Leasehold reform

The government is planning to make the leasehold system fairer for leaseholders. Over several years, it appears that some parts of the residential leasehold system have become unfair for some of those who own flats, particularly some newly built flats.

Some leaseholders face high and escalating ground rents, making it harder for them to sell or re-mortgage their homes.

It also seems that some charges being requested under leases may be excessively high, or are being imposed for permissions and administration fees where they may not properly be required.

Enfranchising or extending a lease of a house or of a flat can be expensive and complex.

Issues that can be unfair include:

  • the method and frequency of ground rent increases
  • high or unclear service charges and one-off bills
  • managing agents charging unexpected fees for permissions or consents
  • the costs of and delays in providing management information

Our view

We want the leasehold system:

  • to operate fairly for leaseholders
  • not to cause delays in the home buying and selling process

We want it to be easier and cheaper for leaseholders to:

  • extend their lease
  • buy their freehold
  • take over management of their block

Developers

In our responses to the government’s consultations, we’ve recommended that developers should agree and share best practice on renegotiating the most onerous leases, and suggested that developers should not be allowed to offer financial incentives to persuade a buyer to use a solicitor from their panel.

We’ve also recommended that developers should have to provide a standard ‘key features’ document at the start of the sales process. If the property is leasehold, the document should describe:

  • the length of the lease
  • ground rent (including how often it increases, by how much, and by what mechanism)
  • any permission fees
  • information on purchasing the freehold

We agree with the government that houses should generally be sold freehold. However, selling houses freehold can still mean that occupiers are charged for permissions and consents. It can also mean that occupiers are charged other charges, such as estate rent charges. These are increasingly used on new developments:

  • to oblige the owner to contribute to the cost of providing shared services, such as a private road
  • to make sure that owners perform positive covenants (that is, covenants to do something such as maintain a boundary wall or fence)

There are some concerns about these because:

  • there is no statutory means of challenging the amount charged
  • if payment is not made, the security of lenders can be put at risk

The government

We recommend that the government should:

Read our practice note on Consumer Protection Regulations in conveyancing

Enfranchisement and the right to manage

We support the government’s aims and the work of the Law Commission to make enfranchisement easier, quicker and cheaper for leaseholders.

We recommend that:

  • the government should extend the right to manage to freeholders of homes on estates where they pay service charges
  • managing agents should consult leaseholders on all important issues, including decisions about restrictions, permissions or consents and service charges
  • if a landlord wants to sell the freehold, they should offer it to the leaseholders first
  • it should be easier for long leaseholders to acquire the freehold of their building, or an extension to their lease, so that they can appoint their own managing agents

Ground rents and other charges

The ground rent system operated without major problems for many years. More recently, there have been reports of increasing ground rents which may be unfair.

We agree with the government that to protect consumers, ground rents should either:

  • be abolished, or
  • have a simple structure and a low, transparent rate

We recommend that long leaseholders who pay high ground rents should not be considered to be assured tenants, so they’re not at risk of being evicted if they pay ground rent late.

We also recommend that:

  • permission and consent fees should only be payable when they’re reasonable and necessary
  • sinking or reserve funds should be more transparent, and should be held separately (as legislated for in the Landlord and Tenant Act 1987, but never brought into force)

What this means for solicitors

Because the leasehold issue has been highlighted in the press and by the government, those buying flats are becoming more aware of the issue and what they need more information about.

Recent research by the Solicitors Regulation Authority provides some information about the views of buyers and the information they were given when they were buying. It mentions, for example, providing buyers with information about the difference between leasehold and freehold properties.

What’s changing

  • The Labour Party published a consultation on its plans to end leasehold ownership in a report titled ‘A new deal for leaseholders’
  • The House of Commons debated a backbench motion on leasehold reform, tabled by the chair of the housing, communities and local government committee, Clive Betts MP
  • We welcomed proposals from the Ministry of Housing, Communities and Local Government’s regulation of property agents working group final report
  • The government responded to the Housing, Communities and Local Government Select Committee report on leasehold reform

  • We welcomed Law Commission proposals to simplify commonhold, and called for the government to address the reasons why so few commonholds have been created
  • The government launched the leasehold pledge, which commits developers that sign up to it to remove from current leases doubling ground rent clauses (which state that ground rents will double in a set period of time), and not to include these clauses in any new leases
  • We jointly released a new Freehold Management Enquiries Form, with a number of organisations including ARMA, IRPM, BPF and RICS. The form includes standard questions for conveyancers to ask when acting for someone who is selling or buying a freehold that shares services with other houses. The form aims to make sure that buyers have the basic information they need on service charges, who organises maintenance and repairs, and any likely increases to payments

  • We responded to the Department for Communities and Local Government call for evidence on protecting consumers in the lettings and managing agent market

  • We responded to the Department for Communities and Local Government consultation on tackling unfair practices in the leasehold market, welcomed their plans to address unfair fees and rapidly rising ground rents, and recommended other areas for reform

Resources

Buying and owning a leasehold home – our guide for the public, for you to share with your clients

Leasehold, freehold and commonhold – our introduction to the three forms of home ownership