The 14-Point Leasehold Pledge And The Freeholder Perspective

In March, 40 house builders and developers signed up to a voluntary 14-point pledge designed to end the practice of unfair and onerous leaseholds.

Many of the most influential home builders have committed themselves to the pledge that also includes the Home Building Federation.

Throughout the past decade, a multitude of leaseholders have vented their feelings of desperation, trapped in a system that is failing to properly educate the buyer on leasehold implications prior to making an offer, doubling their ground rent every decade and asserting unreasonable permission fees any time the home owner wishes to make alterations to their home.

Having appeared in front of the Government’s Parliamentary Select Committee last year to talk on the issue and was an instrumental contributor in the formation of the recently announced government-backed leaseholder pledge, Mick Platt, Director at Simarc Property Management Limited, has taken the time to discuss the pledge and how it will create a fairer system for all leaseholders in the future.

How will the 14-point pledge benefit current leaseholders that feel trapped?

The Pledge requires any freeholders who have signed up to help those leaseholders who are trapped by onerous doubling ground rent clauses within leases, which have made some homes difficult to secure a mortgage on and subsequently sell. In the Pledge, we make specific reference to our commitment to vary leases with an onerous ground rent (i.e. one that doubles more frequently than every 20 years).

How will the pledge improve leasehold terms for new home owners?

The Pledge will ensure that no new homeowners acquiring their homes from developers will be offered a leasehold agreement containing an onerous doubling ground rent clause. Further, it will also ensure that legal advisers and developers who have signed the pledge take all necessary steps to make sure that a prospective buyer is made aware of all relevant costs, rights and obligations associated with acquiring their home. It is crucial that people understand the terms of the lease before buying a property and this must now be the focus.

The pledge aims to eradicate the current doubling of ground rent by replacing them with increases in line with the UK’s Retail Price Index (RPI). How will this ensure that leaseholders are not overly burdened with ground rent increases?

The use of RPI-linked leases is a nationally recognised and long-established measure which will ensure that ground rent increases will be in line with other costs such as housing, goods and services in the UK. The vast majority of mortgage lenders accept this standard review clause and this variation will therefore enable leaseholders to sell or re-mortgage much more easily. Historically RPI has been outperformed by wages and home values, so rents are unlikely to increase in real terms.

How does the pledge aim to protect leaseholders from additional costs and fees like permission fees, administration fees or service charges?

The Pledge requires that developers, freeholders and conveyancers who have signed up ensure that all costs associated with a lease are clear and transparent to the purchaser at the point at which they purchase their property. In this way, leaseholders will be fully informed and not hit with unexpected charges.

Many buyers feel they were mis-sold their leasehold property and were inadequately educated on their leasehold obligations. The pledge aims to ensure that all prospective buyers are educated prior to exchange. What will this mean for leaseholders? When will they receive the information and how will it enable them to make an informed decision?

Signatories have committed to ensuring that leaseholders have greater access to information throughout the buying and selling process. In addition to the commitments made by developers and freeholders, it is crucial that conveyancers are governed by a set of standard regulations around the information that they are required to provide to consumers when they are looking to buy a property. This will ensure that leaseholders are able to make fully informed decisions before purchasing a home.

How will the pledge ensure that there is consistency in practice?

The Pledge is a first step towards establishing a legally enforceable Code of Practice which sets out clear, high-level minimum standards.  Among those already committed to this outcome are freeholders, managing agents, surveyors and legal professionals. The more industry parties that sign up to the Pledge, the more chance we have of establishing more consistency in practice across the market. Leading institutional freeholders have already drawn up this Code and it is now with the Secretary of State for Housing, Communities and Local Government for comment. The objective is that it be made mandatory by Government and be effectively regulated by an independent body.

What are the benefits of buying a leasehold property?

There is a lot of inaccurate information currently being circulated by sector critics condemning all forms of leasehold property ownership. While the Government proposals to ban the sale of leasehold houses is to be welcomed, there are many advantages to the freeholder – leaseholder relationship in apartment buildings.

A responsible freeholder acts as steward for the building, looking after its long-term interests with professional oversight. This can include everything from settling neighbourly disputes and holding managing agents to account, to project managing maintenance and repair works, guaranteeing health and safety standards within the building and making certain that buildings are properly insured. Freeholders have access to expertise and funding which might not otherwise be available to leaseholders which can provide a safety net. Ultimately this means that the leaseholder does not have to worry about playing an active role in the day-to-day management of the wider property as many are reluctant to do.

Unfortunately, there have been some freeholders who have failed to perform this role to the highest standards, meaning certain homeowners are not benefitting from owning a leasehold property in the way that they should. By establishing a mandatory Code of Practice covering the whole sector, such poor practice should cease.

What do you think will happen in the future because of this Pledge? How do you think this Pledge will influence the government in establishing a Code of Practice which can be turned into legislation to protect leaseholders?

This Pledge is a crucial first step towards positive change in the residential leasehold sector. It reflects the desire and ambition of professional freeholders, developers, managing agents and the Government to bring about meaningful reform.

In this Pledge, industry and Government have recognised the benefit of bringing forward a comprehensive Code of Practice that will assist industry professionals and prevent the mis-selling of properties.

Do you think the 14-point pledge will improve the situation for those that own leasehold property? Will this have a positive effect on future leasehold buyers?

