Leasehold Reform Consultation
October 22, 2018
Developers and Investors will be particularly interested to note that, the Ministry of Housing, Communities and Local Government launched a consultation paper, Implementing reforms to the leasehold system in England on 15 October 2018. This continues the Government’s campaign to reform the leasehold market.
The Government’s White Paper Fixing our broken housing market, which was issued in February 2017 identified some bold changes to come. The aim is to improve fairness and transparency in the leasehold market and overcome loopholes harming the consumer. In December 2017 this was followed by the launch of a consultation on banning the sale of leasehold houses and onerous ground rents. While the point regarding overly onerous ground rents is accepted by most, an outright bank on the sale of leasehold houses causes some concern.
The consultation paper released on 15 October 2018 seeks views on 4 key areas of reform, namely:
Implementing a ban on unjustified use of leasehold for new houses
This follows on from the announcement in December 2017 and many will be relieved to see the inclusion of the term ‘unjustified’ now being used more in the dialogue. It is still clear though that the Government is pushing for change in this area. There is a concern that the number of leasehold houses has more than doubled without any clear justification. The primary aim remains the prevention of owners of houses being exploited by onerous ground rents. The responses to the consultation on this point will no doubt be focused on how a ‘house’ might be defined and what might be considered a ‘justifiable’ use of leaseholds for houses.
The reduction of future ground rents to a nominal financial value
The Government appears to agree that leaseholders should pay a consideration, but they propose this should be a nominal sum (i.e. ground rent) and capped at £10 per annum, throughout the lease term, in all cases regardless of the type of property or location.
The new cap proposed would apply for all new leases, with the exception of shared ownership properties and community-led housing. The surrender and re-grant of an existing lease would also be caught by the provisions.
How much freeholders must pay towards the maintenance of communal areas
Freeholder owners of houses can be required to contribute towards charges for maintenance of and services provided to developments. However, unlike leaseholders, freeholders do not have the ability to challenge the reasonableness of the service charges levied or question the standards of the services provided. The Government is proposing the introduction of such rights. Proposals include the ability of freeholders to appoint a new manager and change the service providers, by making an application to the tribunal. This is similar to the current rights of leaseholders.
Improvements to the sale of leasehold properties
The introduction of a fixed time scale for managing agents and freeholders to provide leasehold information has been proposed. The intention is to facilitate quicker sales of leasehold properties. A maximum fee for providing this information has also been suggested.
The proposals currently relate to England only.
In reference to the Consultation paper, the Secretary of State for Housing, Communities and Local Government said, “Now I intend to deliver our promises”. This highlights the strong stance being taken to drive through changes in this area.
Responses to the consultation must be made by 26 November 2018.
The full copy of the Consultation can be found here: https://www.gov.uk/government/consultations/implementing-reforms-to-the-leasehold-system
If you require assistance collating and submitting your response please contact Claire-Elaine Arthurs.
DD: +44 (0) 7791 143 284