RICS News Article

Housing has become the buzzword of the Government and the London Mayoral election. All parties and candidates debating how to build more homes, how to stop rents and prices escalating, how to meet demand. It is a challenge for sure but one fact that sits across the debates is that however many more homes are developed a large proportion of them will be leasehold.

Now leasehold in residential is an interesting topic – no, seriously! I would say that wouldn’t I as I’m Chairman of the Leasehold Advisory Service. Well yes, but the reason I say interesting is because of the impact and effect on the leaseholder and the ability for owners and managers to give an appearance of ripping off the service charge or being perceived as not caring.

Still not convinced? Well how about the element of surprise the purchaser of a leasehold gets when they buy their leasehold home and find out about service charge, administration fees, consents and communal living.

The developers have no incentive to avoid leasehold as a tenure because it gives three bites of the cherry in income terms. Firstly, when they sell the property to the leaseholder; secondly, when they sell the ground rent investment income stream and thirdly, when you have to pay to extend your lease and this gets more expensive below 80 years when marriage value comes in to play.

So leasehold is going nowhere in spite of what some would like to see. The challenge is to make sure that all sides, leaseholders, managers and owners are well educated and understand their rights, responsibilities and roles and all play fairly. There will be good and bad on both sides.

A survey has just been launched of all leaseholders across England and Wales to get a truly representative picture from as many as we can get to take part. It will run until the end of March and any promotion will be appreciated.

I hope to give you an understanding and flavour of leasehold issues and challenges and why Estate Agents need to highlight leasehold terms in their sales particulars. But that is for the next time!

Roger Southam
Chairman Leasehold Advisory Service
26-1-16

Transparency in leasehold

Everything we now do seems to be linked back to transparency. We have seen it with Google and their tax affairs which have been trawled over and debated in a way that has never been seen before. Of course people want to know that everything is fair and the challenge comes in how you please all the people all the time. Physically impossible of course, but never the less a challenge that most customer service professions and businesses are facing day in and day out.

Bizarrely from a recent survey the highest trust rating goes to hairdressers. 69% of people trust their hairdresser to tell the truth. Even the clergy rank below at 67%! Builders and estate agents rank well down and I will save blushes by not giving the percentage, safe to say that there is a lot to do to rise up the rankings. Not quite as much as politicians and bankers but still a mountain to climb.

At a time when housing has never been higher on the political agenda and there is a desperate need for more housing in the UK surely the industry should be making strides to ensure trust and reliance become cornerstones. With the rise of the on-line estate agents and “do it yourself” estate agents now would seem a very good time for a campaign to raise trust levels generally and also to build differentiation into service delivery and trust.

The politicians, the least trusted of all professions, are making much capital on how they will solve the housing problems and indeed the London Mayoral election hustings are being dominated by housing; which candidate understands it most and who has the best solution. As wide as the range of solutions is one thing is certain, there are more homes being built and more homes needing to be built. Most of them will be leasehold, whether blocks of flats or housing estates.

Whatever type of property that is sold full disclosure in particulars is essential. There is much more to disclose with a leasehold property than a freehold. Most purchasers are not sophisticated and the purchase of their home is a very occasional transaction and a lot happens through the heart and not the head. However for all purchasers it is vital that they understand their rights and obligations of what they are buying. This will always start with the estate agent and the particulars.

The Competitions and Market Authority produced a report last year on leasehold and the operation of the market. One of the key findings was to have information on leasehold to be given to ALL prospective purchasers so the understanding and knowledge base grows. Leasehold Advisory Service produced a simple guide and it can be downloaded at www.lease-advice.org and search for “Things to know before you buy a flat”. It is anticipated that all estate agents will make this available to all prospective purchasers. Of course this is only one side of the coin. For any purchase it is vital that you know what you are buying and all the obligations and commitments. Therefore it has to be sensible to have a summary of the lease terms including service charge and ground rent available on the particulars.

