Why does leasehold need reform?
Leasehold is a form of renting, even though estate agents and sales brochures always refer to buying flats. In reality what’s being bought is a licence to stay in a property for a fixed period of time, e.g. 150 years. There are some key differences to be aware of.
• As time passes, the value of the property decreases, and once it drops below 80, freeholders are allowed to charge a premium for the privilege of ‘topping up’ the number of years.
• An annual ground rent is payable, not in respect of any service, but as part of the lease term. With older leases this is a token amount but in recent years, escalating ground rents have appeared. This means they will increase by inflation, or even double periodically.
Worldwide, leasehold is rare – most countries have created a form of shared ownership for flats, including Scotland and Ireland, yet England and Wales still cling to this form of tenure.
On 21 July 2020 the Law Commission published it’s long awaited report into leasehold and presented a package of proposed reforms. They propose the adoption of Commonhold in place of leasehold for newly-built flats, as well as a route out of leasehold so that existing leaseholders will be able to convert to commonhold. They also recommend simpler and cheaper processes for leaseholders to buy their freehold, extend their lease, and take over the management of their building.
All welcome and long overdue. The challenge now is to persuade a government overwhelmed by crises to find the time and commitment to make it law.
A brief history of leasehold reform
There have been major reforms. The 1993 Act gave leaseholders the right to extend their leases. And the 2002 Act brought in the right for 50% of leaseholders in a building to buy their freeholds. But if anything they seemed to encourage freeholders to make the most of the remaining loopholes. In the 90s leasehold became increasing popular with investors and this led to escalating ground rents as well as ‘event fees’ for permissions or admin duties.
The leasehold tribunal system was originally designed to be a mediation system but when freeholders turn up with a full team of lawyers, the leaseholder needs equivalent legal firepower to stand a chance. Many cases are simply too expensive for the typical leaseholder. And even if the tribunal finds against a freeholder or managing agent, it doesn’t have substantial powers to penalise them, ensure compensation, or even prevent repeat offending.
Leasehold houses scandal
As is often the case, it took a scandal to really get things moving. People who had purchased houses in the Ellesmere Port area in 2016-17 found they were leasehold tenure, and had doubling ground rents. The National Leasehold Campaign was formed and within months had 11,000 members in the Facebook Group. With Leasehold Knowledge Partnership they managed to get extensive media coverage and eventually recognition from government .
The All Party Parliamentary Group on Leasehold Reform has grown to over 120 members and no doubt helped persuade then Housing Minister Sajid Javid to set up two consultations in 2017. In December Javid announced his department (DCLG) would work with the Law Commission to make buying a freehold or extending a lease much easier, faster and cheaper. The Law Commission is due to report back on this in the summer of 2018.
Justin Madders, Labour MP for Ellesmere Port tabled a similar motion in November 2017, and postponed the second reading to give the Law Commission time to report.
In April 2018 Javid announced more plans to crack down on leasehold abuse, including a new regulator for managing agents, with powers to prosecute, a new code of practice, and a new system to help leaseholders challenge unfair service charges. But soon after this he was moved to the Home Office and replaced by James Brokenshire.
Join Waltham Forest Leaseholders Facebook group
If you own a leasehold house join the National Leasehold Campaign on Facebook
For a UK-wide perspective subscribe to Leasehold Knowledge Partnership