The Government’s proposals for residential leasehold reform all started with a couple of sentences in the Housing White Paper entitled ‘Fixing our broken housing market’ issued in February 2017. The Government issued a commitment to consult on a ‘range of measures to tackle unfair and unreasonable abuses of leasehold practices’.

The consultation paper ‘Tackling unfair practices in the leasehold market’ which followed in July 2017 attracted over 6,000 responses. In its response in December 2017, the Government stated that ‘real action is needed to end the abuse’.

A further consultation paper was issued in October 2018 entitled ‘Implementing reforms to the leasehold system in England’ and which was closely followed by the Law Commission’s consultation on the reform of commonhold: ‘Reinvigorating commonhold: the alternative to leasehold ownership’

The Government has acted quickly, and there is widespread support amongst consumers and consumer groups. A further report ‘Leasehold Reform’ was published in March 2019.

In response to growing consumer pressure and well organised social media campaigns, 40 leading property developers issued a pledge which contained a commitment to stop leaseholders being trapped in unfair and costly deals.

The Government has issued a further report on how it will implement reforms to the leasehold system. We discuss those proposals and underline how housing associations need to change their practices immediately. We also consider how other reforms will affect housing associations in the future.

 

Ban on unjustified use of new leases for houses

Following legislation, all houses will be sold on a freehold basis. A consumer will not be able to register a non-compliant long lease at the Land Registry. If a lease has been granted contrary to the ban, the consumer will be entitled to zero cost enfranchisement as a remedy.

The ban will apply to residential long leases over 21 years.

There will be exemptions for:

• Shared ownership properties
• Community-led development and
• National Trust and excepted sites on Crown Land.

 

The exemptions will also apply to retirement properties certain financial lease products such as reversion plans/equity release and Islamic/Sharia-compliant finance.

Therefore housing associations should adopt the practice of only selling freehold houses now (save in relation to shared ownership) wherever possible.

 

Reduction of future ground rents to a peppercorn

The Government will legislate to restrict ground rents to a peppercorn (zero financial value) in future leases.

Exemptions will be provided for:

• Retirement properties
• Community-led developments
• Islamic/sharia-compliant finance.

 

Shared ownership properties will not be exempt. Thus the ground rent under a shared ownership lease will have to have zero financial value. This restriction does not apply to the specified rent reserved by shared ownership leases.

After the legislation has been brought into force, leases with ground rents above a peppercorn (zero financial value) will be unenforceable in law. Consumers will be entitled to apply to the First Tier Tribunal to seek a refund on any incorrectly paid ground rent plus associated costs.

Housing associations should now be considering when granting leases whether any ground rent should be higher than zero. Otherwise you may have leases in the same scheme with different rents depending on whether the leases were completed before or after the relevant legislation. This will cause unease amongst the customers. Similarly, when housing associations are entering into long residential leases (for example under s106 schemes) you should insist the ground rent has zero financial value.

 

Freeholder residential maintenance charges

For some time, residential long leaseholders have had the right to challenge the reasonableness of service charges under the Landlord and Tenant Act 1985.

The Government intends to give freeholders on private and mixed tenure estates equivalent rights. They will also be given the right to apply to the First Tier Tribunal to appoint a new manager to manage the provision of services under such schemes.

Furthermore, the Government is considering a report submitted by the Law Commission which recommends introducing a Right to Manage for residential freeholders.

 

Provision of leasehold information packs

When a consumer wants to sell their leasehold home, as part of the conveyancing process, they will need to obtain from their landlord a leasehold information pack which contains full details about:

• Historic service charges
• Anticipated service charges
• Buildings insurance information
• Details of major planned works
• Details of any disputes.

 

The Government has listened to responses it has received to its Call for Evidence and believes the supply of this information is taking too long and is too expensive.

As a result, the Government recommends two changes:

• Firstly, the Government will legislate setting a turnaround time of 15 working days for the provision of a leasehold information pack to a prospective buyer.
• Secondly, the Government will set a maximum fee of £200 plus VAT for producing the leasehold information pack. Housing associations should note this is a cap – the Government still expects housing associations to charge a fee which reflects the reasonable cost of providing this pack – which could be less than the cap!

 

Therefore, housing associations need to make preparations in advance of the legislation coming into force. It is likely consumers who suffer delays or lost sales as a consequence of the delay in the provision of leasehold information packs will be able to make a claim.

In addition to these actual reforms, the Government is working with the housing sector to ensure standards are raised. It is likely changes will be made to working practices over the next few months. The Government hopes improvements will be made voluntarily. However, if improvements do not happen, the Government will not hesitate to legislate and force changes to be made.