The passing of the Leasehold and Freehold Reform Bill into law in the parliamentary ‘washup’ following the announcement of the general election, was achieved because opposition parties felt that having reached Report Stage, there was more in this measure they could support than that they would wish to alter or defeat.
Such are the crude mechanics of certain parliamentary processes.
With it went my latest and unsuccessful attempt to get the principle of consumer protection onto the statute book with the added twist from the departing Michael Gove and his Department, to make freehold owners of residential blocks responsible in the first instance for remediation regardless of responsibility for the defect and shorn of the ability to recharge leasehold occupiers as a matter of contractual right (and for whom the bill was also intended to confer cheaper enfranchisement costs).
We will have to see how this works out on practice. I have always considered it improbable that a block owner would pursue at their own cost and risk firstly a remediation process for which they had no prospect of adequate reimbursement contractually and secondly then to pursue the original constructor for a Remediation Contribution Order.
At best this seemed to me likely to put intolerable strains on the thin capitalisation of some significant holders of block portfolios.
Some pressure groups were full of glee that they might pick up a cheap freehold from an insolvent block owner.
I thought it unlikely they had ever experienced dealings with an insolvency practitioner who would undoubtedly seek to maximise returns for preferential creditors – which necessarily excludes a resident group as owner-in-waiting.
By the time the rump of the asset in terms of a stripped out freehold became available for purchase, it might even have negative value.
And perversely, having achieved a block enfranchisement, my understanding remains that the resident leaseholders would thereby lose any status as a qualifying interest under the Building Safety Act, thus losing protections it might otherwise have enjoyed.
The labyrinthine procedures of the current legislation in which conveyancers, lawyers, valuers and project managers may struggle to get affordable professional indemnity cover, will be the inheritance of an incoming government.
The resultant market write-downs in which resident and investor leaseholders find they have illiquid assets, high service charges and unexpurgated potential liability for remediation costs are potentially a very damaging erosion of the national wealth inventory which may yet have some way to run.
Politically it seems to have been the aim that when the music stopped, the package in this national game of ‘pass the parcel’ should by design be left in the hands of those who could do the least damage to government (nominally the entity with the greatest assumed free assets) – in this case a convenient bogeyman, the discredited landlord.
But like so many other aspects of the entire building safety crisis, no research had been carried out into the likely outcomes.
Moreover, the broader tactical wisdom of fomenting further discord seems not to have been a consideration in the short term aims of populist politics.
If as now seems to be intended, the costs of a forced decant (43 blocks and 10,000 residents so far since summer 2017 – and counting) may also fall on the block owner, regardless of culpability, and it seems likely something will have to give.
Block owners (probably very wisely) have not confided in me individually or collectively what their policy will be for countering the risks they now face but I would be surprised if any but a few have remained frozen in the headlights of the last government’s oncoming juggernaut or have failed to put in place contingency measures.
In the end both investors, who may be block freeholders, buy to let owners or simply accidental landlords (including leaseholders unable to sell their flats and obliged to let them in order to move on with their lives) will have to have some dialogue with each other if good order and stability in markets with progress towards solutions is to be made.
Meantime the reputation of developers and their principal contractors, materials manufacturers and others remains in the balance.
The parliamentary process may well not have contained the larger contagion here and on that we will have to wait and see.
But I also suggest a need to convince an incoming government that first principles of consumer protection for all categories of owner must realistically apply to those who created the assets and not those who have unwittingly acquired them in good faith.
The polarisation of the arguments among campaigners and the cancel culture towards those not holding to some perceived orthodoxy, provide poor prospects for orderly, economically robust solutions.
My approach has been threefold – to fix liability for defective buildings where it belongs, to remove the own goal of obviously unfair and abusive activities towards leaseholders and to provide a backstop for the longer-term management of residential and mixed-use blocks so that they remain sound investments worthy of care and maintenance.
In all this, residents, management and politicians have a good deal to learn from an informed, measured and openminded dialogue.
Author Bio.
The Earl of Lytton (main image) is an independent crossbench peer and chartered surveyor in private practice. He writes from a personal and parliamentary perspective informed by his industry experience.
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