Prepared speech by Sir Peter Bottomley MP (Worthing West) to the Chartered Institute of Housing Thursday October 9 2014

• EVERY residential leasehold forfeiture should be reported to the Master of the Rolls

• Forfeiture is “nuclear weapon” in the hands of unscrupulous freeholders and judges “have the responsibility of having a sense of proportion”

• Evidence of widespread systemic system-playing in leasehold is now unarguable

• Criticism of Leasehold Advisory Service for promoting disgraced managing agent

• Social landlords should never forfeit leases or use lawyers in disputes at tribunal landing leaseholders with ruinous costs.

• Leaseholders should push parties to include leasehold reform in their manifestos.

• Political parties are assembling manifestos. Housing professionals will note proposed policies on the future of the leasehold sector.

Less Torture:

My thanks to theChartered Institute of Housing for organising this conference.

We know difficulties in the current leasehold system. Some opportunistic managing agents have imposed unfair or unreasonable charges on residents, in particular on vulnerable residents. Many sufferers are elderly, many are poor.

Managing agents can be uncommunicative, obstructive and unhelpful. I pay tribute to those who are good, fair and helpful.

Be bold. Give your views on how leaseholders should be protected, especially around major works bills which can lead to forfeiture and homelessness.

Forfeiture is the nuclear weapon in a freeholder’s arsenal and can result wrongly, unjustifiably, in a massive cash windfall for the freeholder when dealing with a leaseholder who for some reason falls through the system. Courts must be aware of the consequences of being complicit in injustice. Instead of playing a game by the rules, judges have the responsibility of having a sense of proportion.

Example: A woman in east London had her £165,000 flat forfeited. She owed £290 in ground rents. The property had no mortgage, so the massive financial loss is entirely borne by her. The woman added to her problems by then failing to pay £3,140 in service charge arrears, which with interest added up to £4,056 by the time the matter came to court in April last year. The freeholder’s legal fees added another £5,491, so she owed £9,547 at the point that the flat was forfeited. The judge involved cannot have had to let that happen.
I demand that every forfeiture should be reported to the Master of the Rolls and to DCLG with the circumstances written down.

That would quickly lead to a change in outcome and if appropriate to a change in process and in practice.

Example: Dennis Jackson, when 74 years old, came within a hair’s breadth of losing his Battersea flat at Plantation Wharf in a forfeiture action about a year ago. His flat was on the market for £800,000, to pay off debts accumulated by the freeholder’s legal bill, costs that followed mainly successful challenge to excessive charges. Forfeiture was granted. The Leasehold Knowledge Partnership managed to galvanise support. The ruling was overturned on the 26th day, two days before it became absolute.

I had a meeting with senior executives at the Prudential and with the welcome intervention of Jackson’s lenders, we managed to overturn the forfeiture. A dispute over £9,000 in service charges – which were re-estimated at £7,000 at the LVT (the managing agent Tideway was awarded £250 an hour to explain its “complex” accounts) – ended up costing £76,000 in legal fees.

At a meeting last year of the Federation of Private Residents’ Associations, I called for an end to the “archaic procedure of forfeiture” I criticise lawyers playing the system in leasehold litigation.

A year ago it seemed we were pushing against a closed door. Then there were a number of issues.

OFT

The OFT report into the Peverel / Cirrus price-fixing scandal – where the authorities absurdly granted leniency to the perpetrators of the scam, after a £500,000 investigation – fined the smallest of all the stooges a sum of £1,777. I guess millions of pounds were overcharged.

Benjamin Mire

Benjamin Mire, a chartered surveyor, also sat on the property tribunal panel. He appeared with regularity in front of it, too. He was one of the country’s most controversial managing agents.

A judicial conduct investigation said it would have sacked Mire as a panel member as he had ‘failed to observe the standards that could reasonably be expected of a judicial office holder and that this failing was sufficiently serious to justify his removal from office.’

LEASE, the Leasehold Advisory Service, was associated in promoting his services on its websites for another eight months, before deciding to remove it all as unsuitable.

Unreasonable charges:

Consider the case of the £850 subletting fee that a developer in Essex was proposing to charge a woman who was renting out her retirement flat as she was no longer capable of living alone.

The indication that this could be raised in Parliament and scrutinised resulted in the fee being reduced within a day to £100.

Note none of those were specific to the social sector.

More Happiness:

A year on, the picture has changed. We have a way to go.

The Department of Communities and Local Government is taking more seriously the issues of leasehold. There is welcome respect for the civil servants involved in estimating the size of the sector, providing ministers with analysis of issues and discussing what can be done to help.

