‘The Feudal Leasehold System That Threatens a Repeat of the Grenfell Disaster’

Last week a block of flats on Elm Road in my Brent North constituency caught fire. It took five hours, 125 firefighters and 20 fire engines to bring the fire under control. Thankfully, it was not another Grenfell – all residents were evacuated to safety – but the reason the fire spread so quickly was because, six years on from that tragedy, this building still had Grenfell-style combustible cladding on the outside.

Octavia Housing, who own the block of flats, attended a residents meeting which we held three days later. The acting Chief Executive was keen to assure everyone that Octavia’s “top concern, was residents’ safety”. However, the truth is that for the past three years Octavia have known about the combustible cladding but have instead engaged in a protracted dispute with the original developers, Vistry, rather than get on and remove the cladding themselves and argue about who ought to pay for it, later.

This is the very sort of legal wrangling that Michael Gove’s Building Safety Act was supposed to stop. It hasn’t. In reality, the Act has trapped thousands of residents living in Leasehold apartments with multiple fire safety defects. They are prisoners in their own homes. 

The stipulation that all residential buildings over 18 meters (or six storeys) should have an EWS1 form, to show that an appraisal of the External Wall System has been carried out by a qualified professional was supposed to reassure lenders, and enable mortgages to be offered on buildings with cladding in place. In fact the market has acted in precisely the opposite way.

Problems include the difficulty of finding a qualified professional to carry out the assessment, the reluctance of banks to provide mortgages on buildings where the remediation work has not yet been carried out, and sometimes the inability of leaseholders to force their landlord to carry out the Fire Risk Assessment at all, even though the law stipulates only the freeholder of the building can do so. All these – combined with the complexity of the five different EWS1 ratings – have ensured that those who are keen to sell up and get out of unsafe buildings are unable to do so. 

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A Feudal Hangover

The wider problem is that when people buy an apartment, they often assume that they are becoming a home owner. In fact they are not. They simply possess a piece of paper that gives them the right to live there for a long period of time – typically 99 or 125 years. It is the freeholder who has all the rights: the right to paint the doors and windows, the right to put on a new roof, the right to repair the lift. So if you live on the 10th floor and you want the lift repaired, you have to wait until your landlord decides to do it. They decide who does the work, how much it will cost, and when it will be done; but it is you that pays the bill. 

If that strikes you as an intolerable system where the imbalance of power between freeholder and leaseholder, could lead to corruption and exploitation, that is because it is. Take the topical example of buildings insurance: in the recent Canary Riverside case, a first tier tribunal found that £1.6million of insurance commission had been unreasonably paid to a landlord owned company by an FCA-regulated broker. And neither party could support the payment with any evidence of a written contract.

The residential leasehold system exists nowhere else in the world. It is a hangover from the feudal system, an era where you lived at your lordship’s pleasure and owed your fealty to him. It has no place in a modern property-owning democracy. Successive governments have promised to replace it with Commonhold, where flat owners own their property along with a share in the common parts of the building.

There would be no separate landlord managing the building without residents’ consent. The residents would take on the responsibility of managing it themselves or appointing a managing agent to do so on their behalf – a managing agent they could get rid of if they were not satisfied. No more inflated service charges, no more failure to do repairs.

https://vimeo.com/909871478

For the past three weeks I have been sitting in the Bill Committee of the Leasehold and Freehold Reform Bill. It is 133 pages of tinkering with a fundamentally flawed and unjust system. Even the Minister was prepared to acknowledge that it will not solve the essential problems leaseholders face. But such bills come round rarely – the last attempt at reform was 22 years ago. This week rumour has it, the Labour Manifesto will be finalised. If it fails to contain a bill abolishing residential leasehold and bring in commonhold, there will be 5 million angry leaseholders who want to know why.

But commonhold is for the future. What of the residents who live in buildings blighted by cladding and other fire safety defects now? The government has rightly said the residents should not have to pay to have these buildings remediated. They say that it is the developers and owners of the building who should bear the cost. But many developers have gone out of business.

Others have sold the building on multiple times – often to a company now located in the Cayman Islands or some other tax haven beyond the jurisdiction of English law. Sometimes, like my constituents in Elm Road the owners and developers are locked in protracted legal dispute arguing about costs as their property burns. In the meantime, residents continue to be at risk.

Of course, the Government could introduce a windfall levy on the construction industry and fund the work up front, recovering it thereafter from those developers who caused the problem. But the idea of an interventionist government that enters into the market to solve people’s problems is perhaps a thing of the past. Such an idea might harken back to the days when governments created things like the National Health Service or decided that there should be free education to the age of sixteen. Worst of all, politicians might find it was actually popular.

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Barry Gardiner MP has been campaigning against residential leasehold for 25 years. On Monday February 5 he launched his documentary ‘Leasehold’