When the Leasehold Reform Act gave leaseholders the right to acquire the freehold or a 50-year lease extension to their properties, few would have foreseen the current situation. The act, passed in 1967, was brought in as a way to prevent people from being made homeless, a problem faced by many Welsh miners around that time. But while the original thinking behind it may have been to quite virtuously help the working classes, recent reforms focusing on changing the ownership of Mayfair flats are a long way removed from Welsh cottages. Indeed, the removal of strict residency rules has instead led to a new breed of speculative investor taking well-intended legislation for a ride.
The initial set of rights in 1967 only applied to low value homes (typically £200-£400) and not to flats at all. Ever since, these rights have been extended to a far wider class of tenants and properties, some of which have seen enfranchisements bitterly contested as far as the European Court of Human Rights.

The whole procedure of enfranchisement (as outlined in Savills’ introduction in this supplement, pages 4 and 5) is extremely complex, particularly in blocks of flats with a mix of leases where some may not qualify.

Resigned acceptance

Hugh Seaborn, chief executive of the Portman estate offers a resigned acceptance of the current legislation, yet seems upbeat of the role the large estates still having in creating vibrant communities that people really benefit from.
“The rules have been amended to penalise freeholders, but the principle of it is just a fact of life,” he says. “For an estate like ours it provides capital that we would otherwise not have, and in that respect, it’s not unattractive. What is unattractive is that we lose freeholds.”

And with these freeholds, the highly professional estate management that accompanies them is also lost. Central London estates such as Belgrave Square, Mayfair and Sloane Street look ‘fabulous’, according to Seaborn because, he continues, “you have the likes of Grosvenor who ensure that just the right shade of paint is used helping them look pristine. You only have to walk through Pimlico to see how things deteriorate.”

For anyone taking a walk through locations such as Marylebone Village, owned by Howard de Walden, this is a hard argument to contest. Responsibility for the public realm ensures the whole environment is better. Similarly for the Portman Estate: “We can take a long-term view of things,” insists Seaborn.

“It cannot be a coincidence that so many of the better managed and more desirable areas of London are within the Great Estates’ control,” adds David Ramsell, estates surveyor at Cadogan, which transformed Chelsea into the desirable location that it now is. The estates believe that when a block of property is lost, so is the motive for taking a broader interest. Similarly, the original intent of the enfranchisement also seems to have dissolved somewhat over the years.

Seaborn says: “The residency test was taken away in 2002 so you can buy the freehold even though you don’t live in the building. The original ethos was to ensure people weren’t made homeless, but the legislation is now a way for speculators to profit. It’s not about people’s homes.”

Very sensible

A speculator not in occupation can take the freehold and sell it on, having obtained it from an owner who didn’t want to sell it in the first place. This in itself opens up the poorly drafted legislation to further complications, as ‘tenants’ turn on each other.

“We constantly receive calls from lessees telling us that a collective claim has been made and that they have been excluded from participation,” says Ramsell. “It seems to us to be a fundamental part of the process that all lessees should at least have a chance to participate, rather than sometimes being quite deliberately excluded.”

Seaborn agrees that the original ethos was “very sensible”, but he believes the purpose of the legislation was therefore met by the ability of leaseholders to extend their leases by 90 years.

He continues: “While the estates don’t necessarily want to extend the leases,” he adds, “at least they retain the freehold and can concentrate on long-term planning. I think what’s happened is the legislation has been amended over time with a result that wasn’t intended. Taking away the residency test doesn’t seem to follow the political thinking behind it.”

While neither public nor political sympathy are about to side with the Great Estates, politicians would do well to consider the results of the legislation, which now mean that there are far fewer leases issued for longer than 20 years (as anything longer would enable enfranchisement).

Meanwhile, landlords still intent on looking to the long term will be able to so, although their historic assets are unlikely to remain totally untouched.

“It is ironic that at the very time the great estates are being undermined, much of what they deliver in terms of good management is being both admired and replicated. With the Government’s sustainable communities agenda, good estate management and avoidance of cloned high streets all near the top of the political agenda, public and other private sector organisations are casting an eye over what they can learn from these excellent organisations. There is a balancing act to be struck between the rights of the individual and the collective need to ensure a place is well managed. Whether we got that balance right through the 2002 Act is increasingly being questioned,” concluded Seaborn.

A CASE STUDY

The Phillimore Kensington Estate is not untypical of London Estates – it came into the Phillimore family around the turn of the 18th century, when it consisted of some 90 acres of largely agricultural land.

Most of the 20 acres that comprise the Estate was developed between 1855 and 1870, with the large apartment blocks on the north side of Kensington High Street constructed in the first half of the 20th century.

Instead of selling off individual parcels of land, the Estate granted building leases, usually of 99 years, to local builders, with the result the Estate retained the freeholds and received small annual ground rents. Since the Second World War, sales have been made both to meet taxes payable on the deaths of the Second and Third Baron Phillimore and under the enfranchisement legislation introduced by various Leasehold Reform Acts. In recent years however, the Trustees’ policy has been to reinvest the proceeds received from freehold enfranchisement and lease extension claims by taking in hand and refurbishing certain significant properties in each street within the Estate and managing them through their agents, now Savills. In addition, a Freehold Management Scheme was established by an Order of the Court under the Leasehold Reform Act 1967, as a means of protecting and conserving those properties no longer owned by the Trustees from unsympathetic alterations and development. As a result, the overall quality and appearance of the Estate has been maintained and improved and also the capital and rental values of individual houses and flats have been increased for the benefit of the Trustees and all the residents.

The Trustees have always accepted that the legislation introduced by the Leasehold Reform Acts gave leaseholders the right to acquire their freehold or extend their leases; subject only to payment of the compensation assessed under the formula laid down and to meeting the ownership qualifications. Moreover, it has been the policy of the Trustees’ agents, wherever possible, to reach agreement by negotiation rather than by seeking a determination at the Leasehold Valuation Tribunal. Thus if lessees are properly advised from the outset, a sensible resolution can be achieved without the delay, expense and uncertainty involved in applying to the Tribunal.

Oliver French, Associate, Savills