If you look at a row of houses all will be maintained to different standards because of how people are with priorities and desire to spend. Some will be maintained to the highest level and some have no money spent on them at all. When it comes to leasehold and service charge you do not have that choice with regard to the shared areas and services. The property manager will manage the shared spaces, sometimes based on consultation, the end result will be a bill for each leaseholder. A bill they are obliged to pay under their lease. It is therefore vital they know this upfront since some purchasers may not budget for additional expenditure other than mortgage and council tax.

Putting a leasehold summary on the particulars should help to move estate agency up the table of trusted businesses as well as helping to better inform the public on their homes. At Leasehold Advisory Service (LEASE) we are working hard with all organisations from all sides of the table to improve education and understanding of leasehold. We will continue to do this and are always available for advice.

Roger Southam

Non exec Chair

Leasehold Advisory Service

1st February 2016

A Winters Tale

For a man who plays over 100 rounds of golf a year it has been very frustrating with the wether systems that have hit us this year. Of course it is Winter and of course it is cold; but when you play loud and bright in your Royal & Awesome’s the cold and wet means nothing!

However with the snow and the deluge of rain it has been more than wet. The London Club has done a great job keeping the course open as much as they can and I am pleased that we seem now to be back open full time.

We are very spoilt with the fantastic ground staff who realise they can brighten the hardened golfer by keeping us on the greens and tees and never introducing temporaries; a huge boost! Of course there will be no run on the fairway, balls plugged in wet rough and you rely on good pitch repairs to keep the green pristine but the joy of a crisp, bright winter’s day takes some beating.

There is no such thing as bad weather only inappropriate clothing. It would be a shame to cover up the awesomely bright trews in the winter so my solution is to wear long johns under the trews and I stay colourful on the fairway.

As the field stride away in their black outfits looking like they are trying to deliver a box of chocolates you will make your statement and show your colourful character clearly on the course.

Keep warm, keep swinging and make sure you stay bright and cheerful!

Roger Southam

2 February 2016

A LEASE for all reasons

One of the challenges in any aspect of leasehold management is how to please all the people all the time. Well of course that is physically impossible and anyone would be crazy for trying. Of course with a block of flats that is exactly what any managing agent is endeavouring to do. There may be diametrically opposing views and perspectives but somehow they have to be drawn together to ensure that everyone feels listened to and to have got their way.

I am sure many Resident Associations will witness the same thing when there are factions or splits in how the building should be run or where money should be spent. Unfortunately that is communal living. Whilst each flat owner may have their home behind the front door, the shared areas are for all and how you live must be respectful for everyone in the building in terms of noise and disturbance.

Blindingly obvious you might think, well not always. Witness any social situation or group and you can recognise that people accommodating each other and getting on requires give and take. Sometimes the managers have to be more social worker and community liaison officer than property manager – completely different skill sets!

Equally leaseholders can feel they have to be property management experts to have their point addressed or listened to. It is this trial to achieve balance that can cause a lot of the disruption and challenges in leasehold.

I have now spent a day and a half on the phones at LEASE to listen to actual callers to see the types of issues and questions that come in first hand. Surprisingly in my experience there are as many leasehold freeholder queries as complaints and queries about third party managers and freeholders. I will continue to do the occasional time on the phones to ensure I have an accurate perspective on our callers. However, the point on this is that in reality there may still be queries and complaints if you have complete control of your building.

In reality it is logical because we are all different with varying expectations and perspectives. We want different standards, delivery and service. Some people just don’t get on, doesn’t make them bad people they just clash. For sure there are a number of areas needing to be addressed in legislation and regulation, but however good it is made it will not eliminate communal living and a need to work together.

LEASE has launched a survey for all leaseholders to genuinely gauge the feelings and mood of the leaseholders to better inform what they actually want. The survey was the idea of Brady’s who have funded the project with LEASE’s backing. The results will be widely published and already some interesting perspectives are coming through. We hope the outcome will allow the improvements needed in the sector in delivery and servicing of the buildings. I would urge you to partake and have your voice incorporated to the results.

Roger Southam

Non Exec Chair

2 February 2016

LEASE work experience

I have had the pleasure of undertaking a day and a half on the phones at Leasehold Advisory Service (LEASE). I undertook this to ensure that I had a clear understanding of the nature of calls received and who our callers were. I have to say I thoroughly enjoyed the time on the phones and found it enlightening and fascinating in equal measure.

