In December 2017, the Government announced it would tackle unfair practices in the residential leasehold market by introducing legislation to prohibit new residential long leases from being granted on houses, other than in exceptional circumstances, and restrict ground rents in newly established leases of houses and flats to a nominal amount. A consultation in late 2018 “Implementing reforms to the leasehold system in England” set out how the Government intended to make changes and on how the reforms should be implemented. The consultation received over 1,200 replies and on 27 June 2019 the Government published its response, which can be found here.
The headlines are:
Use of New leases for houses
- Reaffirming the Government’s commitment to legislate to ensure all houses going forward will be sold on a freehold basis, with specific exemptions for exceptional circumstances.
- It will not be permissible to apply to register a non-compliant residential long lease on a house with HM Land Registry. If a lease is found to be contrary to the ban, the consumer will be entitled to zero cost enfranchisement as a means of redress.
- The ban will apply to residential long leases (over 21 years) for new build houses or existing freehold houses. “Houses” will be defined for the purpose of the ban as single dwellings, and self-contained buildings or parts of buildings (structurally detached or vertically divided).
- There will be a Right of First Refusal which will protect leaseholders in exempted properties as well as existing leasehold house owners by notifying them of a landlord’s intention to sell their freehold and give them first refusal to buy it.
- There will be exemptions for shared ownership properties and community-led development as well as inalienable National Trust land and excepted sites on Crown land. Exemptions will also be provided for retirement properties as well as financial lease products such as home reversion plans (equity release) and home purchase plans (lifetime leases and Islamic/Sharia compliant finance) where there is a non-assignable lease.
- There will be no transitional period following legislation. Owners of leasehold land at the date of the December 2017 announcement will continue to be able to develop leasehold houses unaffected by the ban – but this retrospective application will not extend to those who did not own the land as of that date (including those with options on the land).
Reduction of future ground rents to a peppercorn (zero financial value)
- The Government will legislate to restrict ground rents to a peppercorn (zero financial value) in future residential leases. Future ground rents must have zero financial value (£0) rather than be capped at £10 per annum (as proposed in the consultation).
- Exemptions will be provided for retirement properties and community-led developments and for financial lease products such as home reversion plans (equity release) and home purchase plans (lifetime leases and Islamic/Sharia compliant finance) where there is a non-assignable lease. An exemption will not be provided for shared ownership properties.
- Mixed-use leases will be excluded from the legislation and ground rent can continue to be charged where a single lease covers both commercial and residential property. For replacement leases, the reduction of future ground rents will only apply to the newly extended part of the lease.
- There will be no transitional period after the legislation has come into force. Government believes that by the time the legislation comes into force its proposals will have been in the public domain long enough for the sector to prepare for the changes.
- Other than any exempted properties, new leases with ground rents above a peppercorn (zero financial value) will be unenforceable in law. Leaseholders will be given the right to apply to the First-tier Tribunal to seek a refund for any incorrectly paid ground rent and any associated costs, with no time limitations. The Courts will be given the power to impose a civil fine on freeholders who have set ground rents contrary to the legislation.
Measures to ensure that charges that freeholders pay towards the maintenance of communal areas are fairer and more transparent
- Freeholders on private and mixed tenure estates will be given equivalent rights to leaseholders to challenge the reasonableness of estate rent charges, as well as a right to apply to the First-tier Tribunal to appoint a new manager to manage the provision of services covered by estate rent charges.
- Government will consider introducing a Right to Manage for residential freeholders as part of creating greater parity between leaseholders and residential freeholders.
Implementing measures to improve how leasehold properties are sold
- The Government intends to make it a statutory requirement that there be a turnaround time of no more than 15 working days for the provision of leasehold information to a prospective buyer.
- There will be a maximum fee of £200+VAT for producing leasehold information to prospective buyers in the form of a leasehold property enquiry (LPE1) pack. Despite this cap, Government expects freeholders and managing agents to charge a fee which reflects the reasonable cost of providing this information below the cap.
The Government has also set up a working group of housing experts to look at raising standards across the entire property agent sector. This includes advising on the regulation and introduction of mandatory qualifications for all property agents so tenants, homebuyers and sellers can be confident they are getting a professional service and being charged fairly. The working group will also consider under what circumstances leaseholder and freeholder fees and charges are justified, and if they should be capped or banned. This includes the use of restrictive covenants, leasehold restrictions, administration charges and other charges placed on properties.