The OFT’s enquiry into Cirrus was a debacle. It led to the current leasehold management enquiry by its successor the Competition and Markets Authority.

Vested interests in leasehold have been active over this. Evidence of widespread systemic system-playing is now so unarguable that everyone expects change, change for the better.

I hosted a roundtable meeting in Westminster’s Portcullis House on Leasehold vs Commonhold. It went well.

The meeting was a springboard that has sparked further debate.

The charity Leasehold Knowledge Partnership, with Campaign against retirement leasehold exploitation and with ARMA, agree that statutory regulation of the leasehold sector is necessary.

The current system is archaic and has become a breeding ground for abuse.

When the CMA originally decided to look at management services it excluded the social sector.

That changed after LKP / Campaign against retirement leasehold exploitation raised the issue and supported an expanded inquiry.

Considering the problems in the social sector was the single biggest response from the public. Too many social leaseholders are unhappy.

All here will be aware of Eric Pickles‘s initiative to cap major works bills part funded by government at £15,000 in London and £10,000 outside.

Better Leasehold:

Legislative reform should not be a long way off. The debate on leasehold reform has begun.

Leaseholders should be able to challenge unfair/unclear contract terms in leases under the Unfair Terms – Regulation by statute – Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contract Regulations 1999.

I would urge all in the social sector to adopt the end of leasehold forfeiture. No social landlord should be resort to this extreme measure.

It is disproportionate and an anachronism that should be ended. This disproportionate power still exists.

I would call for the use of the powers of regulating bodies within the sector to impose sanctions on managing agents and on other regulated professionals who do not comply with the regulations.

Do more to encourage tenants’ organisations. Leaseholders may represent a small proportion of your tenants; the best way to avoid problems is better communication. There should be a recognised tenants’ group in each of your blocks. Sometimes that group may be part of a tenant management organisation, sometimes not.

Improve budgeting in the social sector. Unlike the private sector, leaseholders tend not to pay into long term sinking funds. More work is needed in allowing major works to be affordable. If somehow it costs £16,000 per flat just to replace a communal boiler, something is wrong with your accounts or your contracts. While some of you may feel it is legitimate not to phase the costs for those right to buy owners who have now sold to investors, please remember they too have the right to challenge your costs on the basis of affordability. The Tribunal will not differentiate between different types of leaseholders: if something is not affordable, it is not allowed.

I would also encourage you to help educate your leaseholders more about longer term costs. Leasehold is a complex issue. The last thing you want is to be taken to the Tribunal or to have to take your leaseholders to court.

Without wishing to put out of work recognised legal eagles such as Justin Bates, I ask all of you to commit not to use expensive lawyers in service charge disputes. Your property manager should be able to justify your charges on a factual basis.

Do not try to win on complex legal grounds.

I will do my best to expose any, every social housing group that misuses taxpayers’ money in needlessly paying for expensive barristers.

In 2002 the government introduced commonhold, a system which could and should have removed leasehold tenure for new build developments.

Was the legislation was flawed? Did it cope with shared ownership or mixed use development?

Amended in the future, could it provide many advantages to social landlord and to their residents?.

Please speak with the HCA (Homes and Communities Agency). They were asked to put forward their views for a meeting on Commonhold I hosted at the House of Commons earlier this summer. I wait still wait for that view.

Here is a fact on which to conclude.

For years DCLG did not know how large the leasehold sector was. It did not know how many flats are in the social sector.

Our friends at the Leasehold Knowledge Partnership produced some data earlier this year and DCLG has worked on that and other data to produce its own figures. Notice, in the same announcement that Eric Pickles set out that major works would be limited, government quietly published the fact that it now accepts there are 4.1 million leasehold properties which are privately owned in England.

That was 63% increase on all previous estimates. Taking into account flats in the social sector, LKP estimates in England and Wales there are now nearly 6.6 million flats and leasehold properties in the private and social sectors combined. That means you are in a very important part of the housing sector. In London 90% of all new build is leasehold.

Campaign against retirement leasehold exploitation and Leasehold Knowledge Partnership are a charity with MPs Sir Peter Bottomley (Conservative), Rt Hon Ed Davey (LibDem) and Jim Fitzpatrick (Labour), as patrons.

Related posts:

Housing Minister Mark Prisk holds leasehold meeting with Campaign against retirement leasehold exploitation – but keep pestering MPs! Sir Peter Bottomley condemns criminal behaviour in leasehold, price-fixing cartels, cheating freeholders, exit fee fiddles, opportunist lawyers playing the system and feeble judicial intervention … in a speech that ALL leaseholders have been waiting to hear Bottomley demands meeting with Housing Minister Mark Prisk Yet another desperate seller facing forfeiture …