I am left with a perspective that whilst leasehold law is not perfect there is a lot that can be solved with awareness of rights and responsibilities along with an appreciation of community living. Owning a home in a block of flats comes with an essence of give and take and needs everyone to be even handed and fair. Of course when it comes to expenditure I have previously touched on differing people’s perspectives and willingness to incur service charge costs.

However, from the phone sessions I discovered that a number of the callers were leaseholders who owned their freeholds. This was interesting because I had long thought owning the freehold as a leaseholder was the panacea and would give the controls and access that is the Holy Grail.

In reality, of course, the essence is not who owns the freehold but rather how the building is run, how the leaseholder personalities get on and how the expectations of the different parties are managed. Basically we are dealing with as much social interaction and community spirit as we are the legal process of leasehold. For some of the queries all the reforms under the sun would not solve the problems.

If someone does not understand their responsibility to pay for repairs and maintenance, or makes excessive noise, then the only solution is to engage with education to enlighten. This in no way diminishes the needs for those who face situations for whom legal reforms would be a solution. Rather it is trying to highlight that leasehold is not all bad, there is a human element that needs to be taken into consideration, to be appreciated and managed.

The industry really has to do a lot more to ensure that everyone before entering the leasehold market is aware of their rights and their responsibilities. To ensure they are equipped to know where to go for advice in addition to appreciating that are a lot of good managers and freeholders. They must be able to recognise the difference between something that is wrong versus something they don’t like.

It is a long process and it will take a long time, but it is incumbent on everyone to play their part in seeking fairness and openness in leasehold management and service delivery.

Roger Southam

Non Exec Chair

8 February 2016

How do I know where to get the best advice?

With the pace of change in technology it can be very difficult to keep up to date and know what is the best mobile device for you or which home entertainment system will best serve your needs. But at least with technology you are using it every day and engaged with it most of the time. So generally people will know what works for them or will listen to friends and family and rely on the experts in the stores.

If we now think about your prospective home, how do you get the advice you need? Beyond the visual appeal and deciding the location that is right for you, how do you know if the building is well constructed? That you know all the costs and charges that you will face? Who do you trust for sound quality advice?

If I set the scene on who fulfils what role during the home purchase process then it may be possible to give you some clear guidance on who to trust and how best to equip yourself. Your home will be THE major purchase you make and it is one that is extremely infrequent and therefore it is entirely fair that you would not have the knowledge base or clear path for assistance.

The players in the home purchase process will typically be the estate agent, the developer, the mortgage company, and the solicitor. With all those roles how many are acting for you? Well only the solicitor in reality, because that is the only person you instruct.

The estate agent is there to act for the person SELLING the property. They are not there to help you buy. They have a duty of care and they have a code to follow to ensure they do not mislead you. But it is important to know they are there to get the best price for the seller.

The seller may be an individual or you may be buying direct from the developer. If you are buying from an individual they should be transparent and answer all questions fairly, however I have come across situations where deliberate misinformation has been given by the person selling. If you are buying direct from the developer then you can be pretty sure you will get clear information and assistance. Of course the developer is trying to get the best price they possibly can and will present in the best light. Most are professional and abide by codes and they will want to take you the process to work with you. However, you must be clear, they are not on your side, and you are their customer.

The mortgage company are there to lend the money to facilitate you buying your home. Their role is entirely for themselves. They want to make their financial return by lending money and receiving interest plus the money lent back over the life of the loan. They care that the home you are buying is a good investment for them and that their loan is safe and protected. That means they can be as sure as possible the home will hold its value. Therefore if they arrange a home buyers report and valuation, then that is for them and their requirements. It is not something that will necessarily be an assurance to you on the property. You will be expected to pay for it as part of the transaction costs, but do not believe it will meet your needs.

