barcode1966

In a time of universal deceit – telling the truth is a revolutionary act

Why the threat of compulsory purchase orders has become one of the biggest fears for ex-local authority leaseholders in London.

418865_406280396101674_377969546_nCompulsory Purchases Orders (CPOs) are already a big issue in London, with many estates having already been forcibly bought. I am currently aware of 37 different estates in London that are currently fighting CPOs and it is just about to get much worse.

The current political thinking about CPOs in London

That’s because the political thinking around CPOs has shifted dramatically and swiftly during 2016. In this year’s London electoral race both Zac Goldsmith and the winning Sadiq Khan agreed that CPO’d council estates should be the land used to facilitate the building of the 50,000 new homes that were promised to be built per year in the capital.

In early 2016, the Prime Minister announced that he was about to blitz poverty by demolishing at least 100 large, run-down and difficult to manage council estates. He described these as ‘sink estates’ and to show how serious he was he pledged 149 million to it. Obviously 1.49m per estate is a paltry figure and so the government will need to rely heavily on developers’ money to pull it off.

Cameron then commissioned the silver-spooned Michael Heseltine (who ironically was a key figure in Thatcher’s original sale of council houses under the right to buy legislation) to examine how to demolish and redevelop the country’s 100 worst “sink estates” with the help of the private sector.

Heseltine says it is his dream to get rid of the ‘slums’, which is about to become a real nightmare for the legitimate tenants and owners of these properties. One thing Heseltine’s 17-person regeneration panel aims to do is speed up the process by fast-tracking developers’ applications.

Last March a body called the London Land Commission, headed by Boris Johnson, was formed to compile and publish a register of all publically owned land and property in London in preparation for this great compulsory plan.

Bizarrely a left wing think tank, the IPPR, have been embraced into this ‘social cleansing club’ and now seem to be at the forefront of current political thinking, having produced their own damaging report entitled City Villages: More homes, better communities.’ Here they assert that ‘by far the largest source of publicly owned land suitable for new housing is already owned by local authorities in their existing council housing estates.’

Following this all council estates have now been classified as ‘Brownfield estates’ and are now viable targets for CPOs, social regeneration and fat profits to be made.

This job of carving London up seems to have fallen to the estate agent Savills. They also produced a 164 report with the snappy title Completing London’s Streets: How the regeneration and intensification of housing estates could increase London’s supply of homes and benefit residents. In  their darkly disingenuous report, the estate agents spell out their vision of redeveloping existing council estates and the benefit it will bring to London (read: their friends, the developers); they also gleefully assert that they should be paid huge chunks of tax payers’ money to preside over it all, as the various councils don’t have the expertise.

I could go on and on but the upshot is that all council estates have now become valid and viable targets for CPOs and all politicians, potential mayors and the private sector are in agreement.

Why do councils want to issue CPOs?yuppie2

The official reason is to turn run-down estates into sparkling new homes for their social tenants and leaseholders.

The real reason though is mostly about money. Firstly, they get money from the eager developer who wants to mow down the flats and build nice shiny chrome and glass luxury flats to a mostly investor market.

They get out of having to pay for and provide thousands of homes for social tenants, who in CPOs get ‘decanted’ out of the area, sometimes being shipped as far away as up north.

In their eyes the area will become more desirable to live in once it’s been socially cleansed and they can then put your council tax up.

Finally, many councils signed up to LOBO loans and they need to pay them off.

A sad pattern that is emerging from all these regeneration schemes is that they are sold initially on the amount of social housing that will be included in these developments. It soon transpires that there isn’t enough profit for developers to include the social housing element they promised after all and it’s reduced to a minuscule amount of housing.

What are the biggest dangers to you if your flat is CPOed?

The number one danger is the amount of money they will offer you for your flat compared to what it is actually worth on the open market.

The councils have a legal obligation to ensure that a flat owner is in ‘a no better or worse financial situation’ after a CPO. The reality though is different and very grim.

Councils tend to make their first offer of compensation a derisibly low offer to start with to shock flat owners and set their expectations and then over a period of many months they incrementally increase the offer whilst doing a good job of managing everyone’s expectations.

