Making sense of the Leasehold v Commonhold debate

The government has nailed its colours firmly to the mast by driving through consultation and a bill that will look to make leasehold a thing of the past for flats and apartments built after 2029.

But is it as easy as that and will this proposed ‘silver bullet’ deliver the positive changes we all want in the sector? With 35 years’ experience in this field and witnessing the two different methods of management ‘warts and all’, my genuine response is a resounding ‘no’.

The debate has become overly focused on tenure. A deep dive by BBC journalist Tarah Welsh (https://www.bbc.co.uk/news/articles/cp8llpp67l1o?app-referrer=deep-link) explored this topic and showed that properties in Scotland, currently under legislation similar to commonhold, are no better managed than in England and Wales.

In my experience, the biggest problems are not created by leasehold itself. Instead, it is created by poor behaviour, poor governance and poor decision-making by a minority of people across every stakeholder group – whether that is managing agents, developers, freeholders, residents’ associations or residents themselves.

Chasing tenure alone will not eliminate these problems and it is unrealistic to believe commonhold will magically remove disputes, poor decision-making, conflicts between neighbours or management challenges.

This simply will not happen. As a collective sector and, eventually as a government, the realisations should be that no ownership model is perfect because no system can remove the human element.

Setting the scene

Some campaigners assume anyone involved in property management is automatically aligned with freeholders, the person or organisation who owns the land the property sits on and the group the campaigners have set up to oppose.

They dislike leasehold and anyone involved it, an assumption I believe is misplaced.

The Government should rise above this belief and do the right thing, paying more notice to the Leasehold Advisory Service and experts like TPI Chair Baroness Hayter.

As professional managing agents, we’ve worked on hundreds of developments across the UK, development that operate under every ownership structure you can imagine.

Broadly speaking, Principle Estate Management will deal with four distinct groups:

Developers

Whether they are the largest PLC or a one-man band, these are the people who create new housing and they are important.

There have undoubtedly been examples of poor-quality construction and poor behaviour…the most striking example being the use of 10-year doubling ground rent clauses.

Thankfully, government intervention - alongside willing developers and freeholders – has rectified a lot of these arrangements and addressed some of the most serious build safety issues.

Freeholders

Again, there have been examples of poor freeholder practices, yet these mask some of the excellent work going on beyond the scenes.

The institutional freeholders I know have invested heavily in operational teams, customer service and compliance functions and many have committed substantial resources to pursue developers over defects, improving building safety and helping residents secure available government funding.

However, good freeholders tend to be invisible because attention naturally switches to the good examples.

Resident Management Companies (RMCs)

Most directors who sit on these companies are volunteers and hugely committed individuals who spend a lot of time trying to help their residents.

Before we go any further, they deserve enormous credit for taking on responsibilities that are complex, time consuming and often thankless.

However, RMC structures are not immune from poor behaviour and we’ve seen countless occasions when Directors can ignore the wishes of other residents and treat developments as though they own them.

Importantly, many own their freehold, meaning they effectively perform the same landlord functions that campaigners often criticise when exercised by third-party freeholders. This is virtually the same as Commonhold.

Residents

The largest group we interact with, and, overall, residents are reasonable, co-operative and deliver valuable contributions to their communities.

But, as in every part of society, a small minority behave poorly, and we have witnessed leaseholders shouting and threatening fellow residents and volunteer directors.

Our own staff members occasionally experience verbal abuse and, on one rare occasion, one of our team was physically assaulted during a site visit.

Managing Agents

This is the field we sit in and it’s fair to say that managing agents are not exempt from criticism. There are both good and poor practitioners, just as there are in every profession.

However, hand on heart, I do believe the overwhelming majority want to do a good job, whilst trying to overcome the significant challenges our sector faces, including skills shortage and ever-increasing workloads.

Management fees have also not increased at the same pace as salary costs and regulatory obligations, and this has exodus of frontline staff.

The good agents among us continue to invest in training and systems to make the lives of our staff and customers better.

The cost-benefit challenge

Like many professionals in the property space, I remain unconvinced that the significant public and private costs associated with replacing leasehold with commonhold will deliver a corresponding improvement in resident satisfaction.

Lifts will still need maintenance, roofs will still need repairing, gardens will still need maintaining and insure will still need arranging.

Disputes between neighbours will still arise, people will still behave like people and challenges will continue to exist irrespective of the tenure eventually chosen.

As both a professional and a taxpayer, I question whether the time, money and legislative effort required for wholesale tenure replacement could be better spent improving the existing system.

A possible solution

The government focus should be on improving outcomes for residents, not simply replacing one legal structure with another.

Achieving this outcome as quickly as possible should see attention turn towards reforming and improving leasehold.

Abolishing it risks ‘throwing the baby out with the bathwater’ and, like I always say when discussing this topic, ‘we do not ban cars because there are occasional accidents’. Instead, we make them safer, improve the roads, strengthen enforcement and hold bad actors accountable.

The same principle should apply with the leasehold v commonhold argument.

My advice, and this is spoken as a Fellow of The Property Institute (TPI) and the Royal Institution of Chartered Surveyors (FRICS), is the same approach should be followed here.

Improve the system, regulate where necessary, remove bad practices and raise standards, rather than assuming a new tenure model will solve fundamentally human problems.

This is what I ask of our new Prime Minister, our new Secretary of State for Housing, Communities and Local Government and the reappointed Minister of State, who previously stated that changing some of the leasehold legislations is more complicated than first thought.

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