Getting redress when agents offer poor service is now 60% faster, claims scheme

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Members of the public including landlords who complain about estate agents were given redress for their complaints within 16 days last year, down from 42 days the year before.

The figures are published today by the Property Redress Scheme (PRS), which says the time savings came despite last year being a busy period for the scheme as it saw a rapid increase in membership and a corresponding 51% surge in complaints from 959 to 1,444.

The membership surge reflects both new agents joining the industry and, in 2018, the withdrawal of Ombudsman Services from providing redress within the housing market, leaving PRS and The Property Ombudsman.

Schemes like these are the first port of call for landlords who have disputes with lettings agents about arguments over fees, service levels and other issues.

£616,000

Those who have their disputes adjudicated in their favour are then paid awards by agents, and last year the average stood at £1,224.81 while the scheme awarded £616,000 in total. Its highest award was £25,000.

“We aim to provide the best service for our members, which is why we’ve focussed on reducing the time it takes to resolve a complaint using early resolution,” says Sean Hooker, Head of Redress at PRS.

“We hope to continue to improve this record, which is why we launched our tenancy mediation service earlier this year. Not only will that help agents resolve issues faster, but it will also help with compliance as all parties will have worked together to bring the complaint to a resolution.”

PRS has teeth – last year it expelled 61 agents for non-compliance with awards.

If expelled, a sales or letting agents cannot carry on doing business legally, as they are required to be a member of an approved redress scheme by law and face prosecution if they don’t.

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Leasehold Reform – the biggest shake up since 2002

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In the last week before parliament closed for its summer recess the housing ministry published a raft of new policies that will affect around 4.7 million leasehold homes in England and Wales.

This move will be the biggest legal shake-up in leasehold law since the Leasehold Reform Act of 2002, and it promises to go much further in terms of reform since the inception of the leasehold principle of land ownership in Britain dating from the Middle Ages.

Where “leasehold” comes from

Leasing was established to allow ‘surfs’ to work plots of land and inhabit farmsteads for a finite period of time, and on that basis would pay the lord of the manor (landlord) by providing food and other services to those further up the social pecking order. Medieval (feudal) lease law was drafted to maintain continued land ownership in the hands of powerful families across generations, while providing comfortable livings by maximising earnings from it.

It was not until the 1920s that statutory reforms introduced Rent Acts which were meant to hold-down rents and restrict the right of landlords to evict tenants. It encouraged landlords facing dwindling returns to sell long leases (typically 99, 125 and even 999 years) for their properties. It enabled leaseholders (tenants) to occupy for long periods but never to own their properties and remains a system of tenure almost unique to Briatin.

After that the system became a convenient way for small to medium developers to provide themselves with a pension, and with the increase in construction of Flats from the 1950’s onwards, leasehold ownership increased significantly, particularly in London.

Leasehold ownership became the only way to subdivide and sell properties in a multi-occupancy and high rise apartment buildings in Britain as freehold ownership couldn’t be applied to individual units. That’s because English freehold property law is based on land and requires a separate land boundary visible on a map.

When leases expired, ownership of the land and the building reverted back to the landowner/freeholder. But further reforms followed in the 1960’s given social pressures when long-standing tenants were being threatened with eviction if they had failed to renew leases before they ran out.

In England and Wales leasehold remains by far the most common form of flat ownership and it’s still possible in 2020 for a lease to expire and a tenant to be evicted. A leaseholder would be completely stupid to allow this to happen, but nevertheless it is still possible.

New reforms from the 1960s to 2002 somewhat rebalanced the freeholder and leaseholder relationship, allowing leases to be extended by law (amid other leaseholder rights) for an additional 90 years, effectively giving leaseholders lifetime security, at a cost.

A Modern Leasehold Scandal

More recently it had become common practice for large-scale housebuilders to sell newly-built houses – many of which involved the Government’s Help-to-Buy scheme – with onerous leasehold terms, high ground rents and leases with eye watering fees, often to naive and unsuspecting first time buyers.

The practice was so beneficial to the developers, and the terms so egregious for the leaseholders that the scandal broke and brought it to the attention of the media and politicians. After a campaign by an aggrieved bunch of leaseholders it was picked up by MPs and prompted a legal review.

The developer can sell the leasehold interest of the property which makes this a very lucrative way to raise funds. The developer receives a lump sum in return for granting the leasehold interest typically to an institutional investment house, where this lump sum is roughly the vacant possession valuation of the property. The leaseholder then pays a regular payment (usually annually) to the freeholder for the duration of the lease, namely ground rent.