The solicitor you appoint is most certainly on your side. Choose your solicitor with care and diligence. You should research who will best serve your needs. Personally I would avoid a solicitor recommended by the estate agent because I would want to obtain quotes from a number of different firms and know who will be best for me. As tempting as it may be, do not be suckered into accepting the lowest quote. There are a large number of very large firms of conveyancers who will offer a very cheap service. For something as important as your home purchase I would want to be part of a factory conveyancing process!

So how do you level up the teams and ensure you are not playing a one sided game? Well there is wealth of guidance available that exists on line. Obviously the Leasehold Advisory Service has excellent guides on its website. Equally the National Housebuilding Federation, the RICS, the NHBC have guidance. Alternatively there are organisations such as Home Owner’s Alliance and Which? all have assistance.

Make sure the most exciting purchase you can make is done with eyes wide open and you even up the teams. Dream as you view but wake up to the reality of the seriousness of the buying process.

Roger Southam

Non Exec Chair

Leasehold Advisory Service

www.lease-advice.org

How do you know what you don’t know?

Donald Rumsfeld really hit the nail on the head when he said “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”

At the time of the quote a lot criticised him for the obfuscation however as time has gone by it is oft quoted and adequately sums up a lot of situations. The challenge of course is how you can ever let everyone know all they need to know.

This is extremely apposite with leasehold property and the leaseholders. Generally any house or flat purchase will be the biggest purchase anyone can make. Also it is an infrequent occurrence. Therefore knowing the right questions and the process can be challenging. Of course when you buy a property that is leasehold there are two elements; firstly the purchase process and then secondly the ongoing rights and responsibilities.

It should be the most exciting time when finding and buying your property whether it is for your home or for an investment. Therefore for most people focusing on all the legal aspects may not be high on the priority list. Everyone is different and if you think about the amount of terms and conditions (end user licence agreement – EULA) you routinely accept on the internet to access a service or system without reading, well some of them contain some bizarre conditions. For example PC Pitstop had a EULA with a special condition offering $1,000 for free, it took four months before someone noticed and claimed the money!

So when the lawyers send the report on title for the purchase who reads it cover to cover? Who knows what a report on title is? Over the years it varies how involved a leaseholder becomes with their building and it varies on what is needed to be known and when that need arises.

It is incredibly difficult to ensure everyone has the information when they need it and what is pertinent rather than just a mass that some will see as a tomb of words. It is something that is vexing Leasehold Advisory Service to see if we can get more proactive in advice delivery and have it available more readily and more accessible for all leaseholders. Then the question arises of how you make the leaseholders aware it is there. Finally to pick up Donald Rumsfeld’s point how do they know they need to know something and how do they know where they can access it?

We see this as a matter of education and awareness and the more that can be done in that arena the better after all a well-educated leasehold sector is good for all parties. We will keep working on innovation and improvement of our systems and delivery to try to make sure we can get the best advice out as efficiently and effectively as possible to suit all leaseholders as well as the general leasehold market.

Roger Southam

Non Exec Chair

11 April 2016

Shared ownership, what responsibilities?

For the first time buyer the Government is going out of its way to embrace you and encourage you to get on the home ownership ladder. This has been demonstrated in words and deeds. The Chancellors budget statements launched an additional 3% on stamp duty for investors and second home owners along with interest not being able to be deducted for buy to let owners. Moreover the Housing Bill contains commitment for 20% starter homes to be incorporated in to development schemes going forward. As well as the ability for private developers to look to shared ownership and not just registered social landlords and housing associations.

So if the Government is looking to see the delivery of more homes then the developers have to look at how they can achieve this. According to the Savills research team shared ownership will become of increased importance to facilitate the starter homes targets as well as deliver increased housing stock.

Furthermore the developers will be looking at flats as the predominant way to maximise profits from sites. This means for you the chances are you will be looking at leasehold in some form and most likely shared ownership when you get on the home ownership ladder. It seems sensible to look at shared ownership as a form of ownership. What are the implications and what does it mean to the home owner?

Shared ownership is a form of leasehold ownership that means you rent part of the home and have a long lease on the other part. The ratio varies but typically you would initially buy 25% to 50% of the property and rent the remainder. The lease will provide the mechanism to buy in more shares in the property to allow the owner to escalate to 100% ownership. Once you have escalated to 100% ownership then you hold the lease outright in the same way as someone buying a leasehold property in the open market.

