The Leasehold and Freehold Reform Act should have been a defining moment for leaseholders.

The sector is suffering from a lack of coherent regulation which is leaving homeowners questioning why their service charges continue to increase.

However, in his last act in government, Michael Gove blew a golden opportunity to deliver reforms that could genuinely improve transparency and accountability around the collection and spending of service charges.

According to the government’s own data, the average service charges leaseholders pay is now £3,634, having increased by 41% in the last five years, to its highest ever levels.

Yet, across its two-hundred-plus pages, the Leasehold and Freehold Reform Act does nothing to rectify this.

This presents the new government with an easy win to deliver tangible benefits for leaseholders. However, before this, the new administration must counter lingering misconceptions around service charges that proliferated under the last government.

Firstly, service charge is not exclusive to the leasehold system. All buildings, regardless of tenure, will require residents to contribute to maintenance costs. Despite, what some have been arguing, services charges will not be cheaper under alternatives such as commonhold.

Secondly, service charge is a cost recovery mechanism. This means that if those responsible for collecting service charges, budgets and collects £2,000 but only spends £1,750, they must return the remaining £250 back to leaseholders.

Thirdly, professional freeholders ensure that management responsibilities are not imposed on homeowners, meaning they have the freedom of choice to either take on those responsibilities in their spare time or leave them to a professional.

And finally, leaseholders are able to challenge unreasonable costs through the First Tier Tribunal.

It is clear that to improve standards across the sector effective regulation is required.

This would be straightforward and popular with leaseholders. The Property Ombudsman’s most recent review shows that complaints from leaseholders centre around the issue of service charges, and the Government’s own research published last year also shows that the vast majority of leaseholder concerns centred around the lack of service charge regulation. Unfortunately, instead of addressing this, the previous Government chose to focus on ground rent, which is unrelated to service charge and not a focus for leaseholder concern.

Under effective regulation, professional freeholders can continue to demonstrate their value –procuring services like building insurance at a large scale and delivering commercial, legal and building management expertise – ensuring we have a properly functioning leasehold sector.

With effective regulation, the new government will also maintain consumer choice for residents who prefer the option of having institutional oversight of their homes, enabling both leasehold and commonhold tenures to flourish side by side.

One thing is for certain – leasehold reform will not disappear from the political agenda. The next government must learn from the past mistakes of previous administrations and seize the opportunity to address service charges, and finally deliver meaningful change for the 4.9 million leaseholders across England and Wales.

The Association of British Insurers has announced the launch of a new Fire safety reinsurance facility for multi-occupied buildings. Read more on how this might benefit your landlord’s insurance programme

For many months, Government has been working with the insurance industry to make it easier to insure large multi-occupied properties awaiting fire safety remediation work.

The Association of British Insurers has now announced a new reinsurance facility to improve the position.

Premiums for large, complex sites have increased substantially as the extent of fire safety problems has become clear. Most insurers have reduced their participation in the sector and are not taking on new business.

The new facility is open for business on 1st April 2024. It will only accept business for policies renewing on or after that date.

It will not therefore be available for any of your landlord’s buildings before our 25th March 2025 renewal. Our renewal process for March 2024 is now complete on the existing basis.

5 major insurers, Allianz, Aviva, AXA, RSA and Zurich have joined the scheme. It is hoped that other insurers will join in time.

The scheme gives access to a reinsurance facility from reinsurance company SwissRe.

The intention is twofold, to expand the ability of insurers already underwriting higher risk buildings and to attract more alternative insurers who are not.
It is hoped that the facility will also lead to some easing in current high rates of premium. The facility is not a universal panacea however and will be of most help to large, complex sites awaiting or undergoing remediation.

We will work with our brokers before next renewal to establish which buildings might benefit from this facility. We hope by then that the number of insurers using it will also have increased.

In the meantime, we are not able to answer speculative enquiries on individual buildings.

We have now completed negotiations for the renewal of our group insurance policies on 25th March 2024.

Each of our insurers, Zurich and Ecclesiastical, has re-assessed pricing for each building on its own merits.

Zurich has offered small rate reductions on a wide selection of buildings, particularly those carrying the highest rates because of safety defects or other adverse features.

Ecclesiastical’s rates will remain largely unchanged, having offered savings when they started insuring part of our portfolio in 2022.

A small number of buildings will have rate increases, where individual circumstances require it. This can be for instance where the presence of fire safety defects was discovered after the last renewal.

Terrorism rates for properties in the lower risk zones, B, C and D, have reduced by on average 15%. Higher risk Zone A rates are unchanged.

