This week, the Ministry of Housing, Communities and Local Government announced a consultation on a major reform of ground rents. In many respects it’s kicking at an open door.
It is very hard to defend selling houses on leaseholds where the rent doubles every so many years causing real distress to buyers who weren’t well enough advised by their solicitors and find themselves trapped in a property that is less and less attractive every passing year. The draft proposes a cap of £10 on new leases. It should go further and ban them all together.
James Brokenshire also has bad landlords in his sights. He knows too many have little regard for tenants in multiple-occupancy premises when dealing with maintenance and repairs. They know they have the whip hand. They tell tenants how much repairs will cost, procure them without any particular regard to value and simply pass on the bill. When it’s the landlord’s responsibility to put their hand in their own pocket, these rogues often simply don’t do so.
The late Sir Brandon Rhys Williams was Conservative MP for Kensington in the 1970s and 1980s and knew first hand how the most notorious of all rogue landlords, Peter Rachman, operated in Notting Hill – then far from being the home of the rich and famous it has since become. Rachman was a particularly nasty piece of work who used intimidation and violence to force out tenants and replace them with poor people crammed into tiny spaces at inordinate rents.
Brandon’s remedy was enfranchisement. It was well intentioned but fundamentally flawed. It is used these days by people wanting to extract value from estates like the Grosvenor rather than by ordinary tenants trying to get rid of a nasty landlord. So outraged was the then Duke, Gerald Grosvenor, when the legislation went through under John Major that he cancelled his extremely large donations to the Tory party and never gave them another penny.
Reality bites
The consultation talks of making commonhold easier for tenants. It’s another great idea in theory but in practice almost always ends in tears. It is hard to reconcile the wishes of the retired couple who have no desire to spend vast amounts on anything they know they will never see the value of, while young millennials may be very happy to propose electric gates to ease the pain of parking the Porsche.
And which of the tenants polices these arrangements? Are they qualified? Are they happy chivvying their own neighbours over arrears? No wonder they mostly appoint a managing agent who history tells us is often fired after a year or two because said agent cares no more than his landlord how much the bills are. Tenants become frustrated because, in reality, managing a complex structure like a tower block is no simple task.
When it’s the landlord’s responsibility to put their hand in their own pocket, these rogues often simply don’t do so
There is however a model that does appear to work. A growing trend these days is for progressive fund managers to buy the residual freehold of large multi-tenanted blocks and charge a fixed ground rent that rises only with inflation. They do this to generate the sort of small but safe returns that are the backbone of long-term pension planning. But, as the long-term owners of the building, they also have a real interest in ensuring it is fit for purpose and fully occupied by happy tenants.
These landlords seem to me to be doing a good job with the right motivation, in some cases even devising schemes to allow cladding to be replaced for example – well in advance of the current tenants’ ability to pay – knowing they have the advantage of long-term ownership to ensure that over the next half-century or more they recoup the cost. These investors are not charities but they operate a model that works for tenants and owners alike. It would be a shame if this well-intentioned consultation had the effect of throwing this particular baby out with the bathwater.
Steve Norris is chairman of Soho Estates and senior adviser to BNP Paribas Real Estate
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