An article in News on the Block last month called for leasehold to be banned and replaced by commonhold, describing the system as “feudal”. Whilst feudal systems may be ancient – it doesn’t mean they are wrong; crop rotation is alive and kicking and still very relevant in the modern farming environment. Similarly, a properly regulated system of leasehold ownership, with professional management of complex residential apartment blocks, has the potential to become a benchmark system for property ownership.
Professional freeholders play a valuable role in the housing market. Their interest is the long-term viability and maintenance of the apartment block. However professional freeholders play a larger role than this. The role also encompasses building safety, provisioning for future events, providing cash flow to deal with emergencies, insurance, covenant enforcement and dispute resolution. Crucially these are not tasks carried out by appointment. These are obligations written into the lease itself, obligations which recent research indicates that residents themselves do not want to take on.
Professional freeholders contribute significantly to the smooth running and longevity of buildings. This point is misunderstood and often goes unnoticed – which is how it should be as it allows residents to peacefully enjoy their homes. Freeholders receive a modest stipend in the form of ground rent, a sum built into the life of the lease which underpins the stewardship role over the lifespan of the building.
The Government however is proposing to reduce ground rent to a peppercorn on leasehold apartments. This policy is based on the notion that freeholders are not accountable, which is clearly not correct, and at best indicates a belief that the freeholder obligations contained within a lease are of no value. Yet the Government’s parallel focus on freeholder obligations around building safety, specifically around cladding remediation, sends a clear message that the freeholder is accountable and plays a vital role. This is further illustrated by the efforts being made by professional freeholders across the country to deal with the cladding crisis on behalf of their leaseholders as they are obliged to do under lease terms.
It cannot be ignored that the proposed elimination of ground rents would lead to professional freeholders withdrawing from the market. The long-term nature of a ground rent matches the long-term nature of their obligation to maintain building standards. Without the ground rent and long-term obligation, flat owners will be at the mercy of opportunists who will acquire freehold titles cheaply and exploit them. This means they face a lowering of standards and increased costs. One only has to venture north of the border to Scotland, where leasehold was abolished in 2012, to see the impact of the absence of professional freeholders. Reports show that over 40% of Scotland’s apartment blocks are in need of critical repair and that residents are struggling to co-ordinate and fund essential maintenance projects. Ultimately this is having a significant impact on their quality of life.
The same mistake does not need to be repeated in England. The reputation of leasehold has been tainted in recent years, but the introduction of regulation presents an opportunity to drive out bad practice. Resident-led groups without access to freeholders are already struggling to cope with cladding remediation, waking watches and increased insurance bills and do not want the increased responsibility for building safety and maintenance going forward. The Government must guarantee professional oversight of complex buildings by reviewing and carefully regulating the sector. The consequences of it passing up on this opportunity will be felt for years to come, not just for residents, but the wider industry too.
Mick Platt, CEO, Wallace Partnership Group
