🐷EXPOSING THE GROUND RENT GRAZERS🐷

This one’s for @BimAfolami, @RishiSunak, @michaelgove, @Lee4NED and @mtpennycook.

In a general election year, it is crucial to debunk the sector spin of the ‘ruined granny’ and show who is really behind the protection racket of ground rent. pic.twitter.com/c26PXdPZIo

— Free Leaseholders (@FreeLeasehlders) February 2, 2024

Here’s Norma Cohen’s take on this excellent 18 minute video put together by “Free Leaseholders”

The ‘Money for Nothing’ Club – otherwise known as Freeholders – like to pretend that ending their right to demand Ground Rent in exchange for absolutely nothing – would hurt Grandma and Grandad. Nothing could be further from the truth. It’s wealthy fund managers who lose out!

Just because it’s institutional , supports gilts + funding strategies and has had the support of the PLSA, does not make “money for nothing” ground rent funds “value for money” or “ESG”. What’s going on is little short of a pension protection racket which – were it happening in the retail pensions – would be considered a scam.

Leasehold is used as an opportunity for rogue Freeholders and businesses.☝️As first time buyer I bought my first leasehold in 1990. It was manageable. ☝️Last few years it has become a scamming business as mentioned by Michael Gove and Sunak. Everyone knows.

— Azita (@AzitaTrowbridge) February 18, 2024

Case study

An agent for Knight Frank’s valuation team arrived at our block last year , instructed by the freeholder to inspect our flat. A quick hello and a check that the flat existed was all we got- perhaps a 30 second call.  We were one of the few flats visited, most flats were empty.

This brief inspection led to a doubling of our ground rent , backdated a year with a promise for more increases to come. The basis of the ground rent increase was a spurious formula based on ground rent being calculated on the prices achieved on flats in our block.

These prices have never been achieved and since their high-point some years ago, prices on our block have fallen 20%. The London leasehold property crash, caused in part by ground rents doubling , has not deterred freeholders from playing fantasy pricing to extract money from the stone.

The only reason we can see for its valuation methodology (0.1% of the highest valuation), is that it commonly used. As there is no justification for the ground rent on our flat – the freeholder being unknown to us either in name or deed, the only rent we consider we should pay is “peppercorn” (usually assumed to be £1 pa)

So if your pension scheme owns freeholds either directly or via funds, ask yourselves “who is picking up the tab for the gilts + promise made to you?”

Rent extraction

Ground rents based on anything but the services offered by the freeholder are impossible to justify even by precedent.

Is the money we are being asked to pay  “money for anything”? The answer in our case is “no”. The company that has instructed the valuation expert is unknown to us leaseholders as it has done nothing with the money collected but keep it for its shareholders. How can that have anything to do with the “S” in ESG?

As Barry Gardner tells the Freeholder’s association on the video, its accusation that leaseholders who stand up to this racket are “stealing” from pensioners is a lie. The pensioners who are getting stolen from are on the landings of my block. These ground rents get passed on through real rent increases that make it impossible for those who are renting flats to rent in our block. Where renting goes on, it is through Airbnb. Short lets lead to further social problems, in our block it has included prostitution.

As for leasehold sales, buying a long leasehold in our area is like catching a falling knife. No one wants to buy into a bargain where all the chips are with the dealer – in this case the freeholder. The impact of rent extraction is a fall in property prices, but – like the internal rates of return of these ground rent funds, the fantasy valuations only go up. This is unsustainable as everyone can see – but no one wants to admit.

Arguments that we can have no leasehold reform as there is no other system to move to are fatuous. No other European country operates a system where ground rents can be charged with nothing in return, where formulae for charging are based on spurious percentages of prices achieved and where the prices achieved are based on aspirational not achieved valuations.

This is why I will be seeking meetings at the PLSA conference with the senior policy team, to explain our case. I will bring with me examples of the racket that is going on and asking them – rather than side with the freeholders – to put their ESG hat on and argue for fairness and VFM.

Their behaviour to Harry Skoffen , posted here pic.twitter.com/c26PXdPZIo, is scandalous. It shows what happens when the commercial interests of fund managers conflict with the actual interests of members. While it is right that the PLSA takes a step back from endorsing racketeering , it is equally right that it looks into the use of institutional property managers to demand money for nothing with threats of leasehold forfeiture if payments are not made.

Time to clean up  building standards

If, as owners of ‘Get Living’ development warn, foreign investors will be deterred from putting capital into UK housing, it will be a very good thing. The order, levied on Get Living, should help ensure that in future, developers only erect safe buildings. https://t.co/UEMi1hJZ7J

— Norma Cohen (@NormaCohen3) February 16, 2024

We all know what happens when safety standards are flaunted and blocks are built or renovated to maximise the returns to the freeholders. As the Grenfell inquiry slowly moves on , news come that builders of unsafe accommodation , built as and around the Olympic Village in Stratford, are now being held to account.

