Mark Wilson, founder member of ALEP, RICS Registered Valuer and Managing Director of myleasehold.
While reform to the leasehold system is very much welcome, it is crucial that the Government addresses potential reform with caution. Other than the easy win of changing lease terms from 90 to 990 year term, the proposed content, such as we are aware of to date, is random and confusing and this is exacerbated by leasehold being an emotive issue.
With so many moving parts and with so much regulation already in place, including the administrative chaos of the Building Safety Act, I am concerned about the ability to deliver any meaningful reform within the time remaining this Parliament.
John Midgeley Director of ALEP and Partner at Seddons Solicitors.
The vast majority of our member – 77.37% of whom voted in favour of leasehold reform in a recent poll, welcome simplification of the existing system. But given leasehold’s long history and the complexity of law, it is imperative that Parliament scrutinises fully and liaises with specialists in the field to get the detail right.
Mark Chick Director of ALEP and Partner at Bishop & Sewell LLP Solicitors.
On the introduction of the Bill
Today’s announcement of a Leasehold Bill could bring good news for property valuers, conveyancers and the 4.9 million homeowners in England and Wales under with leases – or it could fuel confusion, cost and controversy.
As the professional body for leasehold enfranchisement practitioners – surveyors, solicitors and barristers – we have been lobbying for, and supporting the Government in bringing forward change, for many years. At ALEP’s October conference, lawyers and property professionals polled said that they supported change: asked ‘In general, is the leasehold system in need of reform?’, 77.37% responded ‘yes’. The majority view of ALEP’s members, on behalf of the homeowners and landlords that they represent, is that leasehold reform is infinitely preferable to the alternative: outright abolition.
On extending leases from 90 to 990 years
Extending leases to 990 years as has previously been proposed is an ‘easy win’ and will be welcomed by leaseholders. In valuation terms the cost is likely to be not that much more than the cost of a 90-year extension (absent any other valuation reforms) and therefore is a simple and effective reform that mean that once extended a lease will not need extending again.
On removing leasehold in the case of new houses but not flats
Whilst the long-term aim might well be to make all flats freehold or commonhold, at the moment it simply isn’t possible to make new flats freehold until the work necessary to make the existing system of commonhold fit for purpose is complete. The issues with the current system of commonhold are well documented and the Law Commission has made extensive recommendations as to what needs to be done to ‘reinvigorate’ commonhold.
The government has set up the Commonhold Council to identify the work that needs to be done on this and in order to see an accelerated take up of commonhold, those who wish to push for this should direct their energy towards encouraging the government to make this happen.
On the proposal to cap existing ground rents at a “peppercorn” rate
This is one of the areas in which greater consideration of the detail is required: what is meant by ‘peppercorn’ rates? We anticipate that this will mean a cap on the level of a ground rent that can be collected, perhaps by reference to a fraction of the capital value of the property. While there are clear benefits in doing so, particularly for leaseholders with high or uncertain ground rents, this could substantially reallocate wealth from freeholders to leaseholders. I wonder if the Government has fully considered the implication on private pensions, for example – many of which have considerable investment in ground rents. The political implications of this (specifically among the PM’s own party) could be considerable.
Other implications will include a knock-on effect on the cost of new homes, as any statutory cap on ground rents will impact what the market will pay for a freehold.
In conclusion
We fully support the aim of making the process cheaper and easier for leaseholders, but clearly leasehold reform is complex, extensive and impacts on many more stakeholders than is immediately apparent. We would caution that the Government consults widely and takes a considered approach to all aspects of potential reform, rather than rushing out unfinished or extemporaneous legislation that is not fit for purpose, and which could cause unintended confusion and harm – we do not wish to see a repeat of some of the issues that have arisen following the recent Building Safety Act.
ALEP has previously had an influential role in influencing reform and hopes to contribute constructively to future discussions. The next year will no doubt be an eventful one for politicians, both in electioneering but also in protecting the many millions of leaseholders who have anticipated this reform for many years. Leasehold reform involves a balancing of interests, and it is vital that this is done carefully.