It is also possible for a developer to sell the freehold to a property where the developer receives a lump sum equivalent to the investment value of the property. Generally, this is the vacant possession valuation, plus earnings from ground rent payments. All this, and those wiley investors in traditional older property ground rents means there’s a large cohort of vested interests opposing changes.

Law Reform

The last Government investigated the claims of the abuse which resulted in the then communities secretary Sajid Javid promising an end to the leasehold ‘feudal practice’. He called for new rules to make extending a lease or purchasing a freehold ‘much easier, faster and cheaper’. The Law Commission was called upon to look into the subject of leasehold reform as part of its 13th Programme of Law Reform, hence the latest report.

Leasehold home ownership: buying your freehold or extending your lease

The Law Commission’s report findings stretch to nearly 2,000 pages and primarily recommends ways to make the system fairer using the ‘commonhold’ concept of what it calls a viable alternative for owning flats.

Common hold was introduced in the 2020 reforms but never took off because its terms were not attractive. However, it is used successfully in most other countries. In Australian and US condos, commonhold means occupiers own their own homes outright and common parts jointly with neighbours. The property is run by a committee of common-holders with no freeholder. Lease contracts are all standard – unlike the highly complex and unique leases at present – without the complexity that often traps leaseholders into paying exorbitant and spiralling costs.

Ministers will now need to decide whether this commonhold concept is to become incorporated into English law, whether to merely incentivise it or to make it compulsory. There are pros and cons for both systems, for although the present system can be expensive for leaseholders, a well managed block keeps everything in repair and maintains property values, without the acrimonious arguments and the management time common-holders and shared freeholders can get themselves into.

Other Recommendations

When a lease is becoming dangerously short it should be extended, otherwise a buyer would struggle to get a mortgage, making the leasehold difficult to sell. However, the cost to extend a lease or buy the freehold, known as ‘enfranchisement’, follows a complex formula to determine the Marriage Value, i.e., the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease. As the potential ‘profit’ only arises from the landlord’s obligation to grant a new lease, the reform legislation requires that it be shared equally between the parties.

Although currently leaseholders have a statutory right to extend after two years of ownership, and usually the leaseholder pays the freeholder’s reasonable legal costs, the whole process can cost many thousands of pounds. It gets a lot more expensive to extend a lease once the term drops below 80 years.

The Law Commission therefore has recommended new ways to make enfranchisement more affordable: an immediate right to extend more cheaply, and the freeholder pays their own legal fees. In addition, extensions could be for as much as 990 years (virtual freehold) instead of the present 90 years. The process would also terminate ground rent payments.

Where leaseholds currently have longer terms the tenant would be given the right to buy-out the remaining ground rent obligation nullifying any nasty rising ground rent clauses. Some of these have resulted in very high charges, for example, doubling every 10 years, making the leasehold virtually unsellable.

Currently when leaseholders want to join together to buy out their freehold, a statutory right, the process can be stymied if some of the leaseholders decline. The new recommendation is that in this case the freeholder is forced to ‘leaseback’ those flats in a block where they refuse to take part, so they pay less.

Service Charges, a pain for all leaseholders

The Commission has suggested that it should be made easier for leaseholders to take over the management of a block, taking the responsibility out of the hands of the freeholder and its managing agents and thereby helping residents to keep service charges down. This right would include buildings with up to 50% of the space devoted to commercial use, and the freeholder would pay its own legal costs.

Following Grenfell – Safety Charges

For those leaseholders occupying blocks of 18 metres or six storeys and above there’s the knotty problem of replacement cladding in many instances. Also, safety measures could include fire doors, signage and sprinklers which could cost those leaseholders affected around £9,000 each on average, but up to a maximum of £75,000. The managing agents and freeholders will in future be legally responsible for maintaining a building’s safety, but would not be liable for the cost of making it safe.

As a further concession to freeholders, as from 1^st August the planning rules are to be relaxed with permitted development rights (PDR) allowing those buildings built between 1948 and 2018 an extra two storeys of flats to be added on top. This applies to blocks with three to eight floors.

This last concession to freeholders has caused some controversy as not only will some constructions fail to meet minimum space requirements, leaseholders would face considerable inconvenience and loss of value of their own flats. This, regardless of the project being implemented as the mere right to do so will always be there, but converting to commonhold could be more expensive.

