Long Harbour

A Message from Lord Pickles and Lord Blunkett, followed by Long Harbour's best practice article

The ability to listen and learn from one another has always been vital in parliament, in business and in most aspects of daily life. But at this particular moment in time, as national and global events continue to reiterate, it is uncommonly crucial that we forge new channels of communication and reinforce existing ones. The following article from Long Harbour is an attempt to do just that. We would welcome your thoughts on this or any other Parliamentary Review article.

Rt Hon The Lord David Blunkett, MP

Rt Hon The Lord Eric Pickles, MP

www.longharbour.co.uk

1LONG HARBOUR |

BEST PRACTICE REPRESENTATIVE

Executive Director Richard Silva

The Wullcomb,

Vaughan Way

Long Harbour is an FCA-regulated asset-backed investment

manager which focuses on ground rents, the UK private

rental sector and strategic land. It has a ground rent

portfolio comprised of over 160,000 leasehold properties, valued

in excess of £1.6 billion. This portfolio is managed by Long

Harbour’s associated company HomeGround Management Ltd, a

professional ground rent asset manager which provides services

to its leaseholder customers on behalf of the freeholder, including

estates management, arranging building insurance cover and

dealing with all landlord obligations within the lease, as well as

requests from leaseholders related to enfranchisement and lease

variations. Executive Director Richard Silva discusses the leasehold

sector and the potential reforms that have been laid out for it.

Our operation is indicative of the evolution of the leasehold sector. We have

introduced long-term institutional capital to the sector from the likes of pension

funds, with ground rents providing thousands of individual pensioners with a safe

long-term income. The alignment of interest between the preservation of this long-

term income and therefore the long-term stewardship of the buildings we manage

has brought great benefit to the residential leasehold market.

State of play

The residential leasehold sector has undergone major change in the past two

decades. With the introduction of regulated institutional investors as professional

FACTS ABOUT

LONG HARBOUR

»Executive Director:

RichardSilva

»Established in 2009

»Based in London

»Services: Investment

management

»No. of employees: 120

»Long Harbour sponsors Ace

of Clubs, a London-based

homelessness charity

»www.longharbour.co.uk

Long Harbour

THE PARLIAMENTARY REVIEW

Highlighting best practice

2| LONG HARBOUR

freeholders, its evolution is bringing

new benefits to leaseholders and

residents alike, but it has also brought

greater complexity. We believe that

with a regulatory framework fit

for a modern housing market we

can address these complexities and

protectconsumers.

Regulation will drive up standards and

encourage a greater understanding

and responsible use of the leasehold

ownership model. Educating

consumers and creating a more

transparent market must be an

underlying objective. All stakeholders

– freeholders, developers, managing

agents, estate agents and legal

advisers, in particular conveyancers –

acknowledge that we have not done

enough to inform consumers, so

improving the home-buying process

from the first point of inquiry should

have a profound impact on the

entiremarket.

This is just one of many policies the

Ministry of Housing, Communities and

Local Government have consulted on

as part of their wholesale review of

leasehold ownership that began in the

summer of 2017. We have welcomed

this as an opportunity to address the

problems facing our industry, and we

hope that the government acts on this

in forthcoming parliament.

Understanding the challenges

The lack of regulation in the leasehold

sector has allowed less than desirable

practices to emerge, and as a

result the leasehold tenure is under

intensescrutiny.

The most prominent of these has

been onerous ground rents, such as

those that double more frequently

than every 20 years. While affecting

only a fraction of the UK’s 4.5 million

leaseholders, this has been a hugely

damaging issue and one that’s

been rightly exposed by the media.

Likewise, the practice of developers

selling new houses with long leases

without good reason highlights how

consumers are vulnerable in the home-

buying process.

We have engaged with and

submitted evidence to the various

consultations issued by MHCLG, the

Law Commission and the housing,

communities and local government

select committee. While we agree with

a number of the recommendations

provided for improving the current

system, we have serious concerns over

two potential reforms on the table

which we strongly believe could make

life worse forleaseholders.

The first of these is the call

for widespread adoption of a

commonhold structure where

residents take on the joint

ownership and management of their

owndevelopments.

Before considering such wholesale

change, we should identify the

problems that this structure is

believed to fix and acknowledge

the merits of the current leasehold

system. Some of the most common

complaints from leaseholders today

stem from poor management practices

or disputes among residents, the

latter of which can be triggered

by emerging subletting practices.

Underlying challenges like this will not

The Lansdowne,

Birmingham

As professional

freeholders, we

oversee the

management

of properties in

a responsible

and efficient

manner. By

enforcing

covenants

within leases,

we ensure

residents have

quiet

enjoyment of

their homes

“

3LONG HARBOUR |

BEST PRACTICE REPRESENTATIVE

be resolved through the introduction

of commonhold. In fact, the reality

is quite the opposite: a resident-

led management system will only

increaseconflict.