Unfortunately, inflation indexation does eat into these reductions. Both insurers have recommended indexation of 3.8% next year. This is reduced from 10% last year, since the rate of inflation for building materials and labour has reduced.

Our brokers have conducted a limited tender exercise this year, and a number of individual properties have been offered to alternative insurers. Generally this process did not achieve more economic premiums and buildings have remained with the current insurers.

Our rationale for how frequently we tender our portfolio is discussed elsewhere in these FAQ’s.

The market for residential blocks remains difficult. Pricing in the sector should ease however as fire safety defects in buildings across the UK are remediated. Pricing even for buildings without safety defects has been influenced by overall insurer sentiment. We do not expect premiums to return to historic levels. Insurers generally consider residential property to have been widely under-priced in the past, based on what is now known about the scale of safety defects across the country.

We will continue to do everything possible to ease the burden of premium levels in the future.

Your freeholder receives a commission from insurers for the work its Insurance Department does to support the programme. The level of commission reduced in 2023, for the fourth year running, in view of the historically high premium levels applying across the UK insurance market.

We will shortly send out this year’s invoices and insurance certificates. If you anticipate difficulty in settling your invoice, please contact our Late Payments Team, (not the Insurance Team) as soon as possible after renewal on 25th March.

This year, our brokers and insurers are required by the Financial Conduct Authority to provide leaseholders with more information about insurance programmes. This information will be provided by us when the renewal has been concluded, Where the information is common to our whole portfolio (for example a summary of the cover provided), the information will be available on our website. Where the detail is property specific, it will be e-mailed or sent by post, either by ourselves or your managing agent.

Further detailed information is available on this section of the website. Please note that we are not able to enter individual correspondence where questions are answered by the website material.

Last year we invited homeowners to register for E&J’s new homeowner portal and be entered for our prize draw. The portal makes it easier to pay and view invoices and to access your statement.

We are pleased to confirm that we have just sent six £50 vouchers to the lucky winners.

If you haven’t yet registered for the portal, please see the home page of this website to find out how.

We will be adding to the portal functionality during 2024, to make it an increasingly indispensable resource for our homeowners.

Property Reporter has published the Residential Freehold Association’s proposal following its recent building safety seminar.

According to The Residential Freehold Association (RFA) – a trade body representing the UK’s largest professional freeholders, the solutions do not require legislation and can be implemented under the powers provided by the Building Safety Act 2022 (‘the Act’) to the Secretary of State.

The UK Government’s confused policy on building safety – including the Act and its implementation – has failed and is actively slowing down the remediation of unsafe buildings, leaving leaseholders in limbo for longer.

According to a recent report, in the past six years, fewer than 10% of unsafe homes have been remediated and the government has disbursed only £1.5 billion of its pledged £5.1 billion – with an estimated £3 billion also to be recovered from taxation – to remediate unsafe buildings.

Consultation with the industry has been limited and the Government has consistently rebuffed attempts to improve the defective elements of the Act, borne out most recently through its rejection of the polluter pays amendments to the Levelling Up and Regeneration Bill. All of this showcases the need for solutions to be found – urgently.

The problems with the Government’s current building safety regime and the RFA’s proposed solutions are outlined below.

1: Inconsistencies between the Act and the developer remediation contract

The developer remediation contract, also known as the Self Remediation Terms (SRT), only obliges developers to remediate life-critical fire safety defects which leaves intolerable risk to the occupants from the spread of fire.

Meanwhile, the Act places more stringent obligations on building owners, including the management of risk pertaining to the structural integrity of the building. This has left building owners in deadlock with developers, who have had their liabilities carved out under the SRT that they would otherwise be liable for under the Act. Such standoffs are inevitably leading to costly and lengthy litigation to resolve these complex disputes.

All buildings should be remediated to ‘the Rule of One’

Each building owner should expect to receive a building remediated to a standard formulated by the Department for Levelling Up, Housing and Communities (DLUHC), then applied and certified by an independent fire engineer appointed by DLUHC, rather than the developer. Without these changes, many buildings will remain in non-remediated conditions for lengthy periods whilst protracted legal discussions take place.

2: A disproportionate approach to risk

The use of a Fire Risk Appraisal of External Wall construction (FRAEW) means that often little is known about the risks posed by the condition of the internal compartmentation of a building.

Many developers are refusing to check the internal aspects of a building as the SRT doesn’t expressly obligate them to. There is a significant risk that the building safety regime will create a swathe of half-safe buildings with defective internal compartmentation.

Place the same liabilities on developers as under the law

The developer remediation contract should be amended to reflect the liabilities that all developers carry in law, making them expressly obligated to deal with structural remediation.