14 Comments

  • test

    “Freeholders have access to expertise and funding which might not otherwise be available to leaseholders which can provide a safety net. ”
    Freeholders…..safety net? Lol! Particularly since the government has just given in waiting for almost all freehold investment companies of developers to step up and assume at least some of the cost of replacing faulty cladding.

  • test

    “How does the pledge aim to protect leaseholders from additional costs and fees like permission fees, administration fees or service charges?”
    Short answer is, it doesn’t! Only proper government regulation will protect leaseholders from the free-for-all of unregulated charges of this kind.
    Better still, remove the investor element altogether and replace Leasehold with Commonhold tenure for apartment blocks.

  • test

    “A responsible freeholder acts as steward for the building, looking after its long-term interests with professional oversight. ”
    I think it’s evident by now that, too many freeholders care ONLY about the value of the building – or the extra profit to be leached through permission fees etc. The majority make no better a steward than the residents would themselves through Commonhold tenure.
    Many freeholders may employ a managing agent who maintains a building well, but they are not concerned about the often excessive financial and mental health burdens placed upon leasehold residents, who are required to meet escalating ground rent (even RPI linked) and ancillary charges that they know are unnecessarily excessive.

    • test

      That is exactly so – the freeholder looks after the building’s interests…. paid by the leaseholdets – and that is the only thing he is interested in. The whole Pledge is nonsence, wasted effort that should have been put towards abolishing leasehold altogether!

  • test

    Next to useless, RPI can be very onerous, and voluntary anyway. Get rid of leasehold full stop.

  • test

    This is the Pledge by freeholders that many NLC leaseholders would prefer to see.

    “We, the undersigned freeholders, pledge to:

    1. Identify all leaseholders with leases which contain a clause whereby ground rent doubles or increases with RPI, contact leaseholders to inform them and offer them the option to purchase their freehold at the verbally agreed price discussed when the property was reserved or convert ground rent in line with the recommendations of the Commons Select Committee (ground rent should not exceed £250 pa and should not increase over time).
    2. Repeat this offer when contacting a leaseholder or, if this is not always appropriate, ensure this offer is communicated clearly and displayed in a public open forum (for example, a website or communal notice board etc).
    Should a leaseholder accept to change a doubling clause the Leaseholders will not incur any fees to alter.
    3. Assist any leaseholder who approaches us to request clauses be reviewed (or any other matter regarding their lease), even if they have not previously taken up an offer of variation at no cost to the leaseholder.
    4. Abolish permission fees for home alterations, remortgages, sales packs etc.
    5. Ensure the process for leaseholders to acquire the freehold on their home or extend the terms of the lease is uncomplicated, transparent and fair.
    6. Support leaseholders who wish to take over the collective management of their homes and any communal areas in excess of the currently inadequate leaseholder rights enshrined in legislation.
    7. Have in place a complaints process that is transparent and fair, ensuring that complaints are heard and dealt with, and redress given quickly.
    8. Have in place an appropriate redress scheme, so leaseholders have assurance that complaints will be heard.
    National Leasehold Campaign

  • test

    This pledge is complete nonsense. Leasehold is a wasting asset. Groundrent serves no purpose what so ever, other than providing Freeholders with a never ending income supply. Professional managing agents, that’s a joke. The ones developers appoint don’t give a stuff about maintaining the estate, they just want to take your money for doing the least possible work. The rest of the world gets buy without Leasehold & rip off managing agents well so can we. Commonhold is the way forward and is what we want . Stick your pledge, it solves nothing

  • test

    The people who pay all the money and add all the value to a building are the leaseholders. The freeholder is often a remote offshore company and have paid a fraction of the value of the building for the freehold title, who are only interested in extracting as much money as possible from captive leaseholders. A lease is a wasting asset. Everywhere else uses Commonhold. We as leaseholders, 6 million of us, who pay the bills, should have the main voice and make the decisions. Leasehold is legal extortion. I am in Italy for one week, most people live in apartments there very well without using the feudal leasehold system.

  • test

    One of my comments moderated out because it does not support leasehold or the spin put on this worthless pledge ?

    • Martin Parrin

      Afternoon Simon,
      Thank you for your comments; the content team value your thoughts and contributions. We felt, on this occasion, that naming businesses that were not referenced in the article, would have been unfair. However, we value and respect your thoughts and hope that you will continue to offer them in future content.

  • test

    Leasehold prisoners feel trapped in homes they cannot sell, affecting their mental and physical health. I feel I am essentially renting a property with the responsibility of owning a property.

  • test

    Anyone who wants to see a pledge in action look at the recent decision by the English Legal system on the Heathrow extension & the U.K. being signatories to the Kyoto & Paris climate change agreements. Judges ruled the Paris agreement was not binding in U.K. law. There’s a pledge in action right there folks! As much use as a chocolate fire guard.

  • test

    Mick Platt clearly has no idea what it is like to be a leaseholder trapped in an unsaleable apartment with excessive ground rent plus unregulated and uncapped management fees. Add to that ridiculous insurance premiums. Nothing in ‘the pledge’ helps us.
    Also if freeholders are these wonderful paternal caring companies (instead of offshore non taxpaying leeches) why haven’t they stepped up to sort the cladding issue instead of relying on their friendly politicians to bail them out with taxpayers money? The whole system is rotten to the core.

  • test

    Inadequate advice goes far beyond the scope of the “pledge”

    On receiving a report on my flat from a solicitor in 2017, I had to go back to my solicitors and ask them whether it had a good and marketable title

    A national reporting protocal is needed to make the system fit for purpose. Amongst other things

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