Leasehold reform in England and Wales: What’s happening and when?

Leasehold Enfranchisement – The Law Commission

Leasehold Property – UK Gov

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Ten Covid-19 scams to be on high alert for

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Using the coronavirus pandemic as an opportunity, fraudsters are using sophisticated methods to callously exploit people, with many concerned about their financial situation and the state of the economy. To coincide with the launch of its new animation urging people to follow the advice of the Take Five to Stop Fraud campaign

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Property Redress Scheme credits rise in complaints to increased membership

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The number of complaints against its members has increased by 51% in 2019 the Property Redress Scheme has revealed. The latest stats, released by the Property Redress Scheme on an interactive website, also reveal that the scheme saw rapid growth in 2019

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Campaigners join forces to call for evictions ban extension in Scotland

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A coalition of housing and welfare organisations has made an urgent plea to the Scottish Government to extend eviction protection measures.

The coalition claims that “time is running out” for families at risk of losing their homes in the light of the Covid-19 crisis and that the Government must show leadership to help prevent hundreds of families from becoming homeless.

In an open letter signed by organisations including Shelter Scotland, Glasgow Night Shelter and the Scottish Refugee Council, the group calls on Housing Minister Kevin Stewart to extend emergency powers against eviction when Parliament meets on 11 August.

The letter comes just a week after the Joseph Rowntree Foundation recommended that the ban in Scotland be extended until September 2021.

The current protections against eviction are due to be lifted in September, and the coalition is calling on the Scottish Government to extend these measures to ensure that vulnerable households can remain in their homes until at least April 2021.

Shelter Scotland Director, Alison Watson, said: “We know the pandemic has had a terrible impact on household finances.

“Thousands have lost their jobs, rent arrears are increasing and we’ve seen big increases in homelessness applications and the use of temporary accommodation. We must act now to stop the situation from getting worse.”

“Scottish Ministers have shown real leadership in getting people off the streets and keeping families in their homes.

“Now we’re asking them to step up once again by protecting people from being evicted and preventing a wave of homelessness this autumn.”

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Rents to drop by at least 5% over next four years as Covid recession hits tenant incomes

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Landlords are looking at a £5.7 billion drop in rental income over the next four years according to figures released by rental service provider Home Made.

Its projections, based on data from the UK’s last major recession in 2008, point to rents falling by at least 5% as a result of the pandemic, resulting in a total rent reduction of £5.7 billion.

London is expected to take the most serious hit in the post-Covid-19 recession, with a rental income decline of at least 9% between now and 2024 – according to Home Made’s data.

Within the capital, the boroughs of Westminster, Tower Hamlets and Wandsworth are likely to fare the worst, with Barking and Dagenham, Havering and Bexley being the least affected.

The total predicted loss of £5.7 billion is four times that of the rental income decline experienced during the 2008 recession. And Home Made’s report predicts that rental incomes are unlikely to return to their pre-Covid levels until 2024. 

Asaf Navot, its founder and CEO, says: “Landlords across the UK need to brace themselves for reduced returns.

In a recession, renters are less inclined to take a risk and move homes due to reduced disposable income and increased job market uncertainty which drives rents down. And the Covid-19 recession looks likely to hit harder than any in living memory. 

“The good news is that rental property is a more robust investment than others in a recession,” says Navot.

“Renters are still enquiring, and landlords who are willing to compromise and prioritise longer term income and smart cash flow management over short term profits are most likely to succeed.” 

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Rents to drop by at least 5% over next four years as Covid recession hits tenant incomes | LandlordZONE.

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Covid-19 Court Reactivation Rule?

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It seems that the stay on possession hearings, ending 23rd August, will require a further piece of work by landlords in England and Wales. Can anyone please tell me if the “Reactivation Notice” in the Civil Procedure (Amendment No. 4) (Corona Virus) Rules 2020 No 751 (L.17) applies to progress an accelerated claim for possession?

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Bounce-back loans “bounced back” on landlords

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The loans have been offered to businesses during the coronavirus crisis when they have lost vital revenue needed to keep their firms afloat and staff on the payroll.

The scheme has meant that businesses can borrow up to £50,000 interest-free for the first year of operation before payments kick-in at an interest rate of 2.5 per cent.