Prior to escalating to 100% then you will be paying towards the following: the rent for the part you don’t own; service charge for your share for the whole of the home. So whilst you may only one 50% of the property, you will pay 100% of service charge from day 1. Service charge is the contribution to the running costs of the shared spaces in the building such as hallways, entrance and structure. A shared owner has the same rights as a full leaseholder to consultation (s20 consultation) on any major works that would mean the homes share is more than £250 for the work or there is an agreement to be put in place over 12 months with a cost of more than £100. Any item of expenditure has to be notified within 18 months of being incurred. Obviously as you escalate the percentage of the ownership the service charge will remain the same whilst the rent will reduce.

Buildings with shared ownership homes would usually be managed by housing associations however the surrounding parts may be managed by a different managing agent. This means that the housing association would invoice you for the service charge but not be carrying out all the services. There is an initiative underway with Leasehold Advisory Service working with housing associations and managing agents to ensure that there is greater communication between both parties to give better service and information to shared owners and a smoother running of buildings where both are involved.

When the Housing Bill gets enacted then it is more likely that shared owners will not see this overlap of management and may only have one party managing their property. This is the more normal situation presented to long leasehold home owners and makes it much easier to know who matters should be notified to and who is responsible for the services. It would be recommended you find out who manages the various parts of the building and estate and to whom matters should be reported. The clearer you are on what happens and who carries out the easier it will be to seek verification on expenditure, deal with any insurance claims and know where to go for information.

Shared ownership is a well-established form of home ownership and one that can work well. However, as with all leasehold there is a big advantage if you understand your rights and responsibilities and know where to go to seek clarity when needed.

Roger Southam

Non Exec Chair

Leasehold Advisory Service

www.lease-advice.org

Customer is king?

The customer dominates wherever you look and whatever you are involved with. From the politicians backbiting to secure voters in the EU referendum through to Ryanair revolutionising its treatment of customers – everyone is competing for the consumer. No area of life can afford to take people for granted or be cavalier in their handling.

The consumer has a wealth of different options to make their voices heard if they are not happy with the service. From twitter to facebook to Instagram, the list is endless. Of course it may be unfair criticism or it may be misunderstanding; regardless the power of the web is such that all businesses have to be on their game the whole time.

Estate agency is undergoing a revolution with the shake-up in online versus high street or a blend. All the while the consumer views selling their home as a simple process where the fees are not worthy of the effort they perceive; the buyers get confused and believe the estate agent is acting for them. These perceptions are not helped by the portrayal of estate agents in films and programmes along with the adverts for the on line portals.

In a race to discount fees and still deliver service how do the properties get accurately marketed? At a time when there are more leasehold properties being built how does the consumer get the information they need to know their full liabilities and responsibilities?

Three times LEASE have tried to put on a webinar with the RICS to do a high level analyses of what an estate agent needs to know about leasehold, three times it has been postponed for lack of bookings! If the estate agent doesn’t know the difference between leasehold and freehold how will the consumer? If the particulars do not include the nature of ownership (leasehold or freehold) then how can a prospective buyer know what they are taking on? How can we educate the buyers if we don’t give them the right information?

This is an area that is debated. Should particulars be required to include leasehold details? Should particulars show service charge, lease length, obligations? Or do you rely on the consumer finding out when they have got in to solicitors hands? Then this brings in a whole other dynamic – how do you make sure the discount priced conveyor belt conveyancers understand the complexity of leasehold and the buyer gets the proper information easily and readily?

It is natural to be driven by price in a choice of services. In any transaction that is undertaken infrequently how do you know all that you need to? Why would price not be the best starting point? If you do not know the complexity of leasehold why would you think a mass conveyancer would not be able to cope?

LEASE are trying to educate owners, buyers, estate agents and all involved or touching leasehold properties to know what they need to know. It is essential estate agency embraces the need for spreading the understanding of leasehold. Essential? Well yes, because as already said more leasehold properties are being built. The reason more leasehold properties are coming is threefold. Firstly the developer gets an extra capital sum for selling the ground rent investment created through leasehold. Secondly, the proliferation of blocks of flats equals leasehold. Finally when there are shared estate roads or facilities there is a need for contributions to the running costs that is achieved easier through leasehold than covenants on freehold.

