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Britain’s leasehold property system, in which managing agents can operate without any form of regulation, is in dire need of reform, according to a report by CentreForum, a think-tank.
The study looks at the growing problems faced by leaseholders in their dealings with management companies, as well as the rising number of disputes over inflated service charges.
“Sorting out the leasehold system is a key issue for the government,” said Chris Paterson, co-author of “A new lease of life: making leasehold fit for the 21st century,” published on Monday.
“As part of its new housing strategy, large numbers of new properties will be built and the majority of these are likely to be flats which will be sold as leasehold. As such, addressing significant problems with the way leasehold works has to be a priority.”
Consumer groups have long called for a change in the law to prevent property management companies from taking advantage of leaseholders, amid claims that property owners are being ripped off by up to £700m a year.
A large proportion of flat-owners do not own the freehold of their property but have the right to lease it over a set period, typically 100 years. There are almost 2.5m leasehold properties in Britain, many of which are managed by companies employed by the freeholder to take care of maintenance of communal areas.
Leaseholders pay annual service charges to the property freeholder to cover costs such as buildings insurance, maintenance and repairs. However, cases of bad management are increasingly emerging as leasehold property owners file complaints about extortionate costs.
The process for ousting useless agents is fraught with complications. The Association of Residential Managing Agents believes the industry should be regulated to offer greater protection for those in leasehold properties.
MPs also argue that reform is long overdue. “Leaseholders with private and public sector freeholders must be given a greater say in how their homes are managed,” said Simon Hughes, MP for Southwark and Bermondsey and deputy leader of the Liberal Democrats.
CentreForum says light touch, independent regulation for leasehold managing agents could be introduced for as little as £2 per leaseholder without creating unnecessary barriers to entry.
Its recommendations include making membership of an ombudsman compulsory for all managing agents and the removal of the threat of forfeiture, which currently means that leaseholders can lose the full value of their property for minor debts.
Grant Shapps, housing minister, maintains, however, that any reform “should be driven by a more proactive approach from the sector – not by greater regulation”.
Publication of the report coincides with the airing on Channel Four on Monday of the Dispatches investigation Property Nightmare: The Truth About Leaseholds.