There has been much comment in the press recently about practices that have developed in the leasehold housing market and their effect on consumers. Questions have been raised in Parliament, national newspapers have rallied to the cause and the Government has responded to growing pressure by issuing a short consultation on the proposed first steps to achieve fairness.
The consultation will last for eight weeks from 25 July 2017 to 19 September 2017 and relates to England only. Given that we are now in the holiday season, it is important for house builders to act quickly to address the questions being asked and pull together the information to inform the Government as fully as possible.
Two particular urgent issues that the Government wants to tackle are:
- new build leasehold houses, rather than freehold houses, and
- increasing ground rents.
Some proposals will require changes to legislation while one in particular, as a deterrent to leasehold houses, can be introduced by a policy change very quickly. That proposal is to remove as far as possible Help to Buy Equity Loan support on new build houses where they are sold leasehold.
The consultation asks for information on the reasons why houses should be sold leasehold and it is clear that the Government is not convinced by the argument of increased house prices if developers are forced to sell freehold houses. A short list of situations when leasehold houses are required is provided, with the clear message that they should only be allowed in exceptional circumstances.
As for ground rents in new leases, the Government is minded to limit them to a peppercorn but wants to explore what a reasonable ground rent would look like. It recognises the challenges for existing leaseholders of increasing ground rents and welcomes Taylor Wimpey’s initiative in launching its Ground Rent Review Assistance Scheme. Needless to say, it is keen for others in the industry to follow suit.
A welcome element of the Consultation is the proposal to amend the Housing Act 1988 to exempt long leaseholders who are potentially subject to ‘Ground 8’ possession orders. This issue has achieved prominence this year and is an unintended consequence of higher ground rents. Essentially a long lease with an annual ground rent of over £1000 in London and £250 elsewhere is classed as an ‘assured tenancy’. As a result, where the ground rent is payable quarterly or yearly and at least three months’ rent is more than three months in arrears, the landlord has a mandatory ground for possession. A number of house builders have already introduced wording in their leases to address this issue.
The final key topic covered in the document is the proposal to provide freeholders on private estates with equivalent rights as leaseholders to challenge unreasonable service charges for the upkeep of communal areas and facilities through the First-tier Tribunal. The Government considers it only right that freeholders have the right to challenge when they are often paying for the same services as leaseholders.
These proposals are the first step to address the pledge in February’s Housing White Paper to take action to promote transparency and fairness for leaseholders. At the end of the Consultation the Government makes it clear that this is part of a wide-ranging project that will look at how managing agents operate, leasehold terms and enfranchisement and….improving commonhold (that new form of tenure that never took off).
To reply to the Consultation, go to: https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-market
This blog post was written by partner George Parker-Fuller. For further details, please contact:
George Parker-Fuller, partner, RDU