If there’s one thing I’ve learnt not to underestimate in the housing market, it’s the ability for the innocuous to be abused in the wrong hands.
No longer can we rely on gentlemanly (or gentlewomanly) behaviour to overcome the inherent issues in our ancient land law.
Take leasehold houses, for example, previously delivered with 999-year leases and a peppercorn ground rent, with notice fees fixed at a guinea, but recently abused to the point where the Government had to intervene to ban them. No sooner had there been action to prevent the use of the leasehold tenure on houses, and the selling off of the freehold to investment managers, but the alternative solution to manage shared amenities, estate rentcharges, becomes the new ticking time bomb -unprotected and ripe for abuse.
In and of themselves, in the hands of the gentlefolk of yesteryear, estate rentcharges had largely been a workable solution for enforcing promises to maintain shared amenities and to be paid the appropriate contribution for that maintenance.
So no-one batted an eyelid when they were employed to manage the relationships between estate managers and owners of freehold houses with shared amenities, until some concerning activity started creeping in with escalating estate rentcharges bearing no relevance to the actual cost of maintenance and unreasonable fees in the administration of the estate and property transfer process.
And then the other shoe dropped – s.121 of the Law of Property Act 1925, largely considered defunct, was successfully argued in a case brought by a professional rentcharge owner who had been hoovering up thousands of rentcharges. You can understand why, when you realise they had worked they were able to take home–owners to tribunal for failure to pay arrears of rentcharges which started between £6 and £11 and apply for leases to be granted to trustees to recoup the arrears and their fees and the cost of the grant of lease – thank you very much.
If homeowners do not understand leasehold, how on earth can they be expected to truly understand the rentcharge problem? What they are supposed to be paying? Why they are paying it? And why this might go up dramatically in the years ahead?
Plus, of course as we have seen rentcharge ownership can be sold on – sound familiar? – and therefore we might anticipate this could be viewed as a sizeable revenue stream for some developers.
It’s a serious issue, and again highlights the importance of upfront information for any potential purchaser of a property with a rentcharge, and the transparency of that information in terms of what the rentcharge might be now, what it might increase to, and what that might mean for the individuals concerned.
Lenders are obviously concerned about this because, as mentioned, a failure to pay can see the rentcharge owner put in place very draconian measures in order to try and secure repayment, and for the lender it jeopardises their charge over the property. That’s without any protection for the homeowner.
Given the increase in rentcharges, we have to believe that 2020 will see more lenders changing their policy to highlight the need for lender protection in rentcharges. But what about for the homeowner – where is their protection?
We at the CA would like to see them go further and require that on new-builds ‘any rentcharge must comply with the Rent Charges Act, exclude the remedies set out in s.121 of the LPA 1925 or the creation of any similar remedies for arrears and, both the estate rentcharge and any fees or administrative costs associated with it, must be subject to being reasonable’.
This issue is made worse because developers need a way of ensuring the estate management company can consistently collect sufficient funds to maintain a shared amenity which the Local Authority cannot, or will not, adopt or where the delay and cost in adoption creates a barrier in bringing new houses to the market. That’s why we need immediate reform to prevent abuse.
And we are not there yet with leasehold reform either; we still have a considerable distance to travel. In 2020 we expect the MHCLG to respond to the ROPA working group recommendations, providing a mandate to set up a regulator and hopefully to require a prescribed list of permitted fees in both freehold and leasehold property administration. There would also be caps on those fees to prevent abuse but they would allow reasonable payments to be made with a sufficient profit margin to attract professional agents.
We understand that businesses are not charities and profits need to be made, but where we will take a stand is on back-door methods being used which open the homeowner up to exploitation. Expect the CA, and many others within the industry, to fight the good fight on this one throughout the next 12 months; to fight for a solution which supports fair and balanced community living and a positive home owning experience for all.
