Mark Chick from Bishop & Sewell looks at some of the main areas targeted for reform.
The long awaited outcome of the Government Consultation on ‘Tackling Unfair Practices in the Leasehold Market’ was published in April.
We have also been promised a report back from the Law Commission with recommendations to Parliament before the summer recess on how to tackle the issues of Leasehold Houses and aggressive Ground Rents.
There are also a number of areas which were the subject of the original Consultation and on which the government has promised action. The likelihood is therefore that there will be some fairly swift action on some points in the short to medium term future but also the scope for a much wider look at reform in this area as well.
This article takes a look at the main areas that are targeted for reform.
Limiting the sale of new build leasehold houses
This is as a response to the so called ‘leasehold scandal’ and the sale of long leases of houses on ground rents which double at ‘aggressive’ intervals such every as ten or fifteen years.
A lot of misery has been caused by these leases and the Government has indicated that it wants to ensure that legislation is introduced so that in the future ground rents on newly established leases of houses and flats are set at a peppercorn (i.e. zero).
Whether it will be possible to completely prevent the creation of new leasehold houses will depend very much upon the individual circumstances of the development. We will have to wait to see what the full detail of the proposals will look like but, in principle, it should be possible to prohibit the sale of new houses as leasehold unless this is absolutely necessary. The exceptions may be in cases where there are shared services with other buildings and/or the house forms part of a wider estate structure.
Reducing help to buy equity loan support for Leasehold Houses
One particular inequity of the ‘leasehold scandal’ is that help to buy money has been used to fund the purchase of some of these affected properties. Accordingly, the secretary of state will ‘strongly discourage’ use of help to buy to purchase leasehold houses in advance of any new legislation coming in.
Limiting the reservation and increase of ground rents on all new residential leases over 21 years
The Government have indicated that they wish to introduce legislation that will set ground rents to zero on new leases of houses and flats. In the Consultation there were a number of views expressed and one was the suggestion that ground rents in new leases should be set to a level whereby they should not exceed 0.1% of the property price. The Consultation indicates that there are currently around 15,000 properties affected by ten year doubling ground rents. If this is correct, then this represents around 0.4% of all of the Leasehold properties in England and Wales.
Exempting Leaseholders from ‘Ground 8’ possession orders
There is a known issue that under the Housing Act 1988, an assured tenancy can be brought to an end using the mandatory Ground 8 grounds for possession if there are more than two months’ rent in arrears, both at the date of the Section 8 Notice and at the date of the hearing in court to obtain possession. There is no discretion for the Court to provide any other remedy. If a rent exceeds £1,000.00 in Greater London or £250.00 elsewhere in the country, then there is a risk that any long lease could also be classed as an assured tenancy and subject to these mandatory grounds for possession. This is clearly not what Parliament originally intended, but the concern over this continues to cause issues for lenders and some conveyancing solicitors until the position is clarified.
The Government have indicated in their response that they will take ‘action to address this loophole’. However, in practice, I am not aware of any possession action ever having being taken on this basis and this has been a ‘known issue’ for some time.
Service charges for maintaining common areas on mixed use estates
There is an inequity in that the estate management charges for freehold estates are not subject to the service charge legislation. Similarly, rent charges allow the landlord to take enforcement action which can be extreme.
The Government has indicated a willingness to legislate to ensure that freeholders that pay maintenance charges can access the same rights as leaseholders. If there is to be a harmonisation than this will be very welcome, particularly if there are to be more houses sold on a freehold basis as the Consultation outcome document appears to be suggesting.
The Future – Commonhold
The Consultation also indicates that the Government will look at ways to re-invigorate Commonhold. Commonhold has been on the statute books since 2004 but has not been a success. There are a number of technical reasons for this which the government will look to address.
Commonhold is therefore also to be the subject of a Consultation by the Law Commission.
Other areas for reform
Finally, and perhaps more controversially the government have indicated that they want to look at making the process of enfranchisement simpler and less expensive.
The Law Commission is going to look at possible areas for reform in the enfranchisement legislation and more generally and also at the whole question of valuation. This of course gives rise to a number of political considerations as particularly to make adjustment to the basis on which valuations are carried out will naturally result in winners and losers and raises the possibility of an adjustment in property rights leading to a transfer of value between freeholders and leaseholders.
Comment
The Consultation received nearly 6,000 responses which is interesting when taken in the context that the responses to the government’s own White Paper on ‘Fixing our Broken Housing Market’ which received only 1,500 – 1,600 responses. Leasehold is clearly a sensitive issue.
What is also interesting is the commitment to make proposals for instant action on ground rents and leasehold houses, although, given the constraints of Parliamentary time, as to how quickly any of the recommendations can and will be acted on remains to be seen.
Mark Chick is a Partner and Head of the Landlord & Tenant team at Bishop & Sewell as well as director and a founder committee member of the Association of Leasehold Enfranchisement Practitioners (ALEP).