Below are some very rough figures I have been given (I have not been able to check the validity of all of them all. I have heard the same figures time and time again however so they will be pretty accurate)

  • Hendon (worth £347,000), opening offer £130,000, final offer £214,000
  • Heygate (worth £355,000), opening offer £114,000,  final offer £164,000
  • Colville (worth £270,000), opening offer £120,000, final offer £150,000
  • Woodberry (worth £330,000), opening offer £130,000, final offer £158,000

Data obtained by campaigners at the Aylesbury estate under the Freedom of Information Act found Southwark council paid £147,500 for a four-bedroom, 97 sq m maisonette. The average house price in London at the time had just had hit £400,000.

At the West Hendon estate in Barnet, some leaseholders were offered just £90,000 for a one-bed flat and £130,000 for a two-bed maisonette when the council applied for the first in a series of compulsory purchase orders.

This is hugely unfair to flat owners who are not being given a fair market price for their flats and they cannot buy a like to like flat on the new development.

There is then a real human cost to receiving unfair compensation. Many leaseholders will be too old to get a mortgage and will not be given enough compensation to buy another flat in the area they have grown up in. They will be faced with either using their capital for rent until it is used up or moving hundreds of miles away to be able to buy cheaper properties.

Those young enough to get a mortgage will be in a similar positon of not being able to afford to live in the area they currently do – with their friends and extended families – and will instead be forced to move to cheaper areas. This causes real issues for families forced to break up, and it is widely documented that people in these situations are suffering from depression or mental health issues due to losing the support of their friends and families.

Of course if leaseholders are unhappy with the valuation offered they can take their case to the Upper Tribunal but the cost of valuers, solicitors and barristers is very daunting to leaseholders. Also the councils, who get all their fees paid for by the tax payer, are almost certain to appeal if they don’t get the desired decision, thus wiping out a huge portion of the compensation received by a leaseholder, win or lose.

Will buying your freehold prevent a CPO from happening?

34836_chopsticksbeforePossibly. A council can make a CPO on any property as long as it is can be proved to be in ‘the public’s interest’. In reality though, it is generally much easier for a council to make a CPO on property they broadly own than to do it on property that is completely privately owned.

The more buildings that have the freehold purchased the harder it will become to make these sweeping CPOs.

There is also the scope for a much higher valuation for flats with a share of freehold of between 1-3% which on some high value flats will start to make a big impact on compensation.

There is a further argument that was successful and became case law in CPOs.

Transport for London v Spirerose Limited.

Spirerose successfully argued a form of “hope value” on the future development value on the freehold of the building that they owned. This adds a further layer to possible compensation if a building has been bought from the council.

Councils will not like the fact that bulk lease extensions and freehold purchases are being done on these estates as it will be driving up the compensation they will have to pay out if they try to serve a CPO.

What can you do to stop a CPO?

Anyone can submit a freedom of information request to a council to see if your block is being considered as a possible CPO target. There can be lots of rumours around the fact but it is simple to find out the truth.1441360468

If you are targeted for a CPO don’t despair! The council have to jump through a lot of hoops to get the permission required to take possession of your homes.

Organise yourself into a group with your neighbours who will be affected. The best possible chance you have is to act as a group to fight the proposal. Connect your group with those social tenants at your block who will also be looking to object; although you will both have different issues you have the same goal and it is a mistake to act separately.

Look at what other estates have done to fight CPOs, as there is a lot of information out there.

Write to MPs to let them know the human cost of CPOs.

Just recently the Aylesbury estate has won a famous victory to prevent a CPO taking place but we need to watch closely what happens next.

Some useful links

The official stance on CPOs

Some key case law

Another tower of shame (35 percent)

Heygate sell off (35 percent)

Heygate Estate Southwark Notes

©Barcode1966 – 2016

 

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Upper Tribunal takes billions away from leaseholders and gives it to freeholders on ‘flawed relativity’

Banner-LogoLast week the Upper Tribunal handed down its decision on a case that is known as ‘Hedonic Regression’.

