The government have made a public declaration that it would be legally possible to introduce legislation to remove onerous and unfair ground rents in existing leases.
The Housing, Communities and Local Government Committee’s ‘Leasehold Report’ indicates that the legislation could be compliant with human rights law and although it would be difficult to adapt current leaseholds that are already legally binding, it would not be impossible.
Whilst there may be a need to compensate freeholders for their loss, it may not to be for the full market value of the current ground rents.
The report is firm in the belief that any ground rent that ‘becomes disproportionate to the value of a home, such that it materially affects a leaseholder’s ability to sell their property or obtain a mortgage’ needs altering with immediate effect.
They propose that, as a ground rent has no bearing on the level of maintenance or quality of service that is provided through the service charge, it should be capped at the maximum value of 0.1% of the home’s value up to £250 per year insisting that ‘There is no excuse for such onerous terms, which are symptomatic of the imbalance of power in the leasehold market and are causing considerable distress to affected leaseholders.’
As excessive ground rents have taken hold and even started doubling in value, many leaseholders have felt trapped in a property that they are unable to sell. The committee was clear that in many cases their position is tantamount to mis-selling and has called for the Competition and Markets Authority (CMA) to investigate the mis-selling of leasehold property and make recommendations for compensation frameworks.
In all future leasehold properties, the government are being tasked with ensuring a standardised key features document is implemented at the start of a sales process by both developers and estate agents. This document will inform the potential buyers of: the specific differences between a leasehold and freehold title, the length of the lease, the annual ground rents and potential changes in this fee as well as the various add-on fees like permission fees that may stifle the freedom around ownership. It will also specify the terms and fixed price the freeholder would sell the freehold title within six months of purchasing the property.
It has been suggested that it is now time to look to the future by embedding commonhold property law as it is in Europe. Government have been charged with ensuring that commonhold becomes the primary model of ownership of flats in England and Wales.
However, whilst this transition takes place, they should tackle onerous ground rents in flats by reverting to the plan to set them at zero financial value or £10 per year.
The report highlights that the problem with leasehold charges goes far beyond ground rents that are applied to leasehold titles. Freeholders have been accused of unjustly charging leasehold owners to make changes to their property through permission fees. Here, the committee were unanimous that freehold properties should only apply these fees where absolutely fair and necessary.
However, the adage that ‘we cannot think of any circumstances in which they would be so,’ indicates that they may also be on their way out. The fact that they have also asked the CMA to assess whether they are unfair and unenforceable could also indicate that leaseholders may be on the verge of taking the power back from freeholders.
Finally, the committee have suggested that government make the enfranchisement process fairer and cheaper. To help people trapped in leasehold, a Help to Buy style loan system could be on the horizon as the committee aims to eradicate leaseholds from England and Wales.
Mark Hayward, chief executive of NAEA Propertymark, commented: “We welcome recommendations from the Housing, Communities and Local Government Committee to crackdown on unfair leasehold practices, as thousands of homeowners are facing escalating ground rents and left unable to sell their homes.
“Our [own] report, launched last September, specifically looked at the problems surrounding leasehold house purchases, revealing that 62 per cent felt they were mis-sold their leasehold house and an overwhelming 94 per cent regretted buying a leasehold.
“We wholly support the recommendation for the Competition and Markets Authority to investigate mis-selling in the sector, as for too long, housebuilders and developers have not been transparent enough about what it actually means to buy a leasehold property.
“Additionally, the suggested requirement of a standardised key features document at the start of the sales process will help provide consumers with the clarity and transparency they need.
“When the Committee announced the consultation to improve the sector in October last year, we were clear this was only positive news for those looking to purchase a leasehold property in the future. We’re therefore pleased the Committee have noted that it is legally possible to introduce legislation to remove onerous ground rents in existing leases.”
Louie Burns, Leasehold reform campaigner and Managing Director of enfranchisement specialists the Leasehold Group of companies, said: “This report is welcome news indeed, as it proposes numerous recommendations that will improve the circumstances of leaseholders affected by the profound failures in the leasehold market.
“For years we have been calling for reforms that will limit ground rents, tackle unfair service charges and permission fees, outlaw the sale of leasehold houses and the mis-selling of leasehold properties, and address the systemic imbalances of power that have favoured freeholders’ interests for far too long.
“Freeholders have been arguing that their human rights will be affected if their contractual income streams are reduced. It is particularly encouraging that the select committee has supported leaseholders’ human rights to pay a lower premium to enfranchise and called on Government to remove onerous terms from existing leases.
“The Government has already acknowledged that the leasehold system is not working in consumers’ best interests. We urge the Government to look at the committee’s very sensible recommendations and enact legislation that will end the exploitation of leaseholders and create a system that works for consumers.”
Christina Blacklaws, Law Society President, said: “Under consumer protection regulations* key sales information is supposed to be set out at the start of the purchasing process and we are glad the housing, communities and local government committee (HCLG), report acknowledges this,”*
“The Law Society has long called for developers and estate agents to share lease information with purchaser at the beginning of the process as required under the consumer protection regulations.
“Consumers should also seek out independent legal advice from a solicitor as they are highly regulated and carry substantial indemnity insurance for the rare occasions things go wrong.
“We have been clear there are significant issues with leasehold law as it now stands. We have consistently called out some of the questionable practices that have arisen around the management of leaseholds and made the case for subsequent reform to ensure home owners get a fair deal.
“One solution could be to improve commonhold legislation as another option. The Law Commission is currently consulting on a set of proposed changes to make the current system more attractive and workable – a move we have supported and will be contributing towards making a success.”
Will these changes end the plight of people trapped in leasehold nightmares? Is commonhold property the appropriate replacement for leasehold buildings?
