The issues facing leasehold flat owners rarely receive much public attention

Leasehold matters are now being discussed in the House of Lords courtesy of Conservative Peer Baroness Gardner of Parkes – a leaseholder herself – who has taken up two current issues. In November she called on Government to consider consolidating Landlord & Tenant legislation, which resulted in a number of Peers suggesting that this should be an issue for the Law Commission to investigate. Hopefully their invention will be more successful than mine, as they made it clear to me when I raised this issue with them on behalf of the FPRA that they had no intention of reviewing leasehold legislation. In January Baroness Gardner then tabled a question calling for a new statutory code of practice for all those carrying out property services in the flat management sector and a few days later discussed leasehold issues and the failure of the Commonhold form of tenure during a debate on the Coalition's Housing Strategy.

In 2009, I and a wide-ranging group of property professionals took part in a Department of Communities & Local Government (DCLG) Task and Finish Group to look at the issue of regulation and the group reached the general consensus that some form of independent redress was required for long-leasehold home owners to raise the standard of the property management industry.

The incoming Government ignored our report, choosing instead to rely on self-regulation which continues to result in a very patchy level of service for us flat owners. The sector relies heavily on trade associations such as ARMA (Association of Residential Property Management) and professional bodies such as the Royal Institution of Chartered Surveyors (RICS) to maintain standards but, in my opinion, these organisations tend to put the interests of their members before those of the end-user, the flat owners. The current RICS Code of Practice is not only voluntary for property management companies it is also virtually unheard of by most flat owners.

To add to the woes of leaseholders, around 50% of property managers don't belong to any trade association or professional body, despite collecting and holding large amounts of service charge funds often amounting to millions of pounds and not covered by any code of practice or regulation.

Another concern is that the majority of flat owners are obliged to pay advance payments and contributions to sinking/reserve funds. It is simply a scandal that a large sum of flat owners' cash that is paid to secure a high standard of maintenance to their homes can be held by unregulated and unprotected managing agents. We estimate the total may well exceed £1billion at any one time. I am not aware of any other sector in theUKwhere such significant funds held by a third party are totally unregulated. That third party can be a person or organisation without any particular credentials, which is able to set up a property management business, irrespective of experience or even of a criminal background but nevertheless is able to take and hold these funds on behalf of flat owners. This situation has on occasions resulted in flat owners being defrauded or otherwise losing funds.

I find it bizarre that there is a whole statutory scheme of protection for rental deposits but none for long-leasehold home owners’ service charges who are obliged to advance much greater sums to look after the buildings in which they live. It is true that there is legislation in place requiring deposits to be held in "trust" but in practice, this is very difficult to enforce in an unregulated sector. I believe it is absolutely essential that a system is devised so that such funds are protected by the Financial Insurance Services Compensation Scheme.

Greater financial protection is also needed where service charges or sinking funds are held in deposit accounts. Because of the current limits they are protected only up to £50,000. In the event of failure of the banking institution in question this may well be adequate for small blocks of flats but larger blocks would have minimal protection. This could easily be addressed by a very simple change in the Financial Services Authority (FSA) rules: by stating that, where monies are held in trust for leaseholders, the compensation limits would apply to the individuals and not to the total sum.

I believe the only way to get the 'rogues' out of our sector is to have a compulsory independent licensing scheme with a high minimum standard, along with severe penalties for breaches of those required standards. There should be an annual audit for every managing agent by an independent regulatory body (not the trade association) whereby they would obtain approval to practice with sanctions for agents failing to comply. I am firm in the belief that all this could be achieved at minimal cost to government with substantial savings to every flat owner inEnglandandWales. It would be a simple way to greatly improve the lives - and financial protection - of more than two million flat owners inEnglandandWaleswho need proper protection from the loopholes in the present arrangements. We welcome Baroness Gardener's contribution to the debate.

Bob Smytherman

Chairman,The Federation of Private Residents Associations

Tel 0871 200 3324