Leasehold reform is coming. But what are the key areas of consideration and is the approach the right one?

 In the latest of the series of Guest Posts for the Bradys’ Leasehold Resource Centre, Andrew Bulmer, CEO of IRPM (Institute of Residential Property Managers) outlines and considers some of the leasehold reform proposals currently being discussed

On 21st December 2017 the government issued its response following the consultation paper of July last year. Here is a summary of the main proposals but none can start without changes in law passed by Parliament.

  • Leasehold houses on new schemes ‐ these would be banned except in very limited cases such as shared ownership sales in social housing.
  • Leasehold houses and Help to Buy ‐ the Secretary of State for Communities and Local Government has written to all developers to strongly discourage the use of Help to Buy equity loans for the purchase of leasehold houses in advance of new legislation.
  • Ground rents for new leasehold schemes of flats or houses ‐ to become zero.
  • Lessees with unfair ground rents on existing schemes ‐ the government will work with the redress schemes and Trading Standards to provide leaseholders with comprehensive information on the various routes to redress available to them, including where their conveyancer has acted negligently. IRPM will also work with the Law Commission to consider whether unfair terms apply when a lease is sold on to a new leaseholder.
  • Rights for lessees to buy their freeholds or extend their leases – the aim is to make it easier for leaseholders to be able to exercise their right to buy their freehold, or extend their lease, and for this right to be available as soon as possible. The Government will prioritise solutions for lessees of houses. It will work with the Law Commission on this and consult on introducing a prescribed formula that provides fair compensation to the landlord, whilst also helping leaseholders avoid incurring additional court costs. It will also consider introducing a Right of First Refusal for house lessees and aim to bring forward solutions by summer recess 2018.
  • High Ground Rents in London and Ground 8 Possession Orders‐ the Government will take action (as yet not specified) to address this loophole and ensure that leaseholders are not subject to unfair possession orders.
  • Freeholders Paying Service/Estate/Rent charges – the Government will legislate to ensure that freeholders who pay charges for the maintenance of communal areas and facilities on a private or mixed‐use estate can access equivalent rights as leaseholders to challenge the reasonableness of service charges. One assumes this means the FTT.
  • Other Matters – the government says it will seek to reinvigorate commonhold ‐ not specified how ‐ and look to introduce a minimum lease term for new long leases on flats to protect consumers from added costs where their leases fall under 80 years.

When and what format? Andrew comments:

  • All the changes above plus ongoing consultations about the regulation of agents, new ombudsman schemes and reform of house buying process, seem to mean a long delay in getting anything through Parliament. Never mind Brexit and the main priority of DCLG at present to get more homes built.
  • Limiting ground rents to zero on new schemes does not take away the incentive for buyers of freeholds to buy based on the value of insurance commissions and fees for assignments etc which can be just as valuable. Will the next abuse claims be about freeholders taking large commissions and fees?
  • One long‐term solution is to follow the Irish example and legislate that for all new leasehold schemes the freehold with no ground rents must be passed to an RMCo with sensible statutory conditions as to how the RMCo must run its affairs.
  • Commonhold as currently exists in law is a failure. The legislative scheme from 2002 is a poor short‐ sighted compromise using existing British company law when it needed a complete rewrite of property law to implement properly. In my view you cannot invigorate a dead duck.

Clearly there is lots to cover and there may be an element of prioritisation. Its is important that we do not lose sight of the sector expertise and ensure organisations who have always clearly pushed standards such as IRPM are clearly heard. We do not want to miss this chance to get working reforms, that support effective, fair and professional management of our vertical villages for the foreseeable future

Andrew Bulmer FIRPM FRICS is current CEO of IRPM and former UK Residential Director at RICS

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