Owen Matthews is a former qualified solicitor and investment banker.
The UK leasehold system, which millions of homeowners rely on, is in dire need of reform, particularly when it comes to the appointment and replacement of property managing agents.
The egregious actions of bad agents are well documented, from skimming off buildings insurance premiums to opaque accounts and excessive charges for repair work many leaseholders feel trapped in their own properties. The average annual service charge in England and Wales now stands at £2,247 (£2,581 in London) and continues to increase at rates far outpacing inflation. What is urgently needed is a system that puts power back in the hands of the leaseholders and encourages greater competition.
As it stands, leaseholders face an uphill battle if they want to make a change. The two main paths currently available are fraught with obstacles: proving bad management and applying to a tribunal, or gathering the support of 50 per cent of leaseholders for a Right to Manage (RTM) application. Both routes are complex, time-consuming, and often inaccessible, creating a system where underperforming or even exploitative managing agents can operate unchecked.
To successfully apply to a tribunal, leaseholders must provide substantial evidence of poor management—a daunting task that often requires legal advice and significant resources. Even then, the tribunal process can drag on for months, and in some cases, the freeholder can add their legal costs to the following year’s service charge – further discouraging residents from pursuing it.
The alternative, the RTM, requires rallying at least half of the leaseholders in a building, a challenge made even more difficult when many of them are absentee landlords with little interest in day-to-day property management. The result is a system that discourages change and emboldens bad actors, leaving leaseholders feeling frustrated and powerless.
This has been the experience for many leaseholders, such as Ben O’Brien, who has tried for months on behalf of a group of frustrated leaseholders to replace Remus, the managing agent of his building in Dalston. “We’ve faced hurdle after hurdle, from trying to trace absentee owners to people agreeing to join our RTM action then later pulling out when selling their flats,” he shared. “It shouldn’t be this hard to get better management for our own homes.”
A more effective solution lies in adapting a system that already works well in UK public markets. In the corporate world, any shareholder holding at least 5 per cent of a company’s shares has the right to requisition a general meeting and propose a resolution, such as the removal of a director. This approach, which prioritises transparency and accountability, ensures that shareholders can react swiftly to poor company management or strategic missteps. Applying a similar model to the leasehold sector would mean that any leaseholder, or group of leaseholders, representing 5 per cent of the building’s ownership could initiate a vote to replace a managing agent. The outcome would then be decided by a simple majority of those voting.
Such a reform could dramatically shift the balance of power in favour of leaseholders. A 5 per cent hreshold would enable residents to initiate action without the daunting task of securing a majority upfront. Once a general meeting is called, the system would provide adequate time and a structured opportunity for both sides to present their case. The incumbent managing agent could contact all leaseholders, outlining its reasons for remaining in place and detailing its performance and plans for the future.
At the same time, the leaseholders organising the vote would have the chance to argue why the agent should be removed and to propose alternatives. This transparent process would ensure all residents are fully informed before making their decision, fostering accountability and fairness in property management.
Implementing this system would eliminate the need for costly and lengthy tribunal processes and bypass the logistical nightmare of RTM applications. It would also align the leasehold system with the best practices of corporate governance, where accountability is a cornerstone. Leaseholders, who have a vested interest in their property’s upkeep and value, would finally have the ability to act decisively when faced with poor management.
Of course, some may argue that such a change could lead to instability, with a small minority potentially disrupting management unnecessarily. But this concern could easily be addressed by carefully calibrating the relevant ownership threshold required to call for a vote following consultation with the sector (to 20 per cent, perhaps) and ensuring that only legitimate, well-organised efforts can move forward.
Those who support the current system may point out that it protects managing agents from frivolous challenges, but in practice, it is a structure that shields inefficiency and misconduct. The most vulnerable residents—those without the means or legal knowledge to challenge a managing agent—are the ones left with no recourse. In a reformed system, managing agents would be motivated to maintain high service standards and ensure value for money, knowing that leaseholders could hold them accountable with relative ease.
Stakeholders like James Cook, who with power of attorney over his aunt’s property in Ilkley, would benefit greatly from this kind of reform. He has struggled for months to sell the property to fund his aunt’s full-time care, only to see potential buyers walk away because of exorbitant service charges imposed by the managing agent. “It’s been heartbreaking,” he said. “I just want to secure the care my auntie desperately needs, but these sky-high service charges have made her property unsellable. A system that gives leaseholders more power to hold managing agents accountable could be a game changer.”
The UK has a proud tradition of regulatory innovation, often balancing the needs of stakeholders with the need for market efficiency. The current leasehold system, however, falls short of these standards. Adopting an appropriate threshold to trigger a vote on changing managing agents would empower residents and introduce a culture of accountability, aligning property management practices with those already proven in the corporate world.
For too long, the process of replacing a property managing agent has been a labyrinth that disincentivises action and allows poor management to persist. The Labour government is well aware of the current system’s shortcomings and reportedly could be looking at banning ‘rip-off’ property management firms as part of a wider package to overhaul the leasehold system.
However, identifying and proving which firms are deliberately engaging in bad practices will inevitably be an arduous and bureaucratic process. They would do well to consider a system that encourages competition and drives best practice. As with most things in life, the Conservative, market-driven, solution is often the best one.
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