Due to its complex nature only a small number of people seemed interested in it and fewer still understood the importance of the decision. It is no exaggeration to say that the implications and fallout will trigger the biggest transfer of wealth from leaseholders to freeholders since 1066.

Once the lease length of a property has fallen below 80 years it is said to be worth less than its full value. For every year the lease length continues to fall it loses even more of its value. This is known as ‘relativity’.

When a leaseholder extends their lease, they are directed – by law – to pay 50% of the resulting uplift in the property’s value; the lower the relativity, the more money the freeholder receives, so it has always been in their interests to ‘prove’ low relativity.

Some two decades ago, a number of London’s landed estates decided to commission the development of their own relativity graphs. These graphs, produced by chartered surveyors and estate agents (no, really!), would offer ‘evidence’ from lease extension cases with which they had dealt, but which obviously ‘proved’ low values on flats with low leases. This ‘evidence’ and the resulting ‘methodology’ would then ensure they were able to squeeze much more from their leaseholders.

These mighty freeholders had the wealth and power to ensure that their flawed graphs were used at the Lands Tribunal time and time again until such time that they were ‘accepted’ as viable methods or even ‘industry standard’.

For example, the Gerald Eve Graph (GE) is widely considered to be the ’industry standard’ even though the ‘Hedonic Regression’ decision says of it:

 “The GE graph was adjusted subjectively” (65, p78); that it was “directed to the particular requirements of the Grosvenor Estate” (65); and the “Grosvenor Estate had received relatively favourable settlements” because of it(8, p67)”.

So, no proof offered, no evidence given, subjectively altered to suit the pockets of the central London estates but at the same time accepted as the ‘industry standard’.

This clearly means that leaseholders have been railroaded into paying more for their lease extensions than they would have if a less subjective way of calculating the real fall in the value of a property with a short lease were in place.

Parthenia, headed by James Wyatt FRICS, produced a graph that did that very thing, that was less subjective and based on real evidence. It used real evidence from the sale of flats in Prime Central London and by using nearly 8,000 pieces of evidence, tried to calculate this loss of value scientifically and remove the subjectivity of wholly partisan practitioners.

Once the freeholders had sight of the results of this statistical analysis, two things became immediately apparent. Firstly, leaseholders had been paying already bloated freeholders considerably too much for their lease extensions for decades. Secondly, these freeholders would be prepared to do anything in their power to stop this new relativity graph ever from being accepted, as it would wipe billions off the value of their property portfolios. So stop it they did.

The decision, an 80-page tome, was handed down last week and it must be singularly the most partisan, hypocritical and disingenuous legal decision for decades.

In a further overreaching pronouncement (which in gravity matched the orders to destroy the city of Tyre) they state “[the HR model] should not be put forward in a future case as a method of valuing [a lease extension] (165,p43)”. They wanted to exterminate this valuation model that was not only fair, but favoured leaseholders.

It examined the Parthenia model in eye-watering detail, with experts lining up to disprove it; the Wellcome Trust alone is rumoured to have spent many hundreds of thousands of pounds on its legal defence, even though the total disputed amount of this case was only £180,000. The judges subsequently rejected Parthenia’s model for ever for having some technical errors, which they stated could never be righted. This was experts gleefully ruled against its use on the basis that it was “unscientific” and it failed some of the tribunal’s ‘necessary technical tests’. This was setting very high standards indeed for relativity graphs. They helpfully reviewed all other existing graphs in Appendix C (p66) so how did the others fair?

In Appendix C, the judges cheerfully assassinate all the other ‘accepted’ relativity graphs the sector on which the sector relies.

The GE graph was “altered subjectively” (63, p77); achieving “favourable settlements”(8,p67) for the freeholders who funded the graph; of the College of Estate Management (CEM) graph, “there was no evidence that …had used it” (67, p79); John D Wood was based on LVT decisions and where there had been “concerns expressed over whether the LVT decisions always produce a correct valuation”(43,p74); The WA Ellis graph just reflected “the opinion of three of that firm’s partners” (69, p79); Charles Boston’s graph would “reflect any personal bias” and the Cluttons graph was “a moving average” (70, P79)!