3: An inconsistent funding and regulatory regime

The Government has provided a means of apportioning liability which ignores the reality of funding remediation works. Unlike the remediation of ACM cladding, which saw funds more readily distributed, there are now multiple funding regimes, all with their own guidance and criteria.

The time to gather funds is now becoming longer than the time to undertake remediation work itself, leaving leaseholders stranded for longer. The irregular patchwork of regulations stemming from the Act has also hindered remediation efforts on the ground and caused confusion. Secondary legislation has its place, but not generally as a means to constantly amend erroneous primary legislation.

Given the fiduciary and personal duties of directors acting for professional freeholders, building safety teams are unnecessarily preoccupied with avoiding the severe penalties of breaching various regulations rather than focusing on remediation projects.

Enforce a cohesive risk-based approach

A standard of acceptability should be developed in order to fund remediation works to a safe standard to prevent remediation efforts from only producing half-safe buildings. Developers should as a minimum be obligated to complete a Type 2 survey of the internal common parts compartmentation, where such a survey reveals any defects, further Type 4 surveys should be completed within the flats.

Mick Platt, Director of the RFA, said: “The Government’s current approach to building safety is unfit for purpose – it has prioritised the liability question, mistakenly believing that by doing so the necessary funding will magically appear.

“The industry shares the objective of making leaseholders’ homes safe as quickly as possible but crucially this requires engagement from the Government to recognise the unavoidable issues surrounding its building safety regime.

“The Government needs to actually work with the industry to ensure that unsafe buildings are remediated as quickly as possible to provide safety and certainty to leaseholders across the country.”

By registering for the portal, you can self-manage your E&J account, 24/7, through your phone or device without having to contact us.

Pay invoices, check your statement, view invoices, and send email communication to our teams in a few easy clicks.

In the coming months we will be adding more functionality. You’ll be able for instance to view and download your insurance certificate and other documents relating to your lease. All the information you need in a single source, at a time to suit you.

To register and set up your own personal account or click on the link below:

https://my-eandjestates.co.uk/login

Any homeowner registering before 31st December 2023 will be entered into a prize draw with the chance of winning one of 6 £50 Amazon vouchers.

While the government has recognised that any proposals to abolish leasehold are unrealistic and unworkable, professional freeholders continue to play their part in providing long-term stewardship for the UK’s apartment buildings. Commonhold may offer a suitable form of tenure for smaller apartment buildings, however, the value and range of services that professional freeholders bring in larger and more complex buildings should not be underestimated.

Current and prospective leaseholders need to be aware of the responsibilities that would be expected of them under a commonhold system as they are not likely to be attractive to all residents. It is therefore crucial that choice of tenure remains in order to ensure that homeowners are not forced into a system of tenure against their will.

There is a clear need for the technical and professional expertise and decision-making, independent of leaseholders, who will likely have competing objectives and time horizons, which is offered by a professional freeholder in the leasehold system. A common scenario which arises in multi-occupancy buildings is a conflict between different owners within a building who may have differing priorities. In a commonhold system, this creates an inherent conflict of interest which can lead to fractious disputes between neighbours.

The Residential Freehold Association’s (RFA) members are frequently asked by homeowners to intervene in neighbour disputes, as an independent arbiter or to assist with enforcing leaseholder’s obligations for the benefit of all residents. Without this stewardship, there is a significant risk that residents will make key decisions based upon poor understanding of the complex legislative landscape.

In addition, professional freeholders have access to broad commercial, legal and building management expertise, and thanks to their scale, are able to procure services and assets which provide better value for homeowners.

In the absence of a professional freeholder, there are a number of legal responsibilities which, under a commonhold arrangement, a commonhold association (CA) would take responsibility for. The CA would need to ensure that all residents/unitholders comply with the terms of the commonhold community statement – the document which governs how the commonhold is to be managed and run – some of which carry criminal liabilities.

It is of course critical for any CA directors to have appropriate qualifications and training, so that they are fully equipped with the skills to deal with their legal responsibilities, including compliance with ever-changing statutory requirements such as those prescribed by the Companies Act 2006, alongside health and safety and other legislative requirements such as those contained in the Building Safety Act 2022, Health and Safety at Work etc. Act 1974, Fire Safety Act 2021 and Fire Safety (England) Regulations 2022. In order to implement a conversion to commonhold, training and financial renumeration of CA directors would be an additional cost which would have to be borne by residents in the absence of a professional freeholder.

CA directors need to be informed regarding the consequences of failing to comply with their statutory and fiduciary duties. Within this context, it is clear to see how a large apartment building poses significant challenges for the implementation of commonhold. In light of these points, it is clear why The Law Commission’s 2020 report into leasehold home ownership recognises that there is a “good legal reason” for leasehold in ensuring the “effective management” of large and complex buildings.

