Steve Norris is a former Vice-Chairman of the Conservative Party and Conservative candidate for the London mayoralty.
The Housing, Communities and Local Government Select Committee recently published its conclusions on the issue of leasehold reform. They rightly recommended that the Government stop the really nasty practice by some home builders of charging ground rents which appear innocuous to inexperienced buyers, but which double over ten or 15 years, this causing real distress to their owners. The department very promptly accepted that recommendation, and as far as houses are concerned the practice will be stopped.
But the committee went further. They questioned the whole issue of leasehold ownership – particularly of flats which they described as, too often, leading to tenants being exploited through ground rents and service charges which have little to do with the quality of the building and a great deal to do with profit for the unscrupulous landlord. They were clearly right to highlight the way that tenants can be exploited under the law as it stands but their remedy – a transition from leases to commonhold – was quite simply wrong.
Some time ago no less august a body than the Law Commission also recommended commonhold as the answer to tenant concerns. Both bodies see this as a way to cut out the landlord – which, to be fair, commonhold does. In simple terms, it means that the occupiers of a building in multiple occupancy own the building collectively. They buy a share of the building, rather than a lease. The committee describes this as “free from ground rents, lease extensions, and with greater control for residents over service charges and major works.”
It goes on to say they are “unconvinced that professional freeholders provide a significantly higher level of service than that which could be provided by leaseholders themselves.” The committee may be right that, in theory, multiple occupiers can manage a building as well as a professionally qualified person. But they are seriously missing the point.
In reality, multiple occupiers of a single building, whether they are leaseholders or commonholders, face the same challenges. Few, if any of them, will live in the property for the whole of its life. They will have differing views on how the building should be maintained. The elderly couple who contemplate no more than another ten years in the property might not be happy to contribute to a sinking fund for roof repairs that they will never see the benefit of. The young couple next door might see that issue very differently.
By one means or another, commonholders will still need to decide among themselves how the building should be kept in decent repair, which their number is going to take responsibility for procuring the work – and, even more to the point, collecting the necessary contributions from their neighbours. Even assuming that one of them was a) professionally qualified and b) willing to take on the responsibility, those other all too obvious hurdles will still need to be jumped.
What happens in practice is that the commonholders invariably do go to a professionally-qualified managing agent to take on all these responsibilities – and thus are to all intents and purposes in exactly the same position as leaseholders. The managing agent has no interest in how the tenants afford their bills. The tenants have little exposure to how the agent determines who gets the work and at what price. In the worst cases, this itself is a practice prone to abuse.
The fact is that the answer is neither leasehold or commonhold (which is, incidentally, available now but seldom used because, one can only assume, ordinary occupiers see the risks that elude the great minds of the Law Commission and the Select Committee). Instead, it is quite simple – namely, to ensure that occupiers get appropriate, decent service from suitably qualified professionals who will be in a contractual relationship that will ensure they deliver best value for money.
That means regulation – which despite the leading voluntary industry body, the Association of Residential managing Agents (ARMA) calling for it, still hasn’t happened. But last month a group of freeholders, managing agents and developers signed a public pledge to bring about positive change in the residential leasehold sector.
Backed by James Brokenshire, this commitment to raise industry standards feels like a watershed moment to reform the current of leasehold ownership in a practical and sensible way that will really address the issues that all occupiers of multiple apartment buildings face. As part of the pledge, the Government made a firm commitment to “work with other freeholders and stakeholders to develop a comprehensive Code of Practice which establishes the responsibilities of freeholders and enshrines the highest standards for the management and maintenance of properties”.
This is much more like it. A mandatory Code of Practice is in the pipeline. It should establish clear, high-level minimum standards, and should outline how all the relevant stakeholders should conduct business and catches all the players in the market. Together, the pledge and the Code of Practice, if given legal backing, should ensure that freeholders act as long-term responsible stewards of properties, holding managing agents to account. Being mandatory, it catches the cowboys – which is exactly what is needed. Ironically, this is a point acknowledged in the HCLG Select Committee’s report.
Like most gut Conservatives, I instinctively dislike regulation. But as a pragmatic one, I also accept that there a huge numbers of instances in which it is quite simply the best answer to many of society’s challenges. As a minister in the Major government, I trawled through quantities of regulation looking at what we could dispense with and what we needed to keep. The issues were almost all about public safety and consumer protection and, in a very large majority of cases, I came to the reluctant conclusion that regulation was the necessary and inevitable response.
Ultimately, effective regulation, such as is envisaged here, is the best way of ensuring that tenants are given the right degree of protection, and that owners of buildings are able to ensure their buildings remain in good condition throughout their life. Most of us simply don’t want to be heavily involved in the running of complicated apartment buildings, and neither are we qualified to do so. Forcing communal management on occupiers with all its flaws and potential for conflict cannot be the answer. Time surely for the Law Commission and the select committee to think again.