The Housing Committee's view on Leasehold Reform

20th March 2019

The Housing, Communities and Local Government Committee yesterday published the findings from its inquiry into whether the reforms proposed in the Law Commission's consultation paper went far enough.

Unsurprisingly they found that there is usually no justification to sell houses leasehold as opposed to freehold. 

They think that leasehold as a form of property ownership should disappear in favour of commonhold.  It is difficult to imagine the majority of leaseholders, who are happy with their lot - that they have someone else to deal with the management and repair of the building / estate - being in favour of such a change (particularly if it is forced on them), and odd that the report nowhere mentions that leaseholders can exercise their 'right to manage' without incurring the expense of buying the freehold (if that is their preference).

They think that existing ground rents should be resricted so that they do not exceed £250 pa over the course of the lease - this would require compensation being offered to freeholders where ground rents exceed this limit.  Who is going to pay for this?  They actually say that ground rents should 'not exceed 0.1% of the value of a property or £250' but they have not worked out that a cap of 0.1% of the value of a property, when there is also a cap of £250, would only apply where the property's value is less than £25,000.  It is disappointing that their findings have not been presented in the most coherent way (which minimises the work readers are required to do, particularly the general public).  A few minutes' internet research (if required) would show that it is not possible to buy a home for anything like £25,000.

They think that new leases should contain ground rents of no more than £10 pa.

They think that freeholders should be preventing from charging excessive and explotative 'permission fees' which sounds reasonable providing the cost of the mechanism for ascertaining what is reasonable in each case, eg a tribunal, does not make the 'reasonableness' of fees too expensive to challenge.

They recommend a threshold of £15,000 per leaseholder in London (£10,000 elsewhere) for major works over which the consent of the majority of the leaseholders would be required before the works can proceed.  Such a proposal would need to abrogate the the freeholder from its obligation to carry out repairs in the case of a lack of a requisite leaseholder majority.

They think it would be appropriate for there to be a low interest rate facility for leaseholders with insufficient funds to borrow money from the government at a preferential rate to extend their leases or to enfranchise (buy the freehold). 

In respect of lease extensions they think that freeholders should be obliged to inform leaseholders that the statutory route is open to them where the leaseholder asks for a lease extension, and the freeholder's preference is to grant a new lease with a ground rent.

There is no comment in the report about reducing the cost of lease extensions / enfranchisement generally, and no acknowledgement that most of the time the vast majority of the cost has nothing to do with the ground rent income, but to do with marriage value and the diminution in the value of the part of the freeholder's interest at lease expiry.

Finally they think that there should be a comprehensive review of leasehold legislation including the Commonhold and Leasehold Reform Act 2002.

The report seems to recognise that there is a general problem concerning awareness among leaseholders of their rights.  Why have they not recommended that prior to purchasing a leasehold property a buyer must read, and sign to confirm they have read, a one or two page information sheet which summarises their rights eg 'you have the right to a statutory lease extension of 90 in addition to the existing unexpired term, which will also bring the ground rent down to zero'?  The solicitor could be obliged to upload a copy of the signed paperwork to the Land Registry document storage system.

It would appear that any meaningful change is a long way off, but that the tide may be changing.

The report of the Committee available at: https://publications.parliament.uk/pa/cm201719/cmselect/cmcomloc/1468/report-files/146804.htm

The Law Commission consultation paper is available at:  https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2018/07/Leasehold-home-ownershi-buying-your-freehold-or-extending-your-lease.pdf  The period for responses to the consultation paper closed in January 2019.