2nd Aug 2017

Unfair leasehold practices - what can we expect of the proposed reforms?

The Government recently announced a crackdown on unfair leasehold practices in England with the stated aim of delivering a fairer and more transparent system for homeowners.  An eight week consultation period began on 25th July 2017.

Reform in this area is long overdue, as sharp developers and investors have been allowed for far too long to take advantage of unsuspecting and uninformed purchasers. There have been some shocking reported cases of homeowners facing ground rent increases doubling every 10 years, resulting potentially in tens of thousands of pounds of liability.  Some house builders have made it part of their business model to sell their homes only on a leasehold basis, purely as a means of creating an income stream which it later sells to investors.

The media reacted with typical headlines foretelling the end of leasehold house sales. Whilst it is certainly the Government’s aim to reduce the numbers of such transactions, it is important to remember that there are still very good reasons why a leasehold sale is the right way to go with certain types of property – notably for flats and homes which share common areas and facilities – but the Government should seek to outlaw those cases where leaseholds are created purely to make money.

The key for any new legislation will be to:

  • limit leasehold sales only to appropriate cases and ban completely the sales of properties on leases which could easily be sold as freeholds;
  • impose restrictions on the ground rents chargeable – they should only be nominal;
  • impose restrictions on the levels of service charge which landlords can impose and make landlords accountable, open, honest and transparent in respect of the services which they provide;
  • control the costs which landlords can impose for giving consent in a number of cases (e.g. minor alterations to the property) or for registering a transfer of the property to a new buyer.

Any new legislation must also be retrospective and lift the burden from the thousands of homeowners who are the subject of unfair existing leases.

I would also add one further item to the wish list. There are many cases where homes have been sold on a freehold basis, but the buyer is required to covenant directly with the management company which owns the freehold of, say, the communal car park and/or landscape areas to pay a service charge for the costs which the company incurs in looking after these areas. Such management companies must be subject to the same rules and restrictions and dealt with in the same manner as landlords in leasehold cases. Unregulated until now, many such companies ignore their responsibilities and merely use their powers as a means of generating income.

The Government has made a promising start on this issue; let us hope that it delivers on all its promises.  

Richard Wheeldon is a Senior Consultant within Berwins' Commercial Property team. He has nearly 30 years of legal experience and is consistently ranked in leading legal directories. 

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