Author : Mary-Anne Bowring
A growing number of leaseholders in the UK are receiving demands for astronomical sums from their Council as freeholders for repairs to their homes. Many fear that these wipeout bills will put a brake on the efforts of first-time home buyers to own a home and send them reeling back into the rental market. Housing Secretary Eric Pickles from the previous coalition government had probably envisaged this situation. Florries Law, introduced by him in 2014, aimed at preventing such a situation. It was aimed at capping council works bills at £15,000 in London and £10,000 outside the capital.
Each year many homeowners of flats in council-run estates receive bills in the thousands. Unlike their neighbours who still rent from the Council, leaseholders are liable for maintenance and repair costs. In theory, bills are calculated for the entire blocks and then divided between leaseholders and the local authority freeholder (who picks up the cost for all rented units). Campaigners say this system is highly flawed and undermines the right-to-buy legislation set up to get people on the property ladder. As is often the case, these bills shock low-income leaseholders as they could face the risk of bankruptcy.
Ultimately, the problems are:
- former Council tenants who buy a leasehold home are not used to having to pay for repairs and fail to budget for them,
- Councils do not collect reserve funds so when repair bills come for unwary leaseholders, the bills put them in a wipe-out situation,
- cyclical maintenance to Council buildings is often less frequent than on private buildings - so ultimately may cost more, and/or the nature of their construction methods may cost more
Some property experts are also at a loss to understand the sudden surge in major works bills being issued to Council leaseholders. One theory is that the councils may be clearing a backlog of major works, which the pandemic had put on the back burner. Another perspective is the reason could be to tackle ventilation and insulation since the unfortunate death of two-year-old Awaab Ishak due to exposure to mould contamination could also be an influencing factor. Then we have the reality that compared to many properties, the thermal efficiency of many Council properties is poor and Councils do have to do their bit to improve the thermal efficiency of the UK housing stock.
The developments put a question mark on the idea of allowing the right to buy in social housing apartments. They are bereft of reserve funds, resulting in private leaseholders being suddenly saddled with huge bills. In London, 40 percent of private leaseholds in council housing are in the hands of investors, and many of them are based offshore. If they all sell up rented stock diminishes further and rents will rise further as a consequence.
It is obvious that council blocks require major work. But at the same time, private asset owners must share the responsibilities of home ownership.
The local authorities must also help leaseholders get good value for money instead of merely accepting work schedules with a big question mark. Some would argue maintenance companies often resort to dirty tricks to boost their profits hiding behind framework agreements and long-term qualifying agreements. These agreements are not foolproof. The upshot is often the works don't even go to formal tender, and leaseholders often have to accept the bill figures as honest and accurate, not realising that a game of profit is being quietly unleashed on them.
The image of Conservatives is that of the party of home ownership. Over the years, it has spent billions to get people onto the property ladder through Help To Buy subsidised loans. On the other hand, developers and housebuilders have often engaged in shared ownership arrangements. These types of leases can be tough to handle in the future. The sad reality is that despite all the efforts and expenses, home ownership figures in the UK are going southwards. In 2011, it was 64.3 percent. Today that percentage is down to 62.5 percent. Many homeowners, especially new buyers, will soon be homeless if the government doesn't act.
Mary-Anne Bowring FIRPM FRICS FARLA FCABE Founder/Head of Asset Management
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