Money: Lousy landlords have it coming

Reforms to the leasehold system should put a stop to `institutionalised racketeering'. By Karen Woolfson

LEASEHOLDERS REPRESENTING people all over Britain who have been abused by nightmare landlords are this week meeting with the parliamentary group of 55 MPs who are examining the issue of leasehold reform.

The meeting comes just as Hilary Armstrong, the Housing Minister, has told Barry Gardiner, MP for Brent North and chairman of the group, that her department is sending out a consultation document which proposes that all leaseholders with cases in the county courts be allowed to transfer them to leasehold valuation tribunals, where costs cannot be awarded against tenants. The new measures are expected to come into force in August.

Four leaders of leasehold organisations will present case studies to the parliamentary group and call for the abolition of the present system in favour of commonholds, in which the leaseholder owns the freehold of the property on which a flat stands. They will also call for the right of all leaseholders to choose their own managing agents and for the latter to be governed by tight regulations.

The flatowners attending the meeting will include Stella Evans, head of the Coalition for the Abolition of Residential Leaseholders (CARL); the head of Freedom from Leasehold Abuse (FREELA); Paul Pritchard who runs the Freshwater Leasehold Alliance (FLA); and Ken Murray, chairman of a residents association representing hundreds of flatowners in Kent which is also part of the FLA.

Among the MPs in the parliamentary group are secretary Adrian Sanders, vice-chairs Edward Davy and Jan Fitzpatrick, treasurer Peter Bottomley, Jacqui Lait, Brian Iddon, Karen Buck.

Mr Murray says: "We're middle-class, we're law abiding and we've kept quiet for a long time. There is so much anger because we are dealing with people who wouldn't last five minutes in the free market."

His residents' association has refused to pay the estimated pounds 144,000 levied by the managing agents for building works, after receiving an estimate from a local contractor which suggests it would cost less than half that amount.

Mr Murray adds: "The current leasehold system is institutionalised racketeering. It's an open invitation for people to help themselves to money. We're denied our right to seek services as we see fit and to pay for them as we see fit."

Nick Raynsford, Minister for London and Construction, who addressed the parliamentary group at the last meeting, has a good understanding of leasehold problems and is assisting Hilary Armstrong to look at ways of overhauling the current leasehold system.

He told MPs that the Government is already considering whether there should be some form of control over managing agents.

Mr Raynsford added: "Standards of service can be unacceptably poor. There are strong arguments for measures to ensure managing agents are competent and honest."

He is particularly concerned that managing agents who appear to be in a unique position of having the opportunity to hold substantial sums of other people's money without any requirement for bonding or insurance. His concern applies equally to landlords who manage their properties directly.

A leaseholder, who does not wish his name to be used, points out that it is not only managing agents who need to be tightly regulated, but the accountancy profession which is responsible for producing service charge accounts. He claims: "Self-regulation is not working. I want to see a fully independent system of regulation for accountants like the Financial Services Act, which has teeth. Perhaps supervision of accountants could be brought under the wing of the FSA."

The same leaseholder says a number of accountants have been reported to the Institute of Chartered Accountants on issues relating to service charges and the ICA's investigation committee is now examining the matter. The main complaints are about accountants who fail to fulfil legal obligations relating to Sections 21 and 22 of the Landlords & Tenants Act 1985.

These require landlords to produce a summary of the service charge accounts, supported by sufficient information, plus the right for leaseholders to view the original service charge accounts plus supporting documents including invoices, receipts, bank statements and cheque stubs.

Mr Raynsford believes: "The balance of control between landlords and leaseholders is unfair and, in most cases, bears no relation to the respective shares of the equity in a building." This has resulted in a variety of problems due to the significant number of landlords "whose management styles range from the incompetent to the criminal," overshadowing well- respected landlords.

He highlights the more unscrupulous landlord who charges for work that has not been done, or undertakes works that are unnecessary. "Others pocket substantial commission for insurance, with the leaseholders left to pay the bill. Others demand extortionate fees for allowing minor alterations. Then there are the out-and-out criminals who misappropriate service charges and sinking funds. All of these practices cause misery and anxiety to countless leaseholders."

Mr Raynsford says the Government's overall objective is to provide leaseholders with the opportunity to reap the full benefits of owner occupation and to have control over the way in which their homes are managed.

Leaseholders addressing the all-parliamentary group this week will also raise the issue of the problems that have arisen under the current system of collective enfranchisement. This is when a group of leaseholders purchase the freehold together, but in many cases some of them get together, take control and bully the rest.

To avoid this - and as flatowners wait for a commonhold system to be introduced, giving flatowners the freehold of the property on which their flat stands - a number of interim changes could be introduced.

These include a legal requirement that every collective enfranchised block of 10 or less flats give each leaseholder the right to automatically become a director; for original service charge accounts and all supporting documentation to be made available for each leaseholder to examine or to arrange for an expert to scrutinise every financial year by giving 21 days' notice.

Campaigners say they are encouraged by the Government's determination to make it easier for leaseholders to question rogue landlords without paying out huge sums of money.

Plans to allow all leaseholders with cases in the county courts to transfer them to a Leasehold Valuation Tribunal, which does not award costs against tenants, is just a taste of the radical changes to come.

At the moment, service charge proceedings that were underway before 1 September 1997, when LVT's came into existence, cannot be transferred. This means many tenants are not benefiting from the new regulations.

Karen Woolfson welcomes comments for her column. Write to: Homebattles, c/o Nic Cicutti, Personal Finance section, `The Independent', 1 Canada Square, Canary Wharf London E14 5DL. Karen regrets she is unable to reply personally to all letters.