Trusthold and Service Charge Amendments Tabled

The Earl of Lytton has tabled amendments to the Leasehold and Freehold Reform Bill to end service charge abuse, prevent insurance assignments and introduce the concept of a Building Trustee to ensure leasehold abuse ends and commonhold thrives.

Legal clauses here : https://bills.parliament.uk/publications/55186/documents/4737

BUILDING TRUSTEE AMENDMENTS

The building trustee concept is designed as a backstop in relation to the expansion of enfranchisement rights in the Bill and the possibility of the insolvency of a major landlord group.

The government assumes good management will automatically follow enfranchisement or resident management. Leaseholders are not necessarily equipped to direct the management of their blocks especially those with up to 50% non-residential floorspace.

The Government is yet to announce its proposals to abolish or restrict ground rent. However, if recent press speculation is correct then, as you can see from the following table, a 20-year rundown period runs the risk of some of the UK’s largest landlord groups becoming insolvent as their liabilities extend well beyond that period.

The building trustee would be appointed for higher-risk buildings and large mixed-use developments. He or she would be an impartial figure whose role would be to ensure that the interests, rights, responsibilities of the landlord (if any) and leaseholders are balanced and, more importantly that the building is properly maintained and the service charge provides value for money. In this way, the concerns raised in relation to leaseholder management of larger mixed use estates can be mitigated.

In the event of insolvency of the landlord, the building trustee would step in to ensure the ongoing management of the building. Provision is made in the relevant amendment to prevent the termination of service contracts or insurance policies if a landlord becomes insolvent.

SERVICE CHARGE AMENDMENTS

This group of amendments are wholly in line with existing provisions in the Bill to increase the transparency of costs passed on to leaseholders and to protect them from exploitative behaviour by landlords.

In this group there are amendments to:

define when a landlord incurs costs to prevent manipulation of the 18 month rule under which costs incurred before then cannot be charged unless leaseholders have been given notice; a new tighter test of “value for money” to replace current test of “reasonably incurred” in relation to service charge costs; go further than the Government on the automatic provision of information to leaseholders; prevent landlords from placing contracts with related parties or connected persons; limit the duration of contracts that a landlord may enter into; provide a definition of “cosmetic works” that may be undertaken without the consent of a landlord, and measures to prevent the assignment or payment of insurance payouts by landlords to third parties, such as their lenders or bondholders.

These amendments are consistent with the overarching aims of consumer protection in leasehold matters and which would be applicable whatever form of legal construct emerges as between block control and management and unit ownership and occupation.