Reform – What was RICS’ response?


Quote: “RICS {The Royal Institution of Chartered Surveyors} is the leading organisation of its kind in the world for professionals in property, construction, land and related environmental issues.”

Anyone involved in residential leasehold knows that RICS provides both the government approved codes of practice and accreditation of managing agents. If any organisation has its finger on the pulse, it ought to be RICS (see RICS Code ) .

RICS published its response dated 19 September 2017, running to 7 pages. RICS focused on four distinct topics:

  1. The ground rent scandal

  2. Efficiency and usefulness of the leaseholder tenure

  3. Impact of leaseholder tenure on housebuilding

  4. Freeholder rights in relation to service charges (i.e. freeholders of houses)

New build leasehold houses

Unless I missed it, RICS does not suggest limiting the sale of leasehold houses but instead suggests requiring up front transparency about ground rents and, if I also read them correctly, making this issue a consumer protection and trading standards one?

RICS seems to believe this solution, along with restrictions placed on the level of ground rents, will ensure the market in leasehold houses will self correct as to onerous ground rents.

RICS is at pains to point out the benefit of leasehold houses: namely that leases, unlike freehold title, can contain positive covenants for the lessee to contribute towards the upkeep of the communal areas.

Me: I have touched before in this blog on the “positive covenants” justification for leasehold tenure. What RICS omits to mention is the history of Law Commission reports and draft legislation to correct the ‘positive land obligation’ defect, or acknowledge if only for balance that a change in the law would overcome this defect. The law Commission has argued for this reform. The Gibson Report (1984) recommended a new interest in land that it termed “land obligation”, of which there would be two types: neighbour obligations and development obligations.

As with most other responses I have read, it could very easily be misunderstood by me that England & Wales has no choice but to exist in a land law bubble that the rest of the world has found ways to reform?

I find this extraordinary.

RICS: “The conventional leasehold model is tried and tested tenure for horizontally occupied properties with high proportion of common parts and obligations. As stated before, the issue is with onerous ground rents and a lack of awareness of the rights and obligations with the leasehold tenure.”

Me: I dispute RICS on these assertions. The ‘conventional leasehold model’ is certainly tried, but I would argue found wanting. Seriously wanting.

The issue surely is not simply onerous ground rents or lack of awareness? The issue is a growing awareness of the significant abuses and exploitation of leasehold tenure and lack of justification of keeping home ‘owners’ as mere tenants who must grovel to external profit-making agencies for any crumb of a tenure right.

RICS: “We must reiterate that that leasehold tenure is not the concern here but the onerous ground rents that can come with them.”

Me: Reiterate all you like, I say. Who gets to decide what is or is not the ‘concern’ here? Our RTM company as ‘non qualified’ mere chickens had to sack RICs agents for ignoring their own so-called best practice code. Spend a few hours on the Long leasehold Questions forum and form a factual view on the concerns about leasehold tenure.

What information can you provide on the prevalence of onerous ground rents?

RICS “We do not hold this data”.

Me: I have lost count of the responses to the DCLG that state this answer. It begs, I would argue, a reasonable question as to what efforts all these organisations take on a day to day basis to research or survey the consumers of the tenure which they seem to claim is essentially not causing a concern?

What would a reasonable ground rent look like?

RICS: “Ground rents can be justified only if they are transparent and well understood by the buyer and lender, who can calculate its long-term costs to inform their initial offer.”

Me: Is this an answer? It reads to me, admittedly not being the sharpest knife in the drawer, that as long as ground rents are stated transparently at point of sale, any amount is justified? It is then left to the consumer to run the calculations? I see nothing else offered here?

I prefer the knowledgeable views expressed to the All Party Parliamentary Group on Leasehold and Commonhold Reform meeting on 11 September 2017 by Philip Rainey QC:

“There is no alternative but to ban ground rents completely. […] Not reasonable ground rents. Ban them utterly. And if leasehold is allowed it should be not for not less than 999 years.”

How could the Government support existing leaseholders with onerous ground rents?

RICS: If no full disclosure before the point of purchase, treat as mis-selling by the seller. Review and offer a redress process. Government should consider applying sanctions that protect the purchaser from potential eviction.

Me: Bearing in mind that leases are sold first by the developer and then assigned on by those who buy them, how can it be “the seller’s” fault, i.e. that the ground rents are onerous? Only the freeholder gets to write the lease. Why not say “treat as mis-selling by the developer”?

This is an example where solutions offered need to focus.

In addition to legislation what voluntary routes might exist for tackling ground rents in new leases?

RICS: Full disclosure and best practice with regard to fairness to the consumer.

Me: As a leaseholder of many years I cannot take without choking any suggestion for voluntary self regulation, especially not from RICS on those two words “best practice”. The only solution is legislation that sets out clear and unambiguous standards with civil remedy and/or criminal sanction for any breach. Drain the swamp.

What further areas of leasehold reform should be prioritised and why?

RICS: Government should impose mandatory regulations on property managers to be trained and qualified through a professional body. This would ensure existing standards and regulations are upheld and provide a means for the sector to regulate itself.

Me: Upon what historical evidence does imposing mandatory training “ensure” EXISTING standards and self regulation?

The last thing I suggest leaseholders need is EXISTING standards or more self regulation.

RICS’ suggestion implies (to me) that the worst abuses in leasehold arise from untrained agents? Not my lived experience. I have experienced RICS members and ARMA members and people with letters after their name. None of them were worth a candle. If enforced membership/training is the problem, why is there no empirical evidence offered that the published abuses come only from freelance cowboys?

Self regulation has failed or we would not be where we are, surely?

Besides which, given that freeholders are the instructing and appointing clients of managing agents, which mandatory training scheme should freeholders be forced to partake in?

I respectfully suggest to RICS that long leasehold tenure is broken and exposed. The lucrative business model of a profit-making ‘professional’ industry building itself on the shoulders of contractually trapped homeowners who pay all the fees and charges is a busted flush. In my humble opinion.

I doubt it will be abolished, of course, but that does not mean it should not be called out for what it is.

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