“Worry and stress”: life as a leaseholder in London – Response

The London Assembly Housing Committee’s Worry and Stress report shines a spotlight on affordability problems faced by leaseholders in the capital, including shared owners.

In Part One of this two-part feature we summarised the content of the Committee’s report. In Part Two, we look at what’s missing, and ask what it would take for their recommendations to take effect.

What’s missing?

The Committee commented that it had heard evidence on a range of topics vital to leasehold reform, but had not been able to cover all of them in the report.

• Lease extension
• Redress for incorrect service charges
• Inequalities at First Tier Tribunal
• Resident management companies
• Insurance commissions

However, a few additional issues seem to have been overlooked.

Building safety and buybacks

The Worry and Stress report touches on building remediation, and associated charges. However, it is disappointing that it doesn’t mention the End Our Cladding Scandal (EOCS) 2022 report, Dereliction of Duty: How housing associations failed leaseholders trapped in the building safety crisis. Particularly given that shared owners formed the vast majority of respondents to an EOCS survey (82.8%). EOCS state: ‘Buybacks must be considered before it’s too late’.

The LUHC Committee’s report on shared ownership made a similar recommendation, suggesting an increase in grant funding to cover the costs of buybacks.

‘The Government should either require providers to buy back shares from shared owners in situations where they are trapped and unable to sell shares due to building remediation issues, or if not, set out the reasons why it has decided not to do this. It should also undertake an assessment of the potential merits of requiring provider buyback of shares as an automatic entitlement for shared owners. If this were to be implemented, the Government would need to increase grant funding to providers to cover the additional costs incurred.’

Shared Ownership Resources’ report, Shared Ownership: the consumer perspective, also recommended wider use of buybacks.

Government should support an independent review of current criteria for buyback to provide earlier and greater support for households where total housing costs (including current and future liabilities related to building safety) are financially unsustainable and/or ground rent is higher than a peppercorn and/or where ground rent is triggered by staircasing to 100% and/or shared owners are unable to sell their share at the price established by a RICS valuation.

Cap service charges or design down service charges?

The Committee found that shared owners’ estimated median service charge was £3,600 per year (slightly lower than the overall median of £3,912). However, it’s worth bearing in mind that – unlike other leaseholders – shared owners also pay rent (on the share held by the landlord).

Tenants in the private sector don’t pay the costs of repairs and maintenance on top of rent. Consequently shared owners sometimes ask why they bear 100% of the liability for such costs, regardless of the size of their share (excluding the (capped) 10-year initial repair period under new model leases).

The Committee also found that shared owners were likely to pay higher ground rent than other leaseholders.

All in all, it is important not to consider service charges in isolation. And to consider potential unwanted effects of capping service charges

1. Are shared owners’ total monthly housing costs typically higher than those paid by other leaseholders and, if so, why?
2. If service charges were capped, would rent (and/or ground rent) increase to compensate?
3. If service charges were capped, how would essential works above the cap be funded?
4. If service charges were capped, is there a risk of a high and ever-increasing cap being utilised to the full by housing providers?

It seems preferable to design down service charges rather than cap them. However, this does nothing to help current shared owners facing service charges which have escalated to a level where they are unaffordable and/or unattractive to mortgage lenders.

What would it take for recommendations to have teeth?

Notwithstanding the various recommendations in the Worry and Stress report, one question is unavoidable… Can problems with shared ownership be resolved in the absence of strong and enforceable regulation?

In evidence to the Committee Deputy Mayor, Tom Copley, said: ““The Service Charges Charter is about driving best practice. It is very difficult for us, because we are not a regulator, to be able to actually enforce it. It sets out how the Mayor expects our partners to behave when it comes to service charges. There are, of course, mechanisms for residents and shared owners who wish to challenge their service charges to do so, and that is absolutely right. That is why transparency is so important. It is difficult to see how we could, as a non-regulator, give it teeth in reality. We are not really set up to do that.”

But it is not clear who could and would enforce the Service Charges Charter. As a Regulator, the Housing Ombudsman cannot consider: ‘whether someone is paying too much in rent or service charges or reasonableness of a charge‘. Shared owners can take complaints to the First-Tier Tribunal (Property) but there are substantial costs and risks associated with this route to redress.

‘Leaseholders deserve clarity. They deserve fairness. And above all, they deserve peace of mind in the place they call home.’

Sem Moema, Assembly Member and Chair of the Housing Committee 2024-25

Additional Resources

Shared Ownership Resources – “Worry and stress”: life as a leaseholder in London – Explainer

LONDON.GOV.UK – “Worry and stress”: life as a leaseholder in London