the ground rent is for no service - the lease terms will confirm that - therefore it is a negative burden on the property and should be considered on purchase
                        ...
                        I agree with pretty much everything that sgclacy has said here.
                        The negative burden of ground rent (and also the negative burden of service charges in comparison to maintenance costs of a freehold property) should be considered when a leasehold property is purchased.

                        However, I would also agree with lawcruncher that it generally isn't taken into account by most people.

                        Anyone buying a leasehold property should consider both the initial premium they pay and the cost of annual rent and/or a lease extension that reduces rent to a peppercorn.
                        Solicitors dealing with the purchase of a leasehold should be obligated to ensure that they make sure that the purchaser is aware of these commitments, and be able to demonstrate that they have done so.



                        A far bigger problem, in my opinion, is the fact that freeholders (and/or their managing agents) can get away with poor performance and poor/expensive maintenance of a building because the court/tribunal system is strongly weighted in favour of a freeholder who is demanding high costs. There is very little incentive for freeholders/managing agents to control costs because anything that is considered to be within a 'typical' range of costs is usually considered to be reasonable (this includes management agents own fees).
                        Tribunals typically ask for 'like for like' comparisons of costs, but there is no obligation on the freeholder/managing agent to reveal precisely what each contract is awarded for.

                        'Best practice' also works against freeholders in many cases. For example, tribunals will accept accounting charges because 'best practice' says that accounts should be certified by an independent accountant. However, this ignores the fact that, in most cases, especially where small blocks with simple accounts are concerned, there is no real benefit to leaseholders from having independent certification of accounts - and the 'best practice' has been decided by organisations that represent the firms that benefit from having a requirement for independent certification (i.e. they are providing work for their members).

                        Comment


                          #42
                          There is of course abusive practices in leasehold and some germinate because of the structure and some because it involves an abuse of position and because monies are involved . Common-hold will solve some issues but not all

                          the current valuation model was formed in the light of ensuring the landlord was adequately compensated for his loss on enfranchisement and on a lease extension respecting the human right to compensation - so what has changed to vary that . There is clearly abuse when it costs several thousand of pounds to extend a lease from 85 yrs to 189 years under the Act where the flat is in a development of other flats . Prescription of rates is required and in my view the landlord being responsible for his own costs of acquired post 1993. This would deliver meaningful savings , make it quicker and simpler for the lessee - this keeping the government promise of delivering a new regime for lease extentsons to help lessees yet preserving the landlords rights to correct compensation for the loss of his investment

                          ground rent seem to be acting as the lightening conductor which brings down so much of the anger many feel - yet ground rent itself is in reality part of the funding of a purchase - you could have a purchase structured with no premium and all the consideration made up of ground rent - this can be a deal in a lease extension for example . If the NPV of the rent is clearly shown and calculated using a defined NPV then the lessees knows in advance what he is entering into and can ensure the price he pays for the lease reflects the true cost of the liability



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                            #43
                            I suspect that some of the well known freeholders are responsible for drafting the terms of leases as part of a pre contract agreement with the developers. Requiring all ground rents to be a peppercorn rent would solve that problem.

                            Comment


                              #44
                              Accounts are made up to reflect a particular date, so the bank balance on that date is needed, not that on a random date.

                              Moreover, in practice, the accountant will work from a statement, which will have the balance on every date, and if they are doing incomplete records, that is likely to be their primary source document.

                              Comment


                                #45
                                The balance sheet would still be as at the last day of the year. At the moment agents can do what they like for 364 days of the year and window dress the bank balance on the last day.

                                Comment

                                Latest Activity

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                                • Sharing cost
                                  Affinity
                                  Hello
                                  I am selling my flat. In order to do so I had to pay for a asbestos certificate which cost me £400+vat.
                                  Is it fair to ask the other freeholders to share the cost? The building has three flats and we share the freehold.
                                  Your views are appreciated.
                                  19-09-2019, 16:51 PM
                                • Reply to Sharing cost
                                  sgclacy
                                  The success in seeking reimbursement will depend more on the style and approach of your letter than the actual law.

                                  i would write to the freeholder stating that you commissioned the asbestos report and as a consequence have undertaken a task which they should have undertaken - therefore...
                                  21-09-2019, 09:05 AM
                                • Reply to Sharing cost
                                  leaseholder64
                                  The leaseholders are the joint freeholders! If the lease requires the freeholder to pay, there really should have been a formal agreement that freeholder costs be split equally.

                                  Is this one of these leases that tries to avoid having service charges?

                                  Worst case is that the joint...
                                  21-09-2019, 08:37 AM
                                • Reply to Sharing cost
                                  eagle2
                                  It should be a shared expense payable by the freeholders or leaseholders depending on the wording of the lease. You should try to persuade the others in the block to contribute failing which you may need to threaten legal action.
                                  21-09-2019, 08:07 AM
                                • Reply to Sharing cost
                                  leaseholder64
                                  The problem is that you failed to do this when you were required to do it That means you are now against time pressures. You are probably going to have to fund this yourself, even though it should have been a service charge item, split equally amongst all the leaseholders.
                                  20-09-2019, 21:32 PM
                                • Reply to Sharing cost
                                  Affinity
                                  Yes, it is for the communal area
                                  20-09-2019, 20:49 PM
                                • Service charge ground rent late payment - Admin charge and legal fees
                                  kads
                                  Hello All,

                                  I have a leasehold flat and have missed paying the ground rent and service charge.I wont go into the details why I missed it but have learnt a lesson that I should have been paid on time. I received an email from the Landlords solicitor demanding the money be paid to them directly...
                                  20-09-2019, 10:41 AM
                                • Reply to Service charge ground rent late payment - Admin charge and legal fees
                                  eagle2
                                  I recommend that you check carefully whether or not the demands were issued correctly. I would do nothing else unless the cheque is returned to you, which I very much doubt, The freeholder will not succeed with a claim for forfeiture. If the agent maintains that you owe monies, you will need to contact...
                                  20-09-2019, 17:02 PM
                                • Reply to Sharing cost
                                  leaseholder64
                                  Can you confirm this is for the communal areas?

                                  If so, point out that they have been committing a criminal offence for many years Also, only the freeholder can commission the survey, as it will involve taking samples not just a visual check and leaseholders won't have the right to cut...
                                  20-09-2019, 17:00 PM
                                • Reply to Service charge ground rent late payment - Admin charge and legal fees
                                  Macromia
                                  ...but will only apply if the service charges/ground rent were correctly demanded in line with current legal requirements....
                                  20-09-2019, 16:48 PM
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