In deciding whether to abandon the

current leasehold system in favour

of commonhold, campaigners and

policymakers must also consider the

implications of forcing everyone,

whether they like it or not, into

communally managed developments.

Reinvigorating commonhold for

smaller, owner-occupied developments

is a good thing as it broadens

consumer choice. However, it will

expose leaseholders to increased risks

in larger, more complex developments.

As professional freeholders, we

oversee the management of properties

in a responsible and efficient manner.

By enforcing covenants within leases,

we ensure residents have quiet

enjoyment of their homes without

being burdened by difficult decision

making and project management.

In an announcement on June

27, the government reiterated its

commitment to eliminate ground

rents. As a direct by-product of this,

institutional investors – no long able

to collect ground rents – would

retreat from the market therefore

abandoning their role as a professional

steward. This would leave a vacuum

at a time when stewardship is of

paramountimportance.

Resolution on the way?

In March 2019, a group of

freeholders, managing agents and

developers signed a public pledge to

bring about positive change in the

residential leasehold sector. Backed

by the government and overseen

by the housing secretary, James

Brokenshire MP, this commitment

to raise industry standards felt like a

watershedmoment.

This an important first step, but more

must be done. The industry cannot

be complacent and feel that the

underlying issues have been resolved.

Voluntary efforts can bridge the gap

where support for existing leaseholders

is imperative. Within the pledge is a

commitment from the government

to develop a comprehensive code of

practice that forges a path to introduce

formal regulation.

Such a code can establish the

responsibilities of freeholders and

enshrine the highest standards for

the management and maintenance

of properties. This is our opportunity

to properly address the issues that

pervade the residential housing

market. A draft of the code has been

produced by industry specialists and a

formal working group is convening to

develop the draft in accordance with

existing regulations and consumer

protection.

Ultimately, effective regulation is a

better solution than throwing the

system out entirely. Regulation that

can empower and protect consumers

and that holds all parties to account at

the heart of a package of reforms for

the residential housing market is the

only way to drive real change.

Ultimately,

effective

regulation is a

better solution

than throwing

the system out

entirely

“

London-based

investment manager

www.longharbour.co.uk

The Parliamentary Review Publication, in which this article originally appeared, contained the following foreword from Rt Hon Michael Gove.

Rt Hon Michael Gove's Foreword For The Parliamentary Review

By Rt Hon Michael Gove

This year's Parliamentary Review comes at a momentous time for parliament, as we collectively determine the destiny of the United Kingdom.

On October 31, the UK will leave the European Union. The successful implementation of this process is this government's number-one priority.

Three years after a historic referendum vote, we will deliver on the decisive mandate from the British people. Trust in our democracy depends on it. Until that final hour, we will work determinedly and diligently to negotiate a deal, one that abolishes the backstop and upholds the warm and close relationship we share with our friends, allies and neighbours in the EU. But in the event that the EU refuses to meet us at the table, we must be prepared to leave without a deal.

As the Chancellor of the Duchy of Lancaster, it is my job to lead on this government's approach, should that scenario happen. Preparing for Brexit is my department's driving mission. But while I am leading this turbocharged effort, the whole of government is committed to this endeavour.

Ministers across Whitehall are working together to ensure that every possibility is considered, every plan is scrutinised and every provision is made. A daily drumbeat of meetings means that we are holding departments accountable, so that preparations are completed on time.

The chancellor has confirmed that all necessary funding will be made available. And we have mobilised thecivil service, assigning 15,000 of our most talented civil servants to manage our exit from the EU.

We will make sure that on November 1, there is as little disruption to national life as possible. Our trade relationships will continue to thrive, thanks to agreements with countries around the world worth £70 billion. Our country will remain secure, thanks to nearly 1,000 new officers posted at our borders. And the 3.2 million EU nationals now living and working among us can remain confident, with absolute certainty, of their right to remain in the UK.

Above all, our goal is to be transparent. Soon, we will launch a public information campaign so that citizens, communities and businesses are ready and reassured about what will happen in the event of “no deal”.

In my first few weeks in this role, I have travelled to ports and tarmacs, borders and bridges, all across the UK –from the seaside of Dover to the rolling green hills of County Armagh. I have heard from business owners and border officials, farmers and hauliers. They are ready to put an end to uncertainty. And they are ready to embrace the opportunities ahead.

Our departure from the EU will be a once in a lifetime chance to chart a new course for the United Kingdom. Preparing for that new course will be a herculean effort. But this country has made astounding efforts before. We can do it again.

Rt Hon Michael Gove
Chancellor of the Duchy of Lancaster