The Housing White Paper has some interesting themes but sets some pretty ambitious targets. 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590463/Fixing_our_broken_housing_market_-_accessible_version.pdf

Are we really going to be Fixing our Broken Housing Market ?

My thoughts on the main themes affecting long leasehold appear below (the details of the exact paragraphs in the consultation appear in my earlier post).

New leasehold houses and ground rents –
Stopping increasing and onerous payments on leasehold houses  

How will this be achieved in practice? Banning the creation of all leasehold houses probably won’t work as this wouldn’t help cover situations with ‘overlap’ or ‘undercut’ with adjoining property. 

Perhaps leasehold ‘houses’ could be deemed to be ‘flats’ (in the legal sense) that just happen to look like houses. That would then allow the service charge legislation to apply. 

There could perhaps then also be a restriction on creating any leasehold house at a ground rent.

Some of the problems of new leasehold houses have been well documented. 

See the articles below….

http://www.thisismoney.co.uk/money/mortgageshome/article-3088134/The-great-divide-Buy-165-000-house-left-road-outright-buy-one-right-don-t.html

https://www.google.co.uk/amp/s/amp.theguardian.com/money/2016/oct/29/new-builds-house-buyers-leasehold-property-trap?client=safari

What are the advantages of leasehold in this sort of situation?

The need to impose maintenance obligations in shared estates remains and leasehold is an attractive solution from the legal point of view as this makes the collection of common cost contributions easier. 

However, this could be achieved by the use of ‘rentcharges’ and/ or deeds of covenant on each individual transfer. 

This is how the maintenance arrangements and management charge are usually dealt with in existing freehold developments with shared estate roads and other facilities.
So, would all of this need primary legislation? – The answer is a resounding ‘yes’ and therefore it would also require a significant amount of parliamentary time.

Ground rents that review at short periods and that have significant increases

The review periods for ground rents are clearly an area where the ‘consumer legislation’ could be used to some effect. 

Options presumably include:-

• Banning the creation of new ground rents in any new residential lease.
• Restricting the frequency of reviews – perhaps to every 20 years – and then also imposing a cap or limit on the rent level that can be set.

This is contentious as it potentially will restrict freedom to contract and might have unintended consequences for shorter term Lettings with a premium.

One solution could be a ban on rents that equate to more than a certain fraction of the open market value of the property with a certain (assumed) lease term say 125 years and no rent. 

Examples of the problems that can be caused by escalating ground rents ….

https://www.google.co.uk/amp/s/amp.theguardian.com/money/2016/nov/05/ground-rent-scandal-engulfing-new-home-buyers-leasehold?client=safari

This would avoid the situation where homeowners end up with an unsaleable asset because of a combination of poor advice and clever drafting.

‘Whether and how to invigorate commonhold’ 

That is an interesting statement in itself. 

It is often said that there are more books written about commonhold than commonhold developments and no doubt this may be true. Not making it compulsory was of course its failing. 

It would be a bold political move, but legislating to make all new developments of flats commonhold could be a solution. 
Anyone remember this BBC news item from 2005?

http://news.bbc.co.uk/1/hi/business/3675612.stm

What about the valuation impact?

If commonhold were made compulsory for new builds then there could be a ‘backlash’ in valuation terms against those living with existing ground rent landlords as these assets would instantly get more valuable. Accordingly, the impact on the Enfranchisment cost for all remaining residential leaseholders would need to be considered as a point of policy. 

What would a ‘two tier’ system or market look like, with some properties commonhold and others not? 

Perhaps that is the biggest reason why commonhold has not taken off to date – namely that people do not like change and no developer wants to ‘go first’ when there is no incentive (or compulsion) to do so.

So, will it really happen?

The pressure of other legislative requirements may well mean that whilst the White Paper suggestions on long leasehold are very well intentioned in my view they may not fully progress. This is likely to be because of other demands on parliamentary time from numerous quarters and not least because of other ‘small’ matters that the government currently have to deal with such as Brexit. 

Mark Chick 

This article being general in nature is not a substitute for legal advice. If you require legal advice please visit www.bishopandsewell.co.uk or email: leasehold@bishopandsewell.co.uk

The governent has just published its Housing white paper.

There current press and parliamentary interest in leasehold has brought leasehold issues into the spotlight and the recent stories about escalating ground rents and also leasehold houses in particular are an area where government is going to look to intervene 

In particular see the paragraphs below:

Leaseholders

4.36 The Government will act to promote fairness and transparency for the growing number of leaseholders. Leasehold has been a traditional part of the housing market in this country but there are areas where urgent reform may be needed, particularly when buying a house on a leasehold basis. New leasehold houses can be marketed at a reduced price compared to freehold. But some purchasers are not aware at the point of sale that the associated costs of buying a new leasehold house can make it more expensive in the long run. Some freeholds and ground rents of leasehold houses are sold on and traded, with leaseholders left in the dark, and facing increasing and onerous payments. This is not in consumers’ best interests.

4.37 In particular, ground rents with short review periods and the potential to increase significantly throughout the lease period may not be offering a fair deal. We are absolutely determined to address this. We will therefore consult on a range of measures to tackle all unfair and unreasonable abuses of leasehold.

4.38 We will consider further reforms through the consultation to improve consumer choice and fairness in leasehold, and whether and how to reinvigorate Commonhold. We will also work with the Law Commission to identify opportunities to incorporate additional leasehold reforms as part of their 13th Programme of Law Reform, and will take account of the work of the All-Party Parliamentary Group on Leasehold and Commonhold.

There is quite a lot of food for thought here and is good to see that government are prepared to intevene to stamp out abuses. 

In addition to regulation and legislation as I and several of my ALEP colleagues have been saying for a number of years, part of the solution is also better education for professionals and leaseholders so that consumers are better informed.

It will be interesting to see how the debate develops and how much parliamentary time will be available to devote to these issues given other pressures such as the Brexit negotiations.

Mark Chick

Mark Chick is a solicitor dealing with leasehold issues. This note (being very general in its nature) is not a complete statement of the law in this area. It is therefore not a substitute for legal advice from a suitably qualified professional and should not be relied upon as such. No liability can therefore be accepted for any actions based on reliance upon it.

If you require legal advice please visit www.bishopandsewell.co.uk