Tackling unfair practices in the leasehold market

On 25 July 2017, the Government published a consultation document to seek views on areas for reform in the leasehold market, namely leasehold houses and ground rents and seeking views on priority areas for future reform. The consultation received over 6,000 replies, showing the vast amount of interest in the area. Anthony Collins Solicitors were amongst those who sent a response, a link to which is here.

In December 2017, a summary of consultation responses and Government responses to the questions posed was published and this is considered below.

LIMITING THE SALE OF NEW BUILD LEASEHOLD HOUSES

Q5: What steps should the Government take to limit the sale of new build leasehold houses?

Q6: What reasons are there that houses should be sold as leasehold other than under the exceptions set out in paragraph 3.2?

Q7: Are any of the exceptions listed in 3.2 not justified? Please explain.

Q8: Would limiting the sale of new build leasehold houses affect the supply of new build homes? Please explain.  

The Government agreed to change the law to stop new residential long leases being granted on houses, whether new build or on existing freehold houses. It will still be possible for existing leaseholders to extend their lease or purchase the freehold. The Government will consult on proposals to support leasehold homeowners to do this on more favourable terms.

The good news for the housing sector is the Government agrees that exemptions will be needed to support shared ownership, and may also be needed for some Community Land Trusts, or other specific developments.

Q9: Should the Government move towards removing support for the sale of new build leasehold houses through Help to Buy Equity Loan, unless leasehold can be justified and where ground rents are reasonable (which could be a nominal or peppercorn ground rent) and if not, why not?

Q11: Is there anything further the Government could do through Help to Buy Equity Loan to discourage the sale of leasehold houses?

Q12: What measures, if any, should be considered to minimise the impact on the pipeline of existing developments?

The agreements with developers do not permit the Government to stop Help to Buy Equity loans being used for leasehold houses, but the Government is going to make clear to developers it does not want funding used for this purpose.

Q14:What would a reasonable ground rent look like, in terms of i) the initial annual ground rent, ii) the maximum rate of increase in annual ground rent, and iii) how often the rate of increase could be applied to an annual ground rent?

Q15: Should exemptions apply to Right to Buy, shared ownership or other leases? If so, please explain.

Future leases (both for houses and flats) will be at a peppercorn (shared ownership leases will be excluded).  There will be more rights for leaseholders, especially of houses, to challenge service charges.

EXEMPTING LEASEHOLDERS POTENTIALLY SUBJECT TO ‘GROUND 8’ POSSESSION ORDERS

Q19: Should the Government amend the Housing Act 1988 (as amended) to ensure a leaseholder paying annual ground rent over £1,000 in London or over £250 in the rest of England is not classed as an assured tenant, and therefore cannot be issued with a Ground 8 mandatory possession order for ground rent arrears? If not, why not.

Yes.

SERVICE CHARGES FOR MAINTAINING COMMUNAL AREAS AND FACILITIES ON FREEHOLD AND MIXED TENURE ESTATES

Q20 Should the Government promote solutions to provide freeholders equivalent rights to leaseholders to challenge the reasonableness of service charges for the maintenance of communal areas and facilities on a private estate? If not, what management arrangements on private estates should not apply?

Yes, freeholders should be able to challenge but there should be safeguards put in place.  We anticipated this would be the response, we were concerned that this would load costs onto associations where the service charges were relatively low. Our consultation submissions reminded Government of the rights freehold owners of properties purchased under the RTB. Let’s hope that this is the route Government go down.

Estate rent charges are widely used (and contained in the template VRTB freehold transfer) There will be legislation to prevent an estate rent charge owner (i.e. the “landlord”) taking possession etc. on the property where rent-charge remains unpaid for a short period of time. 

FUTURE ISSUES

The Government will 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.

Further Information

 If you have a question relating to the issues raised in this article, please contact Helen Tucker.

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