When a lease becomes a liability

LEASEHOLDERS who have the misfortune to deal with rogue freeholders, or who want to buy their freeholds, need all the help they can get.

The Government's new Housing Bill, published last month and expected to become law later this year, will give leaseholders the right to challenge freeholders who set excessive management or maintenance charges. It will also make it a criminal offence for freeholders not to give leaseholders the right of first refusal when a freehold is sold. But it leaves open some of the loopholes through which unscrupulous freeholders deny leaseholders their rights.

Happily though, there are a number of specialist sources of low-cost or free advice, though the quality of this varies according to where a person lives.

One of the highest concentrations of leaseholders is in Westminster, where the borough council has an excellent leaseholders' support service. The council has successfully lobbied the Government to introduce a right to buy for leaseholders in some circumstances, as well as the right to renew a lease. It has also published a guide to leaseholder rights, A New Lease of Life.

Other councils have tenancy relations officers who can be asked for advice, although they usually concentrate help on non-leasehold tenants. This includes help for long-term tenants who may themselves have a right to buy their flats if their landlord sells the property.

Westminster is unusual in prosecuting freeholders, on behalf of leaseholders, who fail to provide full information on how service charges are constituted, or refuse to show receipts to justify them. But the council says that this has a limited impact under the current law, as the problem often recurs the year after a successful prosecution.

Shelter has a network of offices around the country, offering help to people with housing problems. The group is willing to look through leases and proposed leases to interpret legal jargon and advise on leaseholder rights. It is particularly keen to assist leaseholders who face eviction through forfeiture action. Shelter publishes a booklet, The Flat Owner's Guide, which acts as an introduction to the confusing terms used about leasehold and freehold properties.

For leaseholders who want to buy their freeholds, the most useful point of call is likely to be the Leasehold Enfranchisement Advisory Service, a Government-funded body that steers leaseholders through the complex territory of trying to complete a purchase. While the LEAS gives free assistance, it recommends getting advice from valuers and solicitors.

Leaseholder rights in blocks of flats are enhanced where a residents' association has been formed, particularly in relation to challenging excessive service charges. But forming one can be time-consuming and it is important to ensure it functions efficiently. Westminster Council has published a leaflet on residents' associations, and the Federation of Private Residents' Associations will advise on how to set up a group.

The Leasehold Enfranchisement Association gives counselling and advice to leaseholders who are in difficulties and provides a newsletter to members. The group operates a hand-holding service for leaseholders representing themselves at the Leasehold Valuation Tribunal - the body that settles disputes on the value of a freehold purchase or lease renewal.

Housing specialists argue that the system of leasehold and freehold is out of date and needs urgent replacement, in particular for blocks of flats. The Council of Mortgage Lenders has been campaigning for several years for a system of "commonhold" to be introduced for flats. Under this, a flat owner would own the freehold, but would have legal obligations towards other occupants of a block. Commonhold now appears inevitable, at least for new properties, with both the main political parties committed to it.

The Conservative Party has promised its introduction for several years, and has said there will be legislation in 1996/7.

Nick Raynsford, Labour's housing spokesman, says that if it forms the next government, a radical programme of leasehold reform will be included in early legislation. Commonhold will be introduced for new blocks of flats, and enfranchisement procedures to convert existing leaseholds into freeholds will be simplified. "The current arrangement is hopelessly over- complex and slow," says Mr Raynsford. "There should also be a fairer valuation system."

In advance of the Housing Bill, which aims to stop freeholders taking legal action to withdraw leases in order to obtain payment for disputed and inflated service charges, Mr Raynsford warns that there is now the start of a flood of such cases with freeholders trying to pre-empt legislation. He has called for all-party support for an urgent single-clause bill to put an immediate end to these so-called leasehold forfeiture actions, which he says would take days to pass, instead of waiting several months for the Housing Bill to be enacted.

But John Gummer, the Secretary of State for the Environment, this month rejected the proposal, arguing that it would fail to protect freeholders whose legitimate service charges were not paid.

q "A New Lease of Life" costs pounds 5 + pounds 2 p&p, from the Assessment and Advice Centre, Westminster City Council, 11 Crawford Place, London W1. 'The Flat Owner's Guide", by Paul Walentowicz, published by Shelter, is pounds 7.50. "Leasehold flats, your right to buy the freehold of your building or renew your lease", published by the Department of the Environment and the Welsh Office, is available free by phoning 0171-276 0900.

The Leasehold Enfranchisement Advisory Service, 0171-493 3116. The Federation of Private Residents' Associations, 0171-402 1581. Shelter, 0171-253 0202. The Leasehold Enfranchisement Association, 10 Upper Phillimore Gardens, London, W8 7HA.

Opportunity didn't knock in the courts

AT ONE time Hughie Green was a British institution, despite his Canadian accent. For 17 years he presented Opportunity Knocks, the TV talent show.

Today, aged 75, Mr Green lives in an imposing but attractive block of flats over Baker Street tube station in central London. Mr Green was a tenant of London Transport for 45 years, until he bought the flat on a 999-year lease for pounds 92,000 in 1987. London Transport is not permitted to sell the freehold of land over underground stations.

"Three of us got together and persuaded the other 90 tenants to buy their flats," recalls Mr Green. The new leaseholders then formed an owners' co-operative to manage the building, employ cleaners and door attendants, and buy heating fuel. Shares in the non-profit making company, Chiltern Court (Baker Street) Residents Ltd, were sold to all the leaseholders for 50p a time, and Mr Green became a founder director.

But after Mr Green retired from the board, he became unhappy that the service charges increased substantially, with the management agents' fees doubling. The problem is that it is difficult for shareholders to challenge the management company once they are off the board, even though the company isowned by the leaseholders.

Although the law stipulates that leaseholders have a right to a detailed breakdown of management costs, the company failed to comply. On the advice of Westminster Council, Mr Green began withholding pounds 400 of his quarterly pounds 1,600 service charge in an attempt to obtain details of how the charge was decided. The company began legal action that could have led to Mr Green forfeiting his lease.

Although Mr Green had the right to take the management company to court, he was advised against doing this as he could have faced a pounds 50,000 legal bill. Even if he won, the costs of the action would be met by himself and the other leaseholders.

o The Government is considering the insertion of an additional clause in the Housing Bill to refer cases of dispute to Leasehold Valuation Tribunals instead of county courts.

Hughie Green: high costs

Right to buy was denied

NIGEL WILKINS is unhappy about not being able to buy the freehold of his flat in Kensington, south-west London. The freeholder, Brimtal Ltd, sold the block of flats two years ago without giving leaseholders their statutory right of first refusal. There is no penalty imposed on freeholders that fail to comply with the law.

The purchaser, Forestcliff Properties, wrote to leaseholders to ask if they were interested in buying the freehold. However, the right of first refusal applies only if more than half of qualifying leaseholders want to purchase.

In this instance, Forestcliff says that there were insufficient numbers interested for this to apply. Mr Wilkins says the company has not stated how many leaseholders wanted to buy. He believes an independent body should be used to determine whether the right of first refusal has been triggered.

o The new Housing Bill will make it a criminal offence for a freeholder to sell properties without giving leaseholders the right of first refusal. But there are doubts whether the intended fine, pounds 2,500, will be enough to discourage property developers from continuing to defy the law. It will also be possible for freeholders to get round the law by selling to associated companies, where those companies are more than two years old.