First steps on the journey for residential leasehold reform …
Sajid Javid, the Secretary of State for the Department for Communities and Local Government, has announced new measures aimed at stopping unfair practices within the residential leasehold market. This announcement is in response to the Government's consultation in the summer of this year.
It has already been suggested that the measures are 'weak', but this is an enormous area of law which causes a great deal of difficulty in conveyancing terms. Not every part of the announcement is headline grabbing, but none the less the measures proposed respond to real and important issues, even if not ones the wider public may be aware of. Mr Javid has shown that he is listening, is committed to reform and improving the situation of leaseholders, and that he does not want to wait for this either. It is made clear that these proposals are just the first steps on that journey.
Whilst public focus has been on recent leasehold houses, not all areas have suffered from this practice. All parts of the country however have leaseholds. The Government response comments:
While there are examples of leasehold working well, there are also far too many problems including disproportionate costs to extend leases; poor value property management; and a slow and costly sales process. Fifty seven per cent of those that responded to the 2016 National Leasehold Survey said that they regretted buying a leasehold property.
The measures, which relate to England only, include:
- The introduction of legislation to ban new residential long leases from being granted on houses, whether new build or existing freehold houses. In the interim the Secretary of State for Communities and Local Government has written to all developers to strongly discourage the use of Help to Buy equity loans for the purchase of leasehold houses in advance of new legislation.
- Ensuring that ground rents on new long leases, for both houses and flats, are set to zero (save in the case of shared ownership leases).
- The extension of compensation schemes offered by developers to all existing leaseholders with onerous ground rents, including second-hand buyers. The Government will seek to provide leaseholders with comprehensive information on the various routes to redress available and will work with the Law Commission to consider whether the unfair terms legislation may apply when a lease is sold to a new leaseholder.
- Working with the Law Commission to support existing leaseholders with the aim of making the process of purchasing a freehold or extending a lease easier, faster and cheaper. The Government will prioritise solutions for lesssees of houses and will work to introduce a prescribed formula that provides fair compensation to the landlord, whilst also helping leaseholders to avoid additional court costs. It will also consider introducing a Right of First Refusal for houses and a minimum lease term for new long leases of flats.
- Taking action to address the loophole created by the fact that long leaseholders with ground rents exceeding £250 per annum, or £1,000 per annum in London, may be assured tenants. This means, for even small sums of arrears, leaseholders could be subject to an unfair mandatory possession order if they were to default on payment of ground rent. This may not be an issue which the public will be aware of, but it has caused major concern and problems when dealing with leasehold where ground rents often now start at this level. If a possession order is made the tenant would lose their property and every penny of their investment.
- Making sure freeholders who are liable to pay estate charges (service charges) have equivalent rights to leaseholders to challenge unfair charges. This is important as it is often not realised that owners in freehold schemes have little control unless this includes a resident's control management company. Anecdotally, the managers operating in the leasehold market have been reported as expecting to exploit the 'ripe' unprotected freehold market. Hopefully this will now be the subject to fairer practices.
- Seeking to prohibit the owner of a rentcharge over freehold property from taking possession or granting a lease of a property where the rentcharge remains unpaid for a short period of time. Again this will not be an issue the public will be aware of, as not many areas of the country are affected by 'historic' rentcharges. Bristol is an area which is. They are usually small and often have been left uncollected. A recent case highlighted that a rentcharge owner could using historic powers register a lease against a title where the rentcharge was unpaid, and in effect hold the property owner to ransom as to costs for its removal.
Going forward the Government is also undertaking work to:
- help professionalise managing agents, tackle unfair service charges and give consumers greater choice over who their agent is
- looking to re-invigorate commonhold. This will not be familiar to the public but was a form of ownership introduced many years back as an alternative to leasehold, but which failed to be taken up. The advantage of this from a government perspective, is that it is existing legislation.
- ensure that landlords are signed up to redress schemes, and will be consulting on whether this should also be extended to landlords who grant long leases; and
- look at ways to modernise the home buying process, including addressing the particular challenges faced by leaseholders.
- to take action to ensure that flat and house owners who want to buy out their freeholds, or extend their lease, can access a simplified means of doing this. To work with the Law Commission to consult on introducing a simple prescribed formula to help owners enfranchise or extend their lease, while also ensuring fair compensation to the landlord. And to look to introduce a minimum lease term for new long leases on flats to protect consumers from added costs where their leases fall under 80 years.
- To respond to recommendations in the Law Commission's report Making Land Work to make it easier to create long term arrangements that are legally binding for the maintenance of shared facilities. Somewhat overdue.
Reforming the leasehold system is not a task which can be underestimated. The fact that there is a commitment to this process is to be welcomed, and these first steps, albeit small still deliver important reforms which will make a difference in the conveyancing process - even if they are not headline grabbing or immediately obvious to the wider public.