Evening Standard Homes and Property Section 11 October 2006

You’re in charge

The past 10 years has seen a major shift in the balance of power for flat owners. Buying the freehold of your block is no longer a distant aspiration. Putting up with a landlord’s inefficient management has ceased to be acceptable. Changes in legislation mean leaseholders are now in the driving seat. More blocks than ever are buying their freeholds, improving the value of their homes and installing their own managements.

In 1996, despite reforming legislation going back to 1967, the injustices of the leasehold system still rankled. Labour, then in opposition, had just published a paper on leasehold strikingly entitled An End to Feudalism. An Evening Standard campaign highlighted the excesses of rogue landlords. Robert Levene of the Federation of Private Residents’ Associations recalls: “As a committee we were always talking about the bad landlord who wouldn’t listen to what the residents wanted.”

In response, the Tory government of the day set up the Leasehold Advisory Service to give free advice to leaseholders – LEASE dealt with 5,000 enquiries in its first year. There was also new legislation that included greater rights for Ieaseholders to challenge service charges and tougher penalties against landlords who sold freeholds over flat-owners’ heads, denying them their legal Right of First Refusal. Levene’s own South Woodford estate bought its freehold at around this time from a landlord who was selling up, although Levene stresses: “Allied London Properties were very co-operative and supportive. When they sold off their other estates they kept ours so they could sell it to us – and at a lower price.”

Nevertheless, it was a complicated process involving 57 flats in five blocks and 25 garages. Forty five flats participated and costs ranged from £1,000 to £3,500. Today, 56 flats share the freehold and Levene puts the price of entry for the remaining flat at £12,500. However, Ieaseholders wanting to enfranchise encountered a new obstacle: Buy To Let.

In 1996 only 10 per cent of the fiats on Levene’s estate were sublet: now it is 40 per cent, a picture common to many London blocks.

But the law, which required 60 per cent of leaseholders to participate in enfranchisement, also demanded a two-year residency qualification. Labour’s 2002 Leasehold and Commonhold Reform Act opened the floodgates, not only by scrapping the residency qualification and reducing the qualifying level to 50 per cent, but by ensuring that, if your notice to enfranchise is served on the landlord correctly, he cannot contest the purchase. The result has been dramatic. Last year alone, LEASE received 6,000 enquiries about enfranchisement.

The Association of Residential Managing Agents (ARMA), whose members manage 750,000 flats, reckons two-thirds of these blocks are now run by residents’ freehold companies. Landlords have accepted the inevitable. The Cadogan Estate, for instance, is moving into commercial property, having seen the residential component of its portfolio drop from 75 per cent to 45 per cent, “The legislation is a fact of life,” says Cadogan’s Stuart Corbyn. “It’s just something we have to live with:”

The rush to enfranchise has also been spurred by the 2002 abolition of marriage value on leases above 80 years, slashing the price of the freehold. John de Souza’s 42-flat Maida Vale block is beginning the process while most leases are still 80 years plus. “If the properties fall below 80 years, they’re losing value by the day,” says de Souza, chairman of the block’s residents’ association. “But the major reason for purchasing the freehold is that it adds a premium to your property.” He estimates the £600,000 flats will increase in value by five per cent to 10 per cent. Small wonder leaseholders want their independence.

Although the 2002 Act also introduced Right to Manage, allowing leaseholders to take over their block’s management without enfranchisement, this has failed to take off – only three per cent of LEASE’s 30,000 enquiries are about RTM. However, enfranchisement is no longer a spare-time occupation for a couple of willing leaseholders. Freeholds in central London can now run into millions. While landlords cannot dispute the sale, they can get tough when it comes to the valuation. And recent court judgements linking the price of freeholds and lease extensions to the money market will see costs soar higher.

The past four years has seen the creation of specialist companies to project-manage enfranchisements. De Souza’s block has hired one, Leasehold Solutions (0808 1311 109; www.leaseholdsolutions.com) for its freehold purchase. “Otherwise you end up with very busy people taking on work they’re not going to do professionally,” says de Souza. “Leasehold Solutions has taken the pain out of the project.”

A managing agent has also become a must. Red tape now entangles every aspect of running a block, from consulting on major works to accounting. Says David Hewett, of ARMA: “The legislation may have made it easier to enfranchise. But it’s made it harder for lessees to manage once they have obtained control.”

And there is one final irony. Commonhold, also introduced in the 2002 Act, was supposed to sound the death-knell for leasehold by allowing flat-owners to own their homes outright. But due to problems with the way the legislation was drafted, including the fact that it does not permit shared-ownership, only 10 commonholds have so far been registered. Meanwhile, unprecedented numbers of flats are being built (41 per cent of all new homes in 2004/5), and all of them will be leasehold, perpetuating the system Labour once condemned as “feudalism”.

“Leasehold is an unsatisfactory method of property ownership and it’s mushrooming out of control,” laments Peter Haler of LEASE.

 

Copyright Leasehold Solutions and Alex Greenslade. Reproduction by permission only