On 15th October 2018, the Housing Minister, James Brokenshire announced a Government Consultation on two changes to the current law on leasehold.
The MHCLG announcement follows on from the Government Consultation ‘Tackling Unfair Practices in the Leasehold Market” and is a ‘technical consultation’.
The consultation will be open for 6 weeks and relates to the two main proposals that will give effect to some of the agreed outcomes from the Government Consultation.
The consultation will run for the next 6 weeks and covers two main areas:
a. the proposal that ground rents will be limited to £10 for all new leases; and
b. a proposal that no new leasehold houses could be created save in limited situations.
Let us examine these in a bit more detail:
Reducing ground rents to £10 on new leases
The proposal is that the ground rent in any new lease of a house or a flat could not exceed £10. This would effectively ban the creation of new higher value ground rents. However, it will not do anything for those currently affected by these issues.
Banning or restricting the creation of new leasehold houses
At the heart of the ‘ground rent scandal’ we have the device of a lease of a house, usually on a private estate. It is a good question as to whether any such houses need to be leasehold. Clearly for those looking to profit unfairly from an escalating ground rent and also to sell consents and conditions this type of leasehold makes sense, but for the homeowner, there is no good reason why such houses should be leasehold.
There are a number of technical reasons why properties with shared structures might benefit from being on a lease – these are firstly if the unit is ‘flat’ rather than a house and pays a service charge this wil be subject to the service charge legislation. Secondly, where a property has shared facilities or a significant degree of physical overlap with other property, having a lease means that the repairing obligations can be harmomised with those on the rest of the development particularly if these are flats.
In addition, as the law stands at the moment, if you have a freehold house on a private estate and need to make payments towards shared facilities such as estate roads or lighting etc. the only way that this can be imposed is by an ‘estate management charge’ – which is usually reserved as a ‘rent charge’ against the freehold title. There is no issue with this in itself but one current disadvantage is that these charges are not subject to the statutory control of the service charge legislation. This is also something that should be addressed and is another point that was picked up by the Government Consultation.
These are the only really ‘good’ reasons why it should be possible to allow leasehold houses. There are six weeks to respond and I am sure that there will be lots of views from across the property world. A link to the full detail of the technical consultation appears here:
https://www.gov.uk/government/consultations/implementing-reforms-to-the-leasehold-system
Mark Chick
19.10.2018