The staggering hypocrisy, circular logic and Kafkaesque graph-011reasoning of the decision is right here; although all of the above graphs are proven to be unscientific, subjectively altered to suit their freeholder clients, and based on opinions and personal bias and nothing else.

Nowhere does this decision say that these flawed graphs a “should not be put forward in a future case”, no that judgment is reserved just for Parthenia’s model alone!

Worse still is the fact the failings of these graphs are mentioned as some dry mathematical calculation, which are undeniably slanted to favour freeholders. No mention is made of the fact that it is leaseholders who have had to pay inflated prices for lease extensions because of these graphs – and to the tune of many millions of pounds. The human cost of these subjectively altered graphs is a scandal, which is completely ignored by this case.

If, for example, a building firm had overcharged a little old lady for roof repairs to the same degree, they would have several episodes of Rogue Traders dedicated to them and a two-page spread in the Daily Mail, not to mention a special place in a police cell reserved for them!

If we can’t use the Partnenia model, nor any of the other fabricated relativity graphs we have relied on, how do we calculate relativity from now on?

Here comes the next inexplicable part of this decision, which, again, favours the freeholders and makes sure leaseholders pay for it.

There are two types of evidence used when trying to plot relativity data for leasehold properties. The Leasehold Reform Housing and Urban Development Act 1993 states the values should take place in a ‘no Act world’ arguing that once the Act come into being it affected the values of short lease properties. Therefore, the pure sales data used should come from before 1993. These are referred to ‘without rights’ properties.

The second type of data is ‘with rights’ (post-1993 evidence). Once this data is collated, it then needs to be adjusted down to guestimate the percentage difference between ‘with rights’ and ‘without rights’ values.

Remember, the lower the relativity percentage the more money the freeholder makes.

Well, the judges in this case seem to indicate that we should use a ‘with rights’ graph and then someone with a fancy London office, who represents the freeholder, uses their considerable experience to guess how low the percentage should be.

What could possibly go wrong with that method?

Although the judges mention the Savills 2002 graph as flawed but good (it has very low relativity rates) it seems they and the freeholders are all waiting expectantly for the new, improved Savills 2015 ‘with rights’ graph. This is also a relativity graph based on the Hedonic Regression method of valuation. Although this model, like Parthenia’s model, currently has technical faults, the judges for some reason do not proclaim that this graph should be cast out forever.

It may be worth mentioning at this point that the Savills 2015 graph “was produced specifically to be part of the Wellcome Trust’s evidence in relation to flat 5 [of this case]” (54, p75).

This is really bad news for leaseholders as this graph agues even lower relativity than the Gerald Eve graph, etc. and the rates can be argued down by an ‘experienced valuer’ to calculate how much lower this should be to account for the ‘no act’ world.

It is, however, good news for freeholders and good news for valuers, solicitors and barristers as this will lead to more litigation, which just like this judgment will come down in favour of the billionaire freeholders.

This case has been a dream result for the Wellcome Trust. If the court room was situated in Wellcome’s offices and the judges were salaried employees of theirs, they could not have got a more favourable result! They disproved the Parthenia Model, got it banned ever from being put forward in the tribunal again. They won the actual case on the three disputed flats and they got their mates, Savills, to produce a relativity graph that the judges loved and recommended we all use from now on, which lowers relativity even more in their favour. That really was a good day at the office.

Can it really be acceptable that two part-time judges who preside over the humble Upper Tribunal have the authority to make a judgment which affects property values across the whole country without political debate or the need for legislation?

Can it be fair that the methods used to ‘prove’ that this transfer of wealth from leaseholders to the establishment is based, by their own admission, on flawed evidence?

1528622_10152538665934745_1047791817_n1-150x150Can there be no redress to this decision? It irresponsibly casts doubt on the current flawed method of valuation while offering no viable alternative, thus opening the door to prodigious amounts of litigation to establish valuations which almost always favour billionaire freeholders?

Surely we need a judicial review as a matter of urgency before the ridiculously unfair and antiquated leasehold system we have in this country takes on a new more sinister twist.

This decision on relativity, which has just been fixed even further to favour freeholders is the LIBOR scandal of the property world.

©Barcode1966 – 2016

 

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