Housing minister aims to end leasehold abuses – again…

A new government consultation aims to address the costly problems facing leasehold property owners, announced by Housing minister James Brokenshire.

A recent trend towards selling new-builds as leaseholds, complete with soaring ground rents, has brought the issues affecting leasehold property into sharp focus. The consultation to crack down on “unfair ground rents” and other leasehold-related abuses.

What’s the problem?

In 1995, only 7% of residential transactions were for leasehold homes. By 2016, the figure rose to 27% nationwide, with a peak of 32% in the North-West, as developers sought to capitalise on the revenue-generating opportunities leasehold presents.

Developers have been widely criticised for imposing onerous conditions on unsuspecting new-build buyers. The lease terms for some properties include stipulations that the ground rent doubles every ten years. Many surcharges set out in the lease are considered to be unnecessary, and can also make selling the home much more costly and more difficult.

In other cases, new-build buyers are told by the estate agent or their conveyancing solicitor that they can buy the freehold for a relatively minor sum. However, when the new owner attempts to buy the freehold once they acquire the right to do so, the buyer discovers that the freehold has already been sold to a third-party.

Due to widespread ignorance of the risks and the extra costs associated with leasehold property ownership, many buyers are purchasing property with only the dimmest knowledge of what they are actually buying. A recent study by NAEA Propertymark found that half of leasehold property buyers were unaware of what they were buying “until it was too late”.

The NAEA Propertymark study found that 94% of leasehold homeowners regretted buying a leasehold property.

Solicitors have been blamed for failing to inform their clients of the additional costs and perils leasehold owners face, but the issue is arguably much broader than one of educating buyers. Taking the position that both leasehold legislation and current practices are flawed, the Government are, ostensibly, taking further steps toward leasehold reform.

An initial consultation held over the Summer found that the “vast majority” of respondents wanted widespread reform.

The housing minister, James Brokenshire, has said that excessive ground rents can “turn a homeowner’s dream into a nightmare by hitting them in the back pocket and making their property harder to sell”.

Proposals

A ban on the sale of new leasehold houses was proposed at the end of last year. The reforms now proposed by the Government include a cap on ground rents of £10. There is no cap in place currently, with owners facing an average yearly ground rent of around £300.

The consultation will also explore ways to make it easier for leasehold tenants to form tenant associations, and to collectively acquire the freehold of their properties. These associations are intended to facilitate joint action on the part of tenants, to raise complaints and better represent tenants interests.

Exemptions

The developer lobby are unlikely to go down without a fight. Developers of retirement homes have already scored a win, by securing an exemption to the proposed ground rent reforms.  Subject to certain conditions, such as an option to pay a higher purchase price and avoid ground rent, retirement home lessees will still have to pay an uncapped annual ground rent.

“Kicking the can”

Sir Vince Cable, Lib Dem leader and member of the All Party Parliamentary Group on Leasehold, has strongly condemned the Government’s most recent move.

Rather than build on the leasehold reforms imposed at the end of 2017, and those proposed in this Summer’s consultation, the Government is “consumed by Brexit,” Sir Vince said.

He has argued that the consultation approach was simply “kicking the can down the road”.

When asked, the Ministry of Housing, Communities and Local Government was unable to identify any material differences between this consultation and one held last year.

Are the reforms enough?

Given that many current owners of leasehold property are facing onerous ground rents, excessive surcharges, and mortgage restrictions, any reform that fails to address historic leasehold abuses will be inadequate.

While some forms of “retrospective” legislation could prejudice those landlords who bought and operate freeholds in good faith, a remedy must be found for cases where developers have functionally exploited unaware buyers. Without retrospective action, many owners who are trapped between doubling ground rents and very restrictive mortgage options will have no other prospect of relief.

Many have argued that it is the “feudal” character of leasehold itself that is at fault. Given the number of landlords sitting in Westminster, a wholesale abolition of leasehold is unlikely.

A total ban may also create as many problems as it solves. The freehold-leasehold dynamic is a long-established and often effective framework to handle building repairs, maintenance and the management of common spaces and  gardens.

Perhaps the real issue with the Government’s approach is the extremely slow pace. With the possible exception of so-called “rogue” developers and freeholders, there is broad consensus as to the need for, and direction of, leasehold reform.

Sir Vince Cable rightly highlights and condemns the Government’s ever-useful “but Brexit” excuse for inaction. Unlike many other areas of legal reform on the docket, however, there are quick, effective and uncontentious solutions to the “evils” of leasehold. The Government now need to commence actual reform, based on already-published proposals, rather than wasting valuable time (and money) on circular consultations.

Kindly shared by Quittance Legal Services