Government blasted over ‘scandalous’ leasehold reform proposals

A leasehold reform campaigner says government proposals risk creating a two-tier market and do nothing to assist leaseholders already hit by the national ground rent scandal. 

Last week the government confirmed plans to abolish the selling of new houses as leasehold properties and reduce ground rents for new leases to zero, in a move it says will end the “unscrupulous practice of unnecessary leaseholds”. 

Louie Burns, managing director of enfranchisement specialists The Leasehold Group of Companies, says: “Naturally, we welcome the ban on ground rents for new leasehold houses…ending this exploitative model of home ownership is certainly a step in the right direction.  

“However, there are thousands of people who already own houses on a leasehold basis and these proposals do not remove their obligation to pay ground rents. 

“These proposals do nothing to help existing leaseholders and will create a two-tier market, where the values of leasehold houses will fall further as the properties become increasingly unattractive to buyers. 

“Something must now be done to help those already trapped by the leasehold house scandal, not to mention the millions of leasehold flat owners who are still affected by onerous ground rents, unfair service charges and exploitative informal leases that offer no legal protection. The government now needs to act quickly to help the many people already caught in this trap.”

And Burns is fiercely critical that there are exemptions to the new rules, including the Crown Estate, the National Trust and the retirement sector.

“To enable freeholders to continue to profit by exploiting retired people through ground rents and event fees is absolutely scandalous” he claims. 

Ministers will also introduce a new time limit of 15 working days for freeholders to provide leaseholders with the information they need to sell their home and set a maximum fee of £200 to make the home buying process quicker, easier and cheaper.  

The Right of First Refusal, whereby the freeholder must first offer the leaseholder the opportunity to buy their freehold before they can sell it on to a third party, will be extended to leasehold houses for the first time. 

The government has also said it will address legal loopholes within the existing Right of First Refusal for leasehold flat owners. 

Burns says: “We see numerous instances where freeholders drag their feet and charge exorbitant fees to provide information, so setting a new statutory time limit and capping the level of fees that freeholders can charge is very welcome indeed.  

“We also welcome the introduction of the Right of First Refusal to leasehold houses, but it will be vital to ensure that the purchase price for the freehold is reasonable; house owners are often quoted huge sums to purchase their freehold, so the Government must specify a fair mechanism to value the freehold.” 

Meanwhile trade body the Association of Leasehold Enfranchisement Practitioners has given a somewhat different view, overwhelmingly welcoming the government’s proposals. 

"Leasehold enfranchisement is highly complex with intricate legislation enforcing practices. Therefore, ALEP always welcomes new, fairer regulations that promote transparency and clarity, making the system just for leaseholders and freeholders alike” explains ALEP director Mark Chick.

“The association was set up to act as a kitemark for professionals in the industry, and indeed all ALEP members are rigorously audited before being accepted. As further changes to the leasehold sector move forward, we encourage anyone requiring assistance with leasehold enfranchisement to seek advice from vetted and trusted professionals” he adds.

The government proposals include:

- restricting ground rents on newly established properties to a peppercorn (zero financial value), as opposed to a financial cap of £10 per year. This will ensure leaseholders only pay for services they receive, as ground rent on newly established leases will be £0;

- when selling a leasehold property, the government has set a turnaround time of no more than 15 days for managing agents and freeholders to supply leasehold information about the property to prospective buyers;

- to promote clarity, the government will provide a legal definition of a ‘house’ as part of a forthcoming Bill. In the meantime, it agrees the definition of a house should not include properties that are above or below (horizontally divided) another property or associated structure (eg underground car park);

- in relation to appropriate redress for homeowners, should a long lease be granted at a ground rent that is in excess of the cap (after the legislation is in force), the government will give leaseholders the right to apply to the First-tier Tribunal to seek a refund for any incorrectly paid ground rent and any associated costs, without any time restrictions;

- for any freeholders bypassing the new legislation, the government will allow courts the power to impose a civil fine of up to £5,000 per property on freeholders who charge ground rent unscrupulously;

- regarding implementing measures to ensure charges that freeholders pay towards the upkeep of communal areas are fairer and more transparent, the government will legislate to give freeholders equivalent rights to leaseholders to challenge the reasonableness of estate rent charges.