Leasehold reform consultation – briefing note
Over 18 months have elapsed since the Government expressed its intention to implement a prohibition on the sale of leasehold houses and to place a cap on ground rents in residential long leases. In quick succession the Government has issued a response to both stakeholder feedback and most recently to the Housing Communities and Local Government Select Committee Report on leasehold reform issued earlier this year. Many of the proposals set out in the respective responses are in line with the Select Committee’s recommendations including, importantly, the cap on ground rents being set at a peppercorn. However, the Government has not acted on the Select Committee’s suggestion that the cap on ground rents could be made retrospectively and therefore apply to existing leases. Nonetheless, the Government has not ruled this out as a possibility and the position therefore remains uncertain.
For those of us not familiar with the background to these issues, earlier this year the Housing, Communities and Local Government Committee released a report on its inquiry into the Government’s progress on leasehold reform following the conclusion of the consultation on tackling unfair practices in the leasehold housing market. The consultation looked at a range of proposed measures intended to tackle perceived unfair and unreasonable abuses of the leasehold system, in particular the sale of new leasehold houses and onerous ground rents. Over 6,000 responses were received to the consultation, demonstrating the strength of interest in the issue. Fuelled by extensive media reporting the issue has found its way rather higher up the Government’s business agenda, even in Brexit dominated times.
The scope of the inquiry became much broader than simply addressing what might have been regarded otherwise as a discrete mis-selling scandal. In its report, the Select Committee found that key elements of the current leasehold system are open to abuse and without defined purpose. Ground rents had in some cases increased to a level leaving properties unsellable and unmortgageable, while permission fees had been levied far beyond the reasonable cost of administration. In its view both should be subject to legislation that establishes when they can be used and how they should be calculated. Tenants were vulnerable to high and opaque service charges and one-off bills, imbalanced dispute mechanisms, inadequate advisory services, and unreasonable costs to enfranchise or extend leases. The Select Committee felt that processes for invoicing service charges and renewing leasehold must be made simpler, demonstrate value for money and provide greater transparency to leaseholders.
The Government’s recent response confirms its intention to implement reforms with the aim of the following
- Give clearer information to consumers on the buying and selling of leasehold properties
- Give consideration to the Select Committee’s view that the system of commonhold should be the primary model of ownership
- Work with developers to standardise documents with ‘key features’ which ensure consumers know what they are buying
- Provide that ground rent be zero in future leases
- Ensure the Law Commission considers the issue of unfair terms
- Clarify planning guidance between developers and councils so it is clear what public areas and utilities will be adopted
- Consider the issue of permission fees and other charges
- Consider how to challenge unjustifiable legal costs
- Review the law of forfeiture
- Ensure all freeholders of leasehold properties are members of a redress scheme
- Implement improvements to enfranchisement as soon as possible
Details will need to be worked through and decisions made as to whether and to what extent reforms will be retrospective or of application only to new leases. In its response the Government confirmed its commitment to introducing legislation as soon as Parliamentary time permits but with the caveat that leasehold reform is highly complex, currently made up of 50 Acts of Parliament and it is important to get it right and without unintended consequences.
The chair of the Select Committee welcomed the response insofar as it goes but commented that much more needed to be done to support leaseholders already subject to onerous terms such as escalating ground rents and permission fees. In his view further proposals are needed to redress the serious imbalance against leaseholders in the current system.
The final Government response therefore is likely to extend to a broad range of measures regarding leasehold houses, ground rents and supporting existing leaseholders in dealing with their landlords, including those wishing to buy their freeholds or extend their leases in ways which are designed to be easier, faster, fairer and cheaper. It is thought that there may be little in the way of a transitional period when the legislation is enacted, seemingly with the Government taking the view that it falls to the relevant parties to remain alert to information in the public realm and get their ducks in a row early.