The property column

What happened to the Leasehold Reform Act?

Liz Hodgkinson discusses the consequences with expert Shula Rich

A couple of years ago, there were high hopes that the new Commonhold and Leasehold Reform Act would put an end to the unsatisfactory situation whereby a leaseholder just buys a length of tenure but not ownership of their property.
But when the Act was implemented in September of last year, nothing whatsoever changed.

The idea of the Act was to make apartment dwellers responsible for their own building by allowing them to form a Commonhold Association. But as the law was not mandatory and nobody really understood it anyway, in most cases, the traditional leasehold arrangement, where the freeholder retains ownership of the land on which the building stands, remains as before.

“When you buy a leasehold property, you do not own your own home, and at the end of the lease you leave empty-handed, with a property worth nothing,” she points out.

“People believe they are safe with a very long lease, but even if it’s 999 years, you are still vulnerable if you do not own a share of the freehold. In effect, the length doesn’t matter if you remain a tenant of the freeholder, who owns the building. You are in their hands, and they can do what they like.”

It is possible for leaseholders in a building to get together and buy the freehold, thus releasing themselves from the clutches of an outside freeholder. “But for this, there has to be a majority agreement, and also the freeholder can charge a price so high that many simply cannot afford to enfranchise,” Rich adds. “Freeholds are usually sold as a percentage of the ground rent, so the higher the ground rent, the more expensive the freehold is to purchase.

“It can cost several hundred thousand pounds each to buy a share of the freehold. Also, the business of enfranchisement requires a great deal of specialist legal knowledge, which is very expensive. A lot of lawyers are making huge sums of money out of enfranchisement – and it could all have been completely avoided if the government had made commonhold mandatory, at least in all new blocks.

“In my view, the government has been completely negligent in not making commonhold compulsory for conversions and for newbuilds. We are storing up two million problems in the future, as the majority of new developments are not being sold with a share of the freehold.

“In time, these new leaseholders are going to be left with a flat worth absolutely nothing, as, when the lease ends, the tenure reverts to the freeholder. Mortgage lenders don’t understand leaseholds either, as they lend money purely on the length of the lease, not whether the property is sold with a share of the freehold.

“All the government had to do was to say that in future no more leaseholds were to be sold without a share of the freehold. Leaseholds, in my view, are dangerous and insecure forms of tenure, yet they are becoming ever more frequent.”

Shula Rich, a property investor herself, has been campaigning for empowerment of leaseholders since 1991, when she, along with other residents, secured the freehold of her own 104-unit apartment block in Hove, after an almighty fight.

“We were facing a bill from the freeholder for £2 million and it shocked us into action. At the Association, we are all volunteers, and our service is free. We hold weekly surgeries whereby leaseholders can bring in their leases, and we will underline what is relevant. Already, we have enabled huge numbers of people to obtain their freehold and determine the future of their building themselves.

“The important thing to understand is that unless you own a share of the freehold, you have no say in anything. Freeholders can make all the rules they like. Also, freeholders make money out of the leaseholders, who have to pay for everything in the form of service charges and levies. But where the residents jointly own the freehold, nobody is making any money and a sense of community develops.

“In many locations nowadays, you have no choice but to buy a leasehold flat which, under present law, you may never, ever own.”

Shula Rich believes the government has been negligent in not making the Commonhold Act compulsory, but what does the government have to say?

A spokesman from the Department for Constitutional Affairs, responsible for the act, said: “The new Act is all about choice rather than imposition. It allows people to extend their choice of ownership and form commonhold associations, but there is no compulsion to do so.”

But all the new Act has done in effect, says Rich, is to allow freeholders to make even more money out of leaseholders by charging them huge sums if they want to enfranchise.

For information about the Leasehold Enfranchisement Association: see  www.leaseadvice.org .
A video/DVD, ‘Escaping the Leasehold Trap’ is available for £10 from Shula Rich, Hon co-ordinator, LEA,52-3 Kingsway Court, Hove, BN3 21Q.

 

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