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?