You should be aware that there is a one page document produced for distribution to prospective purchasers of leasehold property to highlight basic information to help them understand what they are buying into. Of course that relies on it being distributed and that relies primarily on estate agents who will always be the first to come into contact with prospective buyers.

The information is one part of the equation. It is an essential part and an ongoing part, but only one part. The other part will come as no surprise; this is the need for the lease details to be on particulars.

Only by giving full information will the estate agency community start to help educate the consumer on leasehold. But to get to that position it needs the estate agency community to learn about leasehold themselves; for them to gain a basic high level understanding of the needs and necessities of the impact and effect on the consumer.

Roger Southam

Non exec Chair

Leasehold Advisory Service (LEASE)

1st June 2016

What you need to know but didn’t know where to ask!

The excitement of your new home is all consuming. It is like the first weeks with your partner, it is the excitement of the shiny new toy, it is all embracing. Of course as with any consuming thing there is a reality behind.

Does your significant other pick their teeth, leave their clothes scattered or obsessively tidy up? These are the things you notice when the excitement wains, when the newness wears off.

Your home can be the same. You go around the new development, see the show flat, fall in love with the dream of the furniture, the view the ideal. But in reality the home is the walls and the fixtures, all the other stuff comes from you. Not some interior designer. Of course, the experience of communal living can come as a shock.

Communal living? Well not in the sense of sharing space but in reality if you buy a flat in a block then you have to respect what other people do and how other people live. Recently Leasehold Advisory Service (LEASE) initiated a survey sponsored by Brady’s solicitors. The survey conclusions are fascinating and illuminating. Basically the message is property managers need to keep improving and communicating with the leaseholders more but there is also the necessity for more education for leaseholders to help them understand what they are buying in to.

First Time Buyer magazine is incredibly far sighted in the guidance, articles and information it provides for you to help you buy your first home. Last issue of the magazine there was a great article on service charge. Service charge is one area where you can never know enough and there will always be suspicion on the expenditure or someone saying they could undertake work cheaper! What LEASE is endeavouring to do is provide the education to assist leaseholders and prospective leaseholders to better understand their rights, responsibilities and ownership.

This is an ongoing journey of course and in reality never ending. We have relaunched the LEASE website as part of this which is cleaner, crisper and with much easier navigation. We would recommend you search the website to answer any questions you may have on all matters leasehold, find out your rights and responsibilities along with understanding what you are buying into. There is a one page document that estate agents should be handing out to all prospective purchasers which you can find on the website. It was produced in conjunction with residential property trade bodies and organisations to give an understanding of what it means to buy leasehold. There is also a two page version which gives more information. From there it is making sure that you get answers to any questions you have. In fact every question you could possibly have will be answered on the LEASE website.

There is a number of factors that will result in more leasehold property and therefore it is highly likely your first home will be leasehold. The Housing Act 2016 is introducing a commitment on starter homes. This is in addition to the right to buy which has been extended to renters of housing association homes. Given that a lot housing association property is flats then the renters will become leaseholders and need to know their rights and obligations.

The starter homes are being forecast to mainly be developed in leasehold blocks of flats. The reason for this is one of economics and development profitability. To achieve the desired discounted prices for the starter homes there has to be the maximum development on a site and that usually means blocks of flats. The result is more leasehold coming through and the probability of your first home being leasehold.

Therefore knowing your rights and obligations would seem sensible. Having easy access to them is what LEASE offers. The advantage of having knowledge of leasehold is that when you come to viewing prospective homes you can wallow in the show home, get lost in the views, and dream of your life in your new home with eyes open and clear understanding.

When you have bought your home then LEASE will be there to help with initial advise and the website will be there for questions as they arise and occur. Of course First Time Buyer magazine gives you the wealth of information as well to guide you.

Roger Southam

Non Exec Chair

Leasehold Advisory Service

11 June 2016