Major Leasehold Changes Offer Hope To Homebuyers
When you’ve campaigned for something for over six years, there’s always going to be a huge sense of joy when your work, that of your colleagues, and indeed, the entire industry finally pays out.
That feeling was certainly there on the 27th June when the news came through that James Brokenshire, Secretary of State for the Ministry for Housing, Communities & Local Government (MHCLG) had made a series of announcements related to leasehold houses, their sale within the Help to Buy Scheme, a code of conduct for developers and a consultation on a New Homes Commission.
But it was perhaps his other announcement around securing leasehold information for clients from lease administrators and curbing the cost of getting that information to not more than £200, and that it should be delivered within 15 days, which really provided a sense of joy and accomplishment. My only regret is that Mike Bowen, CILEx Council member and champion for leasehold change, is not here to see this day; Mike, after all, was the first to suggest that leasehold fees should be based on a Secretary of State-set tariff of reasonable fees.
Needless to say however we welcome these announcements and it’s a relief to see the Ministry delivering at last; this, after all, is a far cry from the Department – who when we went to see them in 2013 to warn of leasehold abuses – told us there was not a problem.
By this point, I, Georgie Hibberd from RICS and Ian Fletcher from the British Property Federation had started calling together the leasehold and legal sectors to agree a standard leasehold property enquiry form (LPE1) to improve efficiencies in the home moving process, which was published in October 2013. We are now on the second edition, having added the LPE2 to provide a summary for buyers of leasehold property, and the Freehold Management Enquiries Form (FME1) because we recognised that with the abolition of leasehold houses the problems would move into estate rent charges and freehold management schemes. 14 trade associations, representative, and membership bodies now support these forms.
As mentioned, we are particularly delighted at the capping of the fee payable for the sale information in the LPE1 to that which is accurately reflective of the work involved in producing it and for that to be no more than £200. A figure, we might add, which is substantially lower than that which we recommended in our response to the consultation and which indicates the Ministry wish to send a clear message to the sector that they have had enough of the abuse. The £50 cap on the refreshment of the information is particularly welcome as it means sellers can now obtain the information at the point of marketing knowing that if they do not exchange contracts within six months it will only cost £50 to renew the information.
And even if they are not encouraged to do this by the estate agent marketing their property – so that they can comply with the Consumer Protection from Unfair Trading Regulations – there is absolutely no excuse for a conveyancer to delay ordering the information as soon as they are instructed to act on the sale.
Perhaps though, the most impactful point in the announcement is the requirement that information should be delivered within 15 days. Currently, a leasehold property transaction automatically adds three weeks to the entire purchase process. We know that in over 30% of leasehold transactions it takes the lease administrator more than 50 days to produce the LPE1 after they have been paid. Clearly, if they now have to deliver within 15 days, and the LPE1 can be ordered even earlier in the process, we have the potential to knock three weeks off the average leasehold transaction and chains of transactions where there is a leasehold property.
The announcement that ground rents are reduced to zero will also go a long way to reducing the commercialisation of leases.
We now need the Law Commission to deliver its proposals for enfranchisement, lease extension, and commonhold to stop consumers from having to buy their home three times over:
- Firstly, through the premium on purchase – which we know is now the same market rate as for freehold;
- Secondly, through the excessive ground rents which deliver nothing in return and, if over £250 (£1k in London), are a derogation of grant creating an assured shorthold from a long lease, granting the landlord mandatory rights of possession and preventing the leaseholder from exercising their right of first refusal to buy the freehold; and
- Thirdly, from having to pay an excessive premium to extend the lease passed the arbitrary number of years set by the very people who will then value the premium for that extension using calculations only ever meant for commercial leases where there is the real expectation for the lease to run out and be delivered back to the freeholder. I am talking about such constructs as ‘relativity, ‘marriage value’, ‘hope value’, ‘development value’ and ‘the graph of graphs’ none of which have a place in valuing someone’s home.
The further good news is that the Secretary of State has made it clear he expects there to be no transitional provisions once the legislation comes out as the landlords and lease administrators should already be getting their house in order in respect of the ban on leasehold houses and the use of Help to Buy in the purchase of them, and the general imposition of peppercorn ground rents. This is a welcome move, particularly with the concern over Boris Johnson’s recent announcement that his Cabinet will review all proposed legislation changes. This is not a concern around any sort of Johnson-created u-turn – in the past, he has actually shown himself to be pragmatic and might be expected to go a lot further than these changes – but more in respect of the potential delay in passing the legislation.
However, knowing that these changes are coming and with the Ministry having now clearly defined what the highest figure would be in the range that would be considered a reasonable fee, we know what the First Tier Tribunal would point to a cap of £200 if an LPE1 cost case were taken to them for arbitration.
We can therefore now forge ahead and implement the Ministry’s work by requiring lease administrators to produce the information in the LPE1 for no more than £200 and within 15 days, and we have already produced a template for our members to use when requesting the LPE1 to highlight to lease administrators Government expectations that leaseholders should no longer be the subject of financial abuse, nor should they be subject to ridiculous delays to get the information they need and are paying for.