Regulatory gaps leave leaseholders exposed, lawyers warn

In Fard’s experience, there is no “hard and fast rule” for freehold companies when it comes to how they interact with insurers, and how an insurance claim is filed.

“There needs to be more legislation around insurers and freeholders,” she explained. “There’s a lot of work involved, but directors don’t realise that when they’re maintaining a large or old building - so they claim ignorance.”

Fard added: “If it was a corporate director, they wouldn’t be able to claim ignorance.” 

HM Courts & Tribunal Service said it is bringing forward a programme of reform "to end unfair practices" in the leasehold market and to "promote fairness and transparency". But so far, this programme has focused on restricting ground rents to zero for future leases, and providing leaseholders with an easier pathway to owning their homes outright.

A spokesperson from the department for levelling up, housing and communities told FTAdviser: "The first-tier tribunal already deals with a range of disputes, including in relation to buildings insurance and the price of buying the freehold."

But the lawyers argue that whilst these tribunals may hear such disputes, because the issues often straddle both property and company law, they are generally unequipped to form comprehensive judgements on them.

Price disputes

Alongside anxieties around insurance claims, another issue highlighted by both Fard and Wong was directors re-purchasing land from the freehold company at a knockdown price.

“It is quite common,” said Wong. One client of hers, who was a leaseholder, complained of a fellow tenant purchasing a rooftop in order to build an outhouse on it. 

“They paid very little for it,” she said. “That’s because the land belonged to the freehold firm, of which he is a director.”

The couple who approached FTAdviser faced a similar issue, where a director bought back land from the freehold company at a knockdown price. 

According to the freehold’s company records, the director paid £750 for a space which cost the company - and all the leaseholders with a share in it - £15,000 to buy out the interest of the Church of England on. “It’s just extortion,” the couple said.

Fard, echoing Wong, said knockdown prices like these “tend to happen quite a lot” in leaseholder versus director disputes.

But the reason these cases rarely stand up in direct court is because accusations of fraudulent activity require overwhelming evidence.

“You can imply it,” said Fard. “I had one case where the directors were using freehold company funds for other means. They [the tribunal] took this into consideration, but couldn’t make a judgement on it”.