Mark Chick is Partner and Head of the Landlord & Tenant team at Bishop & Sewell, Mark is recognised as a leading UK authority in this sector. He is a director and a founder committee member of the Association of Leasehold Enfranchisement Practitioners (ALEP) the sector body to which all reputable valuers and solicitors working in the field of Leasehold Reform now belong.
The MHCLG announcement – capping ground rents and banning leasehold houses
What does the recent announcement by James Brokenshire the Housing Minister mean?
What, another consultation?
If previous Governments have liked to govern by focus groups, this one likes to govern by consultation.
On 15th October 2018, the Housing Minister, James Brokenshire, announced a Government Consultation on two changes to the current law on leasehold. The MHCLG announcement follows on from the Government Consultation ‘Tackling Unfair Practices in the Leasehold Market” and is what is termed a ‘technical consultation’. The consultation will be open for 6 weeks and relates to the two main proposals that will give effect to some of the agreed outcomes from the Government Consultation.
What does this MHCLG Consultation cover?
This consultation backs up two promises made in the outcomes from the ‘Tackling Unfair Practices’ Consultation published in the summer of this year. This outlined a number of proposed changes details of which can be found at here.
A copy of the MHCLG consultation on these issues can be found at here.
The major proposals that this consultation covers are;
- that ground rents will be limited to £10 for all new leases; and
- that no new leasehold houses could be created save in limited situations
- making charges more transparent for owners of freehold houses on a private estate
- speeding up the answers to managing agent enquiries when buying and selling a leasehold property
Let us examine these in a bit more detail:
Reducing ground rents to £10 on new leases
The proposal is that the ground rent in any new lease of a house or a flat must not exceed £10. This would effectively ban the creation of new higher value ground rents. However, it will not do anything for those currently affected by these issues.
Why £10 and not nil? Probably because in a right to buy lease the ground rent is a fixed £10 p.a.
Banning or restricting the creation of new leasehold houses
At the heart of the ‘ground rent scandal’ we have the device of a lease of a house, usually on a private estate. It is a good question as to whether any such houses actually need to be leasehold. Clearly, for those looking to profit unfairly from an escalating ground rent and also to sell consents and conditions leasehold makes sense, but for the homeowner, there is no good reason why such houses should be leasehold.
Should there be leases of houses?
There are a number of good “technical” reasons why properties with shared structures might benefit from being on a lease – these are firstly, if the unit is ‘flat’ rather than a house and pays a service charge, this will mean that these charges are subject to the service charge legislation. Secondly, where a property has shared facilities or a significant degree of physical overlap with other property, having a lease means that the repairing obligations can be kept in harmony with those on the rest of the development, particularly if these are flats. This makes management of the estate and its running costs much easier.
What about freehold house on an estate?
As the law stands at the moment, if you have a freehold house on a private estate and need to make payments towards shared facilities such as estate roads or lighting etc, the only way that this can be imposed is by an ‘estate management charge’ – which is usually reserved as a ‘rent charge’ against the freehold title. There is no issue with this in itself, but one big disadvantage is that these charges are not subject to the statutory control of the service charge legislation. This is also something that should be addressed and is another point that was picked up by the main Government Consultation as something that needs to be addressed, but is not the subject of this one.
These are the only really ‘good’ reasons why it should be possible to allow leasehold houses. Of course a system like commonhold would make all of this unnecessary, but that is an entirely different conversation.
The consultation asks how charges in this sort of situation can be made fairer and more transparent.
Managing agent replies – making these quicker
A common frustration in the conveyancing process is the speed at which the answers to the enquiry form sent to the managing agents take to come back. This part of the consultation ties in with the Government’s previous work on the ‘Buying and Selling Process’ (another consultation!) which closed earlier this year. There have also been various representations made about the level of charges for this information by parties such as the Conveyancing Association.
The consultation asks for views on the ‘minimum turn around time’ that should be imposed on managers and the maximum fee that should be charged. The suggestion is for views on “turn-around times” of less than 10 working days to more than 15 working days. I expect property managers will have a lot to say about this. They will probably have even more to say about the fees, as the question is asked as to whether the maximum fee should be less than £100 or more than £150.
Whilst we all agree it is a frustration that if answers to enquiries come out slowly in a property transaction, ultimately providing this information quickly may well have an administrative cost and therefore surely there has to be a compromise in terms of getting what is being paid for. Many resident owned freehold blocks I have been involved with would prefer these charges to be slightly higher provided that the response times are quicker.
In Conclusion
The Government said that it would act on leasehold houses and so this consultation on how to implement the changes to ground rent comes as no surprise.
What seems to be clear is that the writing is now on the wall for uncontrolled ground rent in new leases and the question appears to be now only when these changes are likely to come into effect.
MHCLG have now indicated that their current thinking is that once the ban on creating new leasehold comes into effect that they will seek to give retrospective effect to this where possible. The relevant date is likely to be with effect from 22nd December 2017, on the basis that the first ministerial statement on the ban was made by Sajid Javid on 21st December of last year. The exact detail on this is yet to be clarified but it is thought to add protection to anyone seeking to buy a property by way of a house on a new build estate in the interim time before these provisions become law.
Once we have the responses to this consultation and these have been digested by government, we will find out more.
