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Government Issues Recommendation for Leasehold Reform

"Implementation will be key” says Irwin Mitchell - who warn that there is “still plenty more to be done"

20.03.2019

Karen Roberts, Press Officer | 0207 400 8714

The Housing Communities and Local Government Committee (HCLGC) has this week released its recommendations to the Government on leasehold reform. Their inquiry was part of the Government’s plans to address the issues created by the leasehold system. To this end the Law Commission is also focusing on leasehold reform in its latest programme of law reform, including looking at lease extensions and enfranchisement, the right to manage and how to reinvigorate commonhold, as an alternative to leasehold.

Leigh Shapiro, residential property partner at law firm Irwin Mitchell makes the following comment on HCLGC’s recommendations:

A move towards commonhold as the primary model of flat ownership which would be a change from the traditional leasehold system.  However according to Shapiro, “It is still for the Government to determine what steps will be taken to implement this recommendation, and, more importantly, what will encourage housebuilders and lenders to accept this change.

“Legislation brought the commonhold system into law in 2002 but with less than 20 schemes having taken this up as an option to date, there will need to be significant practical changes brought in to the law and incentives for the market to take this up as a replacement to leasehold. We will have to wait to see the Law Commission’s proposals following their consultation on this issue.”

To use standardised key feature document, which in Shapiro’s opinion will “Greatly improve the conveyancing process and make it easier for conveyancers and purchasers to see the important information relating to the property.” However, the implementation of this recommendation is again key. As she points out “What will be the consequences for presenting incorrect information? Who will prepare the document? Could a failure to provide this information lead to a delay in marketing the property? These are key questions which the Government still needs to address.”

Existing ground rents should be limited. Undoubtedly a response to the recent media spotlight on onerous ground rent provisions and doubling ground rents. HCLGC proposes limiting the ground rent in current leases to 0.1% of the capital value of the property up to a maximum of £250 per year by introducing retrospective legislation. The Committee has noted that they would expect compensation to be payable to the landlords for this and that a study should be undertaken to determine the scale. Shapiro comments, ”The outcome of this will be interesting as it is proposed that the leaseholders should not face any charge for changing their lease terms. The alternative suggestion is for the Government to establish a compensation scheme for the mis-sale of onerous ground rents funded by developers and the purchasers’ solicitors. What is not clear, is how this will work. As ever, the devil will be in the detail.”

For new leases, the Committee recommends setting a peppercorn (zero value) ground rent on the grounds that they are unconvinced that professional freeholders provide a significantly higher level of service than that which the leaseholders could provide themselves. “Again,” says Shapiro, “Time will certainly tell if this is really the case.”

Recommendations concerning leasehold enfranchisement which included making the process cheaper and introducing low-interest loans to enable leaseholders to purchase their freehold or extend their leases, something which is already being looked into by the Law Commission.

The Committee has also recommended further consultations including a change to the major works procedure and for the Law Commission to conduct a comprehensive review of the entire leasehold legislation.

Expert Opinion
“This shows there is still plenty more to be done in leasehold reform. The changes recommended need to be done in a fair and reasonable way to keep the leasehold market moving. It is essential that the Government ensures that the changes made really will be beneficial to leaseholders and are not just seen as just a way making things cheaper at the expense of the housebuilding sector and existing landlords.”
Leigh Shapiro, Partner