No5 – How managing agents/freeholders game the leasehold system – Being written into the lease as a party

Imagine a system where a managing agent could determine the price it’s customers paid?

Now imagine that if this same managing agent breached it’s contract, any legal action taken by the customer would result in THE CUSTOMER paying all of the legal costs win or lose?

Then go on to imagine that a mechanism written into the contract allows the customer to rid themselves of the underperforming managing agent but is not legally enforceable.

This isn’t fantasy, this is the leasehold system in practice. So how did this happen? Simple, at the time that leases were created for a development, the managing agent got themselves written into the leases as a party, specifically “the manager”.

As any leaseholder knows, you don’t get to negotiate the lease. It’s on a “take it or leave it basis”. However, to make the lease terms seem more reasonable, there is usually a clause along the lines of

“If more than 50% of the leaseholders wish to replace the manager, they can do so by informing the manager of the vote and the proposed replacement agent”

What the average leaseholder won’t know is that under contract law, you can only assign the benefits of a contract, not the liabilities. In short, when this clause is enacted by leaseholder groups, the managers response is to demand that deeds of release and novation are signed by all of the contracted parties – i.e. 100% of the leaseholders which becomes increasingly more difficult to achieve the bigger the estate.

Its even worse if you are part of an estate of freehold properties where a manager is named. Freehold properties don’t currently have the same protections as leaseholders enjoy under the landlord and tenants acts of 1985 and 1987 and there is often no mechanism at all for removing or replacing the manager.

The remedy for this situation is as follows:

• Extend the right to manage such that it also allows freehold properties paying an estate charge to participate
• Allow estate with multiple buildings to apply for the right to manage via a single RTM Company. I have written a separate covering the reasons for this here.