This is reflected in the government’s own recently published research, which shows the vast majority of respondents have a positive or neutral view of the current leasehold system. The government’s findings align with independent polling from JL Partners, which reveals only 18% of people would be comfortable assuming the legal and financial liabilities for managing their building, as they would under a commonhold system.

There is no justification for removing choice of tenure and the RFA welcomes the government’s recognition that commonhold should not be imposed on the sector, or any others, and that it is not a one size fits all solution.

The government must, as a priority, undertake a wide-reaching consultation to understand the impact of any leasehold reforms and also provide adequate information on the obligations that homeowners would have to comply with under a commonhold system, so that current and prospective leaseholders can make a fully informed decision before they purchase their home.

Mick Platt is a director of the Residential Freehold Association

Housing Secretary Michael Gove has increased the pressure on manufacturers of flammable cladding to pay for replacing it. His letter to major manufacturer Kingspan is direct and to the point.

It follows recent moves to nail developers who originally built problem blocks to do the same.

Gove is strong on the principle that the polluter should pay, and that innocent leaseholders should not pick up the bills.

We have now completed negotiations for the renewal of our group insurance policy on 25th March 2023.

Insurers Zurich and Ecclesiastical have generally held premium rates at last year’s levels.

Some properties have however been moved from Zurich to Ecclesiastical, in return for rate reductions of up to 11%. Ecclesiastical could only offer savings for certain types of building so the potential to transfer was restricted. A limited number of properties also benefit from reductions without moving insurer.

We acknowledge that rate reductions are not available for most sites, including those that received the highest levels of increase in 2021.

Our brokers conducted a further tender on the Zurich portfolio but were unable to find another insurer prepared to compete. Some individual properties covered by both insurers were offered to the market in isolation, but no alternatives were identified.

The biggest influence on pricing this year is re-building cost inflation. Every year insurers specify an indexation level, by which the declared value of buildings increase to reflect construction industry inflation. This year some insurers are specifying up to 20% indexation. We are pleased to confirm that we have negotiated a lower level of 10%. Unfortunately however, some premiums will still increase as a consequence.

The market for residential blocks remains very difficult. We expect pricing in the sector to ease however as fire safety defects in buildings across the UK are remediated. Pricing even for buildings without safety defects has been influenced by overall insurer sentiment. We do not expect premiums to return to historic levels in the medium term.

We will continue to do everything possible to ease the burden of premium levels in the future.

Your freeholder receives a commission from insurers for the work its Insurance Department does to support the programme. The level of commission will reduce in 2023, for the fourth year running, in view of the historically high premium levels applying across the UK insurance market.

We will shortly send out this year’s invoices and insurance certificates. If you anticipate difficulty in settling your invoice, please contact our Late Payments Team, (not the Insurance Team) as soon as possible after renewal on 25th March.

Further detailed information is available on the FAQ’s/Insurance section of our website, www.eandjestates.co.uk. Please note that we are not able to enter individual correspondence where questions are answered by the website material.

Two of the UK’s largest housebuilders have agreed to sign the government’s cladding contract, saying housing secretary Michael Gove has rowed back on key conditions.

Barratt and Persimmon said they would sign the contract, which commits housebuilders to repair fire safety defects on all buildings built by them in the last 30 years, once they have reviewed it fully.

Negotiations had previously reached an impasse as housebuilders feared the terms of the contract in its original form left them facing potentially open-ended financial liabilities.

The new version of the contract, published at the end of January, tightens the scope to strictly life-critical building safety improvements; places limitations on third-party liabilities and developers who built a block as part of a joint venture; and limits the government’s right to amend the contract in future.

Neil Jefferson, managing director at the Home Builders Federation, said: “After months of negotiations, the contract better reflects the principles of the pledge”, but added it still put “huge pressure on UK businesses”, as it sat alongside other government cladding levies targeting the housebuilding industry.

“Sign the contract or find another line of work”
Debating the contract in Parliament yesterday, Gove said that any housebuilders asked to sign the contract who refused to do so within six weeks would be excluded from a new “responsible actors scheme”, essentially driving them out of business.

“Anyone who fails to sign the contract will be prohibited from carrying out future development and from receiving building control sign-offs for buildings under construction,” he told MPs. “A developer who fails to sign this contract will have to find another line of work.”

However Lisa Nandy, shadow housing secretary, questioned whether the terms of the contract had been diluted.

Nandy said: “A quick read of the contract on Gov.uk appears to confirm that he has retreated from his previous position and returned to the provisions agreed with his predecessors last summer, which, he said on retaking office, simply were not good enough.”