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Binning freeholders will leave residents worse off

Following details of leasehold reform within the Queen's Speech Michael Gaston, Managing Director of Estates and Management, argues that professional freeholders are about to become more important than ever.

Michael Gaston

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Anti-leasehold campaigners have been quite vocal in the media recently, claiming that freeholders are unnecessary as they perform no function in residential blocks.

It’s a familiar accusation which is often accompanied by the observation that the leasehold system is “ancient”. It still isn’t clear to me what the age of the leasehold system has to do with its viability but the growing prominence of building safety in the policy agenda is now making it increasingly impossible to argue that freeholders don’t do anything.

The role of a freeholder is clear: to ensure that residential blocks are managed in a professional and efficient manner over a long-term period. Not only do freeholders ensure that the value of residential blocks is preserved for its entire lifespan, but they oversee the safety and well-being of the residents who live there.

The reality in Scotland paints a useful picture of what happens when freeholders aren’t there. The law there is very different to England and Wales – residents in apartment blocks do not have a professional freeholder to look after the long-term lifespan of a building; a measure that came into place when the leasehold system was banned in 2012.

This is causing serious problems across the country, as the Scottish House Condition Survey recently found that 50 per cent of Scottish housing is in a state of critical disrepair, and almost half of this demands urgent attention.

Individual occupants are living in multi-storey blocks and many do not have the funds set aside to replace communal functions when they break, such as a lift when it reaches the end of its life. Professional freeholders, however, perform exactly this function, along with many other important services for residents.

Queen’s Speech

For the rest of the UK, this is a function that is about to become even more important. In the most recent Queen’s Speech, the Government reaffirmed its commitment to introduce a Fire Safety Bill and there is a clear consensus in Westminster that new regulation must be introduced to resolve ongoing issues with fire risks in residential blocks. We hope to see the next iteration of proposals in the form of a White Paper, Green Paper or draft Bill, and for the legislative process to begin in the current session of Parliament.

Overall, these reforms have been welcomed across the industry and are a step in the right direction towards ensuring residents are safe in their own homes. But further progress is needed to monitor and manage fire safety risks in residential blocks.

The question for those who believe that freeholders are unnecessary is simple: who is going to perform this role? Of course, in some cases, there will be resident-led management groups who can take on responsibility for building and fire safety. But is that going to be possible in every apartment block in the UK, including in the larger and more complicated mixed-use blocks?

Under the Government’s new proposals, this role entails a range of significant financial and legal responsibilities which are usually performed by a professional organisation with the necessary expertise to deliver this function.

In my experience, resident-led management groups are unlikely to have the qualifications, administrative functions and resources to effectively carry out the role. More fundamentally, residents simply may not want to take on these obligations.

The challenge for policymakers is to ensure that progress with the building and fire safety regime is not consumed by flawed rhetoric about freeholders and the leasehold system. Of course, there are challenges within the leasehold sector, which is why reforms must be underpinned by comprehensive regulation to raise standards and protect consumers, but removing freeholders entirely is not the answer.

Michael Gaston is MD of leading property management firm Estates & Management.

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