The generous Government scheme has resulted in some major controversy in the property investment community however. Some controversial “millionaire property guru” characters, the likes of Paul Smith and Samuel Leeds, have been running property training courses for amateur property investors and have been encouraging them to apply for the government loans to fund their property purchases.

However, investors are being warned that anti-fraud organisations and white-collar crime experts have raised significant concerns about the potential for loss to the public purse as a result of fraudulent claims for Coronavirus bounce-back loans. These property investment claims are clearly not what the Government intended the money to be used for and they leave claimants open to prosecution.

One landlord posting on the property Blog, Property Tribes, said he had received a £12,000 bounce-back loan when one of his properties came vacant during the lock-down, while another of his tenants was unable to pay rent.

The loan was taken out as a “precautionary measure” in case other tenants missed payments the landlord said, despite having a healthy bank balance. But when the landlord came to apply to remortgage one of his properties with Paragon Mortgages, so that he could release some equity, he was rejected.

The landlord said that:

“The mortgage was denied because they determined that the business was in financial difficulties as it had to rely on a bounce-back loan, even though my balance remained well in excess of the balance of the loan.”

In another case a landlord’s application was rejected by The Mortgage Works, part of the Nationwide Building Society, because the applicant had taken out a £27,000 bounce-back loan.

Richard Ignatowicz, a landlord and mortgage broker, told The Sunday Times:

“The lenders are taking the prudent view, and I agree, because landlords are expected to have at least three months of cash reserves to cover for typical eventualities like voids, maintenance and repairs. If you applied for a bounce back-loan, you had to declare that you have been financially affected by the coronavirus, so why would lenders lend to someone in financial distress?”

Other lenders are refusing to approve mortgage applications for landlords when they have taken mortgage payment holidays, again an indication to the lender that they have cash-flow issues. Lenders are very sensitive to borrowers who show signs of financial distress and so they have every right to do so.

Mortgage consultant Chris Sykes from Private Finance told the Sunday Times:

“Lenders can be picky in terms of who they lend to because it is their money. By the end of the year, perhaps lenders will be open to these clients again, but things aren’t back to normal yet.”

And Paragon said:

“We would not turn down an application purely because of a bounce back loan. As a prudent lender we take this into account as part of the overall credit assessment.”

The Mortgage Works said:

“If someone had a bounce back loan, it would be considered as part of the mortgage application. It isn’t a straight decline just because they have had such a loan.”

Speaking about the use of bounce-back loans to fund new property purchases Cyril Thomas, who heads up the Property Investors Bureau, told LandlordZONE:

“We would not encourage investors or individuals to do anything in breach of the terms of their loan – I don’t want to get into the moral maze of what these loans should or shouldn’t be used for, but to keep it factual.

INVESTIGATION: the ‘property gurus’ pushing Bounce Back loans as ‘free money’

The Bounce Back Loan Scheme

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Enfranchisement and Lease amendments?

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Value of Enfranchisement? I am a freeholder of a small block of flat (3 in total). I live on the first floor and there are two flats on the ground floor both rented out by the current leasehold owners. Leasehold owners have shown interest in purchasing their share of freehold.

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Council votes through controversial licensing plan

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Scarborough Borough Council has approved a further expansion of its Selective Licensing scheme for the private rental sector.

At a meeting yesterday, the Council gave its unanimous support to the introduction of the ‘Scarborough South’ scheme, following a public consultation.

The scheme – which is in addition to existing licensing arrangements for Scarborough North and Scarborough Central – will require private landlords in the specified areas of Weaponness and Ramshill to apply for a ‘licence to operate’.

Licensing conditions concerning the safety of smoke alarms and gas and electrical appliances will need to be met and suitable tenancy agreements will become mandatory.

A consultation which ran between January and March of this year revealed majority support for the Scarborough South licencing scheme.

And although some eyebrows have been raised in terms of the Council prioritising these measures in the middle of a pandemic, it is thought that the scheme is likely to both improve safety standards for tenants and reduce incidences of anti-social behaviour.

Each licence will be issued at a cost of £550. With an estimated 550 licensable properties within the Scarborough South area, the new scheme could generate a total fee income of £334,000 for the Council.

Labour councillor Carl Maw (pictured, above), cabinet member for stronger communities and housing, believes the new scheme will improve the quality of life for tenants in the area as well as for neighbouring residents.

He says: “We have seen in other parts of Scarborough where selective licensing has made a significant positive difference to the lives of the local community.”

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