Government launches consultation following leasehold ban

There has been speculation that existing leaseholders may be subject to compensation in a way similar to the repayment of payment protection insurance.

Announced last week, the government put forward a ban on homes being sold on a leasehold basis, following a number of issues which residents were forced to deal with.

Housebuilder Taylor Wimpey has allegedly set aside £130 million to pay for disputes regarding the properties, these include ground rents doubling every decade as well as the cost of freehold rocketing.

With an aim to obtain views on improving the situation for existing leaseholders, the government launched a consultation alongside their proposals.

It stated:  “The Government recognises the challenges faced by existing leaseholders with ‘onerous’ ground rents.

“We are very keen to hear views on what steps could be taken to improve the situation of these leaseholders, which could include steps to tackle unreasonable and onerous rises in the future and strengthen the rights of consumer redress from unfair trading practices.”

Having fiercely campaigned on behalf of existing leaseholders, Sir Peter Bottomley was a driving force behind prioritising help for those already affected. The MP and co-founder of the All-Party Parliamentary Group on leasehold and commonhold reform stated: “What kind of society are we where people who are new to property law should find that the asking price has more than doubled in a year for a home that they live in?”

He also highlighted the potential for a compensation scenario similar to that of PPI, stating: “When we first started hearing about PPI, we thought ‘is there anything in this?’ It turns out of course there was a lot in it.

“The same thing applies I think in this leasehold field as well.”

Also drawing this comparison was buying agent Henry Pryor. He told Property Industry Eye that whilst the scale of the issue could similar to that of PPI, it is likely that conveyancers will be held responsible, rather than developers.

“I can’t imagine that all these leaseholders acquired their interests naively despite the professional advice they got from conveyancers.

“I expect the courts will decide they were incorrectly assigned and the claims will come as result against the conveyancers.

“I don’t think the house builders have done anything admirable but they haven’t done anything wrong.

“People bought these properties with the benefit of whatever advice they took. It is the conveyancers that will feel the heat.”

He went on to state that a system should be implemented which would enable leasehold residents to bring claims against their legal advisers.

There has also been considerable concern that the consultation falls short for affected leaseholders.

Taking this view was Mark Hayward. Whilst acknowledging that it is a step in the right direction, the chief executive of NAEA Propertymark doubted whether it would truly help existing leasehold residents.

“We’re very pleased the Government has brought some clarity to this unsatisfactory situation.

“It draws attention to the onerous consequences of buying a property with escalating ground rent. However, while this consultation looks at new homes, it doesn’t seem that it will do anything to help those who already own properties of this type.”

Agreeing with this stance was specialist in residential property at Blake Morgan, Mark Scott. He highlighted the lack of clarity the consultation left for existing leaseholders as well as drawing attention to how the conveyancing process enables leases to be easily amended.

“One possibility could be extending the lease as permitted by the current legislation which has the effect of reducing the ground rent to zero.

“However, this process can be lengthy and expensive and includes the need to pay the landlord a sum for loss of future rent.

“Changes could be made to existing legislation to remove the loss of rent element from the calculation, considerably reducing the cost to extend the lease.

“This would sit nicely alongside the Government’s thinking that ground rents are unfair in the first place.

“Alternatively, we already have in place a simple conveyancing process that allows existing leases to be varied by agreement between a landlord and tenant, thus allowing very simply changes to the lease terms such as removing high ground rents or the mechanism to increase this in the future.

“If a landlord chooses this method, then an incentive which may be appealing is to allow the landlord to retain a small fixed rent and thus still retaining some value in their investment.”

The consultation can be accessed here.

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