What do Leaseholders think of Leasehold and Leasehold Management?

Since the formation of a Facebook Community, the National Leasehold Campaign, in January 2017, leasehold has been described by some as the ‘PPI of the house building industry’ and ‘feudal’. There have been claims that both leasehold and freeholds may contain ‘toxic’ terms, and the phrases ‘leasehold scandal’ and ‘fleecehold’ are bandied around on social media. In December 2017, the UK Government announced its intention to reform leasehold and to review the use of an alternative form of home owning called ‘commonhold’. The Law Commission is now looking into reform of commonhold and of enfranchisement (with a detailed consultation paper recently published), and a Commons Select Committee is conducting an inquiry into the Government’s leasehold reform programme.

Post-Grenfell, leaseholders with flats in buildings affected by unsafe cladding and insulation have discovered how difficult it can be to understand what leases say, and to have a voice within the complex web of ownership and fire safety regulations. For some blocks, with non-resident freeholders, the leaseholders have no powers and are struggling to get information and action. In other cases, where there is a resident-controlled freeholder/management company (RMC) there is a whole other set of headaches about how to solve the problem when there is no money available, huge administrative burdens, and uncertainty about building construction. Of course, RMC directors are often leaseholders seeking to be ‘good citizens’ and doing a job that someone has to do.

The recent publication of a survey of owners of leasehold houses by PropertyMark (PMS) reports that 94% of leaseholders regret buying a leasehold; 62% felt that they were mis-sold; and 57% didn’t understand what being a leaseholder meant until they had already bought the house. It states that the language used in contracts is a ‘significant concern’, referring often to ‘virtual freehold’ which gives the buyer ‘the perception of total ownership, control and stability’. It has particular comments on the danger of buyers using solicitors recommended by the house builder entering into a ‘significant legal and financial risk without the right information or understanding’.  This survey was restricted to a particular sub-market of leasehold: people who had bought houses (not flats) in the last 10 years. It is based on comments received from over 1,100 leasehold homeowners.

A couple of years earlier, the National Leasehold Survey 2016 (NLS) was published, conducted by Brady Solicitors in conjunction with the Leasehold Advisory Service. This was based on a similar level of responses (1,244) but included leaseholders of flats, and also 181 resident management company directors. The majority of responses (60%) were from London and the South East (reflecting the strength of leasehold in these areas), with a range of block sizes (210 from blocks of more than 70 units, almost half from blocks with fewer than 20 units). The burden of being an RMC director was clear in some comments: ‘…it is hard to find directors willing to play their part and be committed and contribute time and effort’; 62% said that the role took up more time than expected; and several did not have good relationships with either their fellow directors (16%) or leaseholders (14%).

Nonetheless, almost half considered the role to be ‘strongly or somewhat’ rewarding, and around two thirds considered that they had good relationships with their fellow directors and most of their leaseholders. In this somewhat mixed picture, comments also noted the need for ‘soft’ skills such as collaborative working, project management and leadership. In relation to the performance of managing agents, two thirds of leaseholders disagreed that the overall service was good; only 17% considered the service to be good. Almost half said that it was hard to get hold of someone when they needed a query resolving. And a shocking 68% did not agree that the managing agent was able to resolve issues efficiently and effectively. Even more alarming, particularly in these post-Grenfell days, only 6% strongly agreed that they had confidence in the managing agent’s ability to resolve issues effectively and efficiently. Confidence in this was higher amongst RMC director responses, but still only 34% strongly agreed that the managing agent is able to deal effectively with issues.

Value for money was an issue raised by the NLS. 40% of respondents strongly disagreed that the service charge is value for money – one cheekily commenting: “I thought that in order to make a service charge demand one would need to provide a service. We have yet to see this.” And, as has again been raised in the post-Grenfell climate, there was a lack of communication and an absence of democratic decision making. The responses also suggested that leaseholders do not understand how service charges work – some commenting, for example, that it was unfair to pay charges for items that don’t benefit their property (e.g. carpets in hallways that they don’t use).

Turning to questions about knowledge of what leasehold entails, closer to the kinds of issues addressed in the PMS, the NLS said that 35% of leaseholders felt that they did not have enough knowledge about leasehold rights and responsibilities when they bought (perhaps surprisingly, just over half considered that they did know). Almost two thirds did, however, say that they would like to know more about their rights and responsibilities.

Perhaps the most interesting point of comparison is in relation to the question about whether there was regret about buying a freehold. Context matters of course. For houses, leasehold is still the exception (even though it has been on the rise in recent years) and freehold is the norm. For flats, there is little choice; absent an effective system of commonhold (which may come about?), it really has to be leasehold. Remember that in the PMS survey 94% of house buyers regretted buying a leasehold. In the NLS survey, 57% of respondents somewhat or strongly agreed that they regretted buying a leasehold. Comments included: ‘It was a huge shock to discover the unequal legal rights of being a leaseholder, even though our lease is 979 years to run, it seems to count for nothing. Our rights are extremely limited and difficult to exercise’ and ‘[t]he system is broken’. Less than a quarter did not regret the decision to buy leasehold.

These recent surveys chime with earlier work on leasehold. A much earlier study in 2000 of leaseholders revealed that leaseholders often feel short-changed:

"Leaseholders commonly balked at referring to themselves as tenants, preferring instead to consider themselves owner occupiers. Their legal status had been made clear to them, however, by the limited control and freedom they were able to exercise over significant aspects of their occupation."

For some leaseholders – according to a study a year later – these problems ‘appeared to cause a loss of pride and self-esteem. Others invoked images of powerlessness and exclusion from the norms of control and responsibility associated with home ownership’. More recently, a study of the experiences of shared ownership buyers (shared ownership being sometimes referred to as part buy, part rent but what the buyer gets is a long lease) remarks that with long leases there is often not ‘the sense of control over one’s destiny which exists with much freehold land’ and ‘the long leasehold remains one of the most problematic relations that the limited property law foists on people’.

It is, therefore, no great surprise that both the debates about the leasehold sale of houses, with the abuses that have come to light, and the challenges facing leaseholders post-Grenfell have led to questions being asked about what leasehold ownership really mean, whether leaseholders are being properly advised on lease purchase, whether agents need to be regulated, and whether leasehold governance and ownership models need to change. Hopefully the various reviews under way provide the moment in time for serious consideration of these issues.

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How to cite this blog post (Harvard Style)

Bright, S. (2018). What do Leaseholders think of Leasehold and Leasehold Management? Available at: https://www.law.ox.ac.uk/housing-after-grenfell/blog/2018/10/what-do-leaseholders-think-leasehold-and-leasehold-management (Accessed [date]).