Once again, the argument is that this is a crime against institutional investors,  this time overseas investors who are walking away from commercial residential property at pace.

If we consider the price we pay for overseas investment can include unsafe housing, then we might as well not have a Grenfell inquiry.

The bogus argument put forward to protect leaseholders is that they are covered by the building insurance they have to pay as part of their leasehold agreements. This insurance is effectively protection for those who own the freehold and where the freeholder has been responsible for a safety breach. This is from an article in the FT last year available here

The iniquitous position that freeholders place first time buyers in is well explained by the

Taken together, this dysfunctional form of tenure, which privileges developers over residents, and is absent from the rest of the developed world coupled with a build-cheaply-and-charge-exorbitantly approach to high-rise development paint a damning picture of the English approach to dense housing.

In a particularly bitter twist, the pain from leasehold and cladding issues falls disproportionately on first-time buyers, who are more likely to purchase new-build flats as an affordable way to get on to the housing ladder, especially in light of the government’s Help to Buy scheme.

London house prices have climbed by 17 per cent since 2017, but flat prices in the capital are down 1 per cent over the same period. An analysis earlier this month by The Times found that two-thirds of London new-builds bought using the scheme had lost value.

The institutional investor may consider that requiring leaseholders to insure against the preventable harms of shoddy construction , is de-risking. It is not, it is simply a risk-transfer to the leaseholder  and anyone sub-letting who might suffer the consequences.

For leaseholders without the right insurance, the pain is of course, even worse. Developers  have appeared immunised against claims, thankfully this looks likely to change , as the Government moves to take action.

Think hard about property funds

The idea of social housing within pension funds is fundamentally sound. Housing associations usually do a good job and more capital coming into this sector should lead to an increase in the housing stock which is good news all around. Organisations such as Legal & General who directly invest in new builds are able to ensure that standards are high.

But there are layers of intermediation that creep in through property funds and the lack of transparency in this area of private markets is really worrying.

In particular , promises of high returns based on the ownership of freeholds generating ground rents is concerning. The capacity of freeholders to pass on the risks both on new builds and on the traded freeholds of established properties , is little short of a racket.

Property funds are due attention . The Government’s proposed Leasehold and Freehold Reform Bill will strengthen the rights of leaseholders but its enforcement will require the ultimate owners of property – including our pension funds, to be alive and active in promoting good practice.

Addendum

Guide to the Leasehold and Freehold Reform Bill

The Bill will make long-term changes to improve home ownership for millions of leaseholders in England and Wales by empowering leaseholders and improving their consumer rights. The Leasehold and Freehold Reform Bill will:

Increase the standard lease extension term for houses and flats to 990-years (up from 90 years in flats, and 50 years in houses), with ground rent reduced to a peppercorn (zero financial value) upon payment of a premium. This will make sure that leaseholders can enjoy secure, ground rent-free ownership of their properties for years to come, without the hassle and expense of repeated lease extensions.

Remove the so-called ‘marriage value’, which makes it more expensive to extend leases when they’re close to expiry.

Remove the requirement for a new leaseholder to have owned their house or flat for 2 years before they can benefit from these changes – so that more leaseholders can exercise their right to the security of freehold ownership or a 990-year lease extension as soon as possible.

Increase the 25% ‘non-residential’ limit preventing leaseholders in buildings with a mixture of homes and other uses such as shops and offices, from buying their freehold or taking over management of their buildings – to allow leaseholders in buildings with up to 50% non-residential floorspace to buy their freehold or take over its management.

Make buying or selling a leasehold property quicker and easier by setting a maximum time and fee for the provision of information required to make a sale (such as building insurance or financial records) to a leaseholder by their freeholder (known as ‘landlords’).

Require transparency over leaseholders’ service charges – so all leaseholders receive better transparency over the costs they are being charged by their freeholder or managing agent in a standardised comparable format and can scrutinise and better challenge them if they are unreasonable.

Replace buildings insurance commissions for managing agents, landlords and freeholders with transparent administration fees – to stop leaseholders being charged exorbitant, opaque commissions on top of their premiums.

Extend access to “redress” schemes for leaseholders to challenge poor practice. We will require freeholders who manage their property to belong to a redress scheme so leaseholders can challenge them if needed.

Scrap the presumption for leaseholders to pay their freeholders’ legal costs when challenging poor practice.

Grant freehold homeowners on private and mixed tenure estates the same rights of redress as leaseholders – by extending equivalent rights to transparency over their estate charges and to challenge the charges they pay by taking a case to a Tribunal, just like existing leaseholders.

Build on the legislation brought forward by the Building Safety Act 2022, ensuring freeholders and developers are unable to escape their liabilities to fund building remediation work – protecting leaseholders by extending the measures in the Building Safety Act 2022 to ensure it operates as intended.

Ban the sale of new leasehold houses so that – other than in exceptional circumstances – every new house in England and Wales